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Newgen Software Technologies is planning a recovery for fiscal year 2027, aiming to return to its previous growth rates after a slow FY26. The company is placing high hopes on AI integration and a more stable market in the Middle East, but faces a complex path due to its reliance on large deals and geopolitical risks.
Aims for Past Growth
CEO Virender Jeet expects Newgen to return to its past growth rates of 17-19% annually, following FY26, which saw revenue increase by only 6%. This slowdown stemmed mainly from fewer large license deals and geopolitical issues affecting the Middle East, a region that accounts for nearly a third of the company's revenue. The company's stock has dropped over 53% in the past year, trading far below its 52-week high of about ₹1,377. Still, Q4 FY26 showed improvements, with revenue up 13% from the previous quarter to ₹457 crore and an operating profit margin above 33%. A recent deal for a content management platform by its UK subsidiary, worth ₹14.47 crore over 3.5 years, shows ongoing international business. Newgen's P/E ratio is around 23x, lower than the Indian IT sector average but higher than large peers like TCS or Infosys.
AI's Role in Growth
Artificial intelligence is key to Newgen's future growth and margin improvement. The company is integrating advanced AI into its Newgen ONE platform, expecting AI to be part of 50% of use cases sold by FY27. This AI integration is already helping secure larger deals and is seen as a way to cut costs through productivity gains, which helped support research and development spending in FY26. Newgen aims for a 20% net margin and 23-24% EBITDA if revenue growth returns to the 15-19% range. This focus on AI mirrors the wider Indian IT sector, where companies are moving from testing AI to using it regularly, potentially allowing for higher billing rates for specialized AI skills. However, this AI focus might require ongoing R&D spending, which could slow profit growth in the short term.
Key Risks and Concerns
The planned recovery depends heavily on the Middle East market stabilizing. This region is a key revenue source that is vulnerable to geopolitical changes. Newgen's Days Sales Outstanding (DSO) rose to about 160 days in FY26, and the company aims to bring this back down to 120-125 days, showing payment collection issues worsened by regional instability. Although subscription and annuity income now makes up a larger share (62%) of revenue, improving earnings predictability, there's continued weakness in product/license revenue (down 13% year-over-year in Q4 FY26) and implementation revenue (down 6.9% year-over-year). The stock's drop of over 50% in one year shows market doubt about its ability to return to strong double-digit growth. This is compounded by AI adoption possibly leading to more investment or competition, which could affect margins in the short term instead of boosting them. MarketsMojo analysts downgraded the stock to 'Sell' due to mixed financials and worsening technicals, even though the general consensus is still 'Buy'.
Analyst Views
Analysts generally have a positive outlook, with the average rating leaning towards 'Buy'. Average 12-month price targets are between ₹735 and ₹820, suggesting possible gains. However, some analysts, like those at ICICI Securities, maintain a cautious 'Hold' rating with a ₹530 target. Newgen expects to return to its past growth rates if revenue increases to the 15-19% range, with operating efficiencies improving if growth goes above 15%. Despite the challenges, the shift to subscriptions and AI efficiencies should support profitability if market conditions stabilize and large deals close again.