Prior to investing in any company (listed/unlisted), understanding the company is of prime importance
Newgen software was listed in 2018 and since listing has given a decent return for a period of ~4years. The company is focused on providing services linked to
- Data management & access(helpful especially in the Post-Covid-19 world)
- One-Stop Client Engagement for Users
- Conversion of offline data into Digital format using low-to-no code approach
Despite the area of work, the company faces competition from peers like Tanla Platform which is working with Bluechip companies like HDFC Bank, Kotak Mahindra, etc. along with the Government Departments.
The Newgen Software EPS has increased to Rs. 8.25 in March 2022 from Rs. 7.61 in March 2021. This is much lower than Tanla Platforms EPS has increased to Rs. 10.36 in March 2022 from Rs. 7.54 in March 2021. This is an important comparison as both the companies have a similar market capitalization.
The situation of margins is going to get tougher in the year ahead as
- IT Companies need to pay higher money for retaining talent
- IT Projects are getting highly competitive in dollar terms and the winner takes home less in the ambient when contracts are up for renewal
- Transition in the hybrid working space is set to bring fixed costs to the companies
Owing to this, the following approach can be followed
- Average the buying cost linked to stock purchase
- Increase the horizon to 3–4 years
- Bookout when there is a rally and move towards Large Cap IT Companies like LTI, TCS, Wipro, Tech Mahindra, etc.
Hope this helps