New Delhi – Shares of Newgen Software Technologies have delivered a stellar performance this week, surging an impressive 16% over the last two trading sessions. This powerful rally in Newgen Software stock is fueled by a robust financial report for the second quarter of FY24, where the company announced a significant jump in profits, prompting a rating upgrade from ICICI Securities.
On Tuesday, the IT firm’s stock hit a fresh 52-week high, climbing over 6% to close near the ₹880 mark on the National Stock Exchange (NSE). This continued the bullish momentum from Monday, where the stock had already gained nearly 10%. The rally was supported by heavy trading volumes, indicating strong investor confidence following the company’s Q2 earnings announcement.
Why Are Newgen Software Shares Surging? A Look at Q2 Results
The core driver behind the investor frenzy is Newgen’s solid Q2 FY24 report card, which showcased strong execution and healthy growth that surpassed street expectations.
The headline figure was the Profit After Tax (PAT), which saw a 16% year-on-year (YoY) increase to ₹48 crore, up from ₹41.4 crore in the corresponding quarter last year. This strong bottom-line growth was powered by an excellent top-line performance.
Key highlights from Newgen’s Q2 earnings include:
- Robust Revenue Growth: Revenue from operations surged by a remarkable 25% YoY to ₹293 crore.
- High-Margin Subscription Revenue: A key indicator of stable, recurring income, subscription revenues (including the high-growth SaaS segment) jumped 35% YoY to ₹95 crore.
- Strong Global Footprint: Newgen demonstrated impressive expansion in key international markets. The EMEA (Europe, Middle East, and Africa) region grew by 35% YoY, while the APAC (Asia-Pacific) region expanded by 32% YoY.
- Customer Acquisition: The company successfully added 13 new customer logos during the quarter, highlighting its continued ability to win new business.
Company management attributed the strong performance to a sharp focus on innovation, especially with their AI-led automation platforms, and success in securing large, strategic deals within the banking, insurance, and government sectors.
ICICI Securities Upgrades Newgen Stock to ‘Hold’ with New Target Price
The strong financial results were quickly recognized by market analysts. In a notable move, ICICI Securities upgraded its rating on Newgen Software from ‘Reduce’ to ‘Hold’.
While a ‘Hold’ rating isn’t a ‘Buy’ call, its significance lies in the positive shift in sentiment from a previously cautious stance. The brokerage now sees a more stable outlook for the stock and has also raised its target price to ₹900 per share.
The rationale for the upgrade is based on Newgen’s consistent performance, particularly in its high-margin subscription business which enhances revenue visibility. ICICI Securities noted that the company’s strong order book and expanding international presence are key positives warranting the revised outlook. However, the ‘Hold’ rating also suggests that after the recent sharp rally, the stock is now trading closer to its fair value, implying limited near-term upside.
What’s Next for Newgen Software Stock?
Looking ahead, the challenge for Newgen Software will be to sustain this growth momentum. Investors will be closely monitoring the company’s ability to convert its strong deal pipeline into executable orders, maintain its margin profile amid global economic shifts, and continue innovating with its GenAI-powered platform, NewgenONE.
The powerful two-day rally has priced in the excellent Q2 news. However, with solid fundamentals and a more positive view from analysts, Newgen Software has firmly cemented its position on the watchlist of investors tracking India’s burgeoning enterprise software story.
