Newgen Software Share Price Falls Over 17% After Jefferies Downgrades To 'Underperform'

Shares of Newgen Software Technologies Ltd. tumbled over 17% on Tuesday, following a downgrade by Jefferies from a "Buy" to "Underperform." The brokerage firm cited weaker-than-expected results for the third quarter of FY25 and concerns over the company's valuations.

Newgen's Q3 revenues of Rs 380 crore, reflecting an 18% year-on-year growth, missed estimates. While the company reported strong revenue growth from new license sales, a key negative surprise was the slower growth in its annuity revenues, which grew only 9% year-on-year. Additionally, implementation service growth moderated to just 2%, also below expectations. These factors led to a slight miss in profits, despite a 30% increase in net income, the brokerage noted.

Jefferies highlighted that Newgen's strong performance in new license wins was overshadowed by longer execution cycles, which have delayed growth in annuity and implementation revenues. The company's growth in the India market, in particular, showed signs of slowing, rising only 10% year-on-year, a significant disappointment.

While Newgen's management remains optimistic about future growth, particularly in the Asia-Pacific region and the insurance vertical, the firm's earnings outlook has been downgraded. Jefferies revised its earnings per share (EPS) estimates downward by 4-6% for FY25-27, now expecting a 23% CAGR for that period.

Given the moderation in growth expectations and the stock's high valuation of 55x FY26 P/E, Jefferies revised its target price for Newgen to Rs 1,240, reflecting a 35x P/E multiple. This downgrade comes after a significant rally in Newgen's shares, which had gained 17% in the last three months and 93% in the past year, the brokerage said.

The scrip fell as much as 17.30% to Rs 1,294 apiece. It pared losses to trade 16.51% higher at Rs Rs 1,306.35 apiece, as of 11:31 a.m. This compares to a 0.83% decline in the NSE Nifty 50 Index.

It has risen 60.34% in the last 12 months. Total traded volume so far in the day stood at 5.8 times its 30-day average. The relative strength index was at 34.

Out of eight analysts tracking the company, four maintain a 'buy' rating, two recommend a 'hold,' and two suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 12.9%