NEWGEN - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:16 pm

Fundamental Rating: 4.0

📊 Financials: Newgen Software shows strong fundamentals with ROE at 22.4% and ROCE at 27.8%, reflecting efficient capital utilization. Debt-to-equity ratio is very low at 0.03, indicating a nearly debt-free balance sheet. EPS stands at ₹22.0, supported by quarterly PAT growth from ₹48.7 Cr. to ₹76.7 Cr. (+16.4%). Dividend yield of 0.60% provides modest income support.

💹 Valuation: Current P/E of 38.1 is above industry average of 26.4, suggesting premium valuation. Book value of ₹104 gives a P/B ratio of ~7.98, which is expensive relative to fundamentals. PEG ratio of 1.68 indicates valuation stretched compared to growth. Intrinsic value appears lower than current price, limiting margin of safety.

💻 Business Model: Newgen operates in enterprise software solutions, focusing on digital transformation, workflow automation, and document management. Its competitive advantage lies in niche expertise, strong client base across BFSI and government, and global expansion opportunities.

📈 Entry Zone: Current price ₹830 is near support at ₹740. Entry zone recommended between ₹800–850 for accumulation. Long-term holding is suitable for growth-focused investors, though valuations remain on the higher side.

Positive

• 📌 Strong ROCE (27.8%) and ROE (22.4%) indicate efficient capital use
• 📌 Debt-free balance sheet (Debt-to-equity 0.03)
• 📌 EPS of ₹22.0 with consistent profit growth
• 📌 Quarterly PAT growth (+16.4%) highlights improving performance
• 📌 Increase in DII holding (+0.12%) shows domestic institutional confidence

Limitation

• ⚠️ High P/E (38.1) compared to industry average (26.4)
• ⚠️ Expensive P/B ratio (~7.98)
• ⚠️ PEG ratio of 1.68 suggests stretched valuation relative to growth
• ⚠️ RSI at 36.3 indicates oversold momentum, reflecting cautious sentiment
• ⚠️ Current price below DMA 50 (₹892) and DMA 200 (₹973), showing weak technical trend

Company Negative News

• 📉 Decline in FII holding (-1.52%) reflects reduced foreign investor confidence
• 📉 Valuation multiples remain significantly above peers

Company Positive News

• 📈 Quarterly PAT improved from ₹48.7 Cr. to ₹76.7 Cr.
• 📈 Increase in DII holding (+0.12%) shows institutional confidence
• 📈 Strong positioning in enterprise workflow automation supports long-term growth

Industry

• 💻 Enterprise software sector supported by digital transformation and automation demand
• 💻 Industry P/E at 26.4 highlights Newgen’s premium valuation compared to peers

Conclusion

✅ Newgen Software is fundamentally strong with efficient returns, debt-free status, and growth prospects in enterprise software. Entry around ₹800–850 offers limited margin of safety. Long-term holding is suitable for growth-focused investors, though high valuations and weak technical trend warrant cautious allocation.

Would you like me to extend this into a peer benchmarking overlay comparing Newgen with other enterprise software companies, or a basket scan to identify compounding opportunities across digital transformation and IT services?