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Business News/ Markets / Stock Markets/  This IT stock could rally over 30% as Jefferies sees upside
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This IT stock could rally over 30% as Jefferies sees upside

Global brokerage Jefferies has maintained its Buy rating on the IT stock with a target price of ₹650 apiece

Newgen Software shares have rallied over 72% in a year (iStock)Premium
Newgen Software shares have rallied over 72% in a year (iStock)

In its recent meeting, Newgen Software's CEO and CFO highlighted that the Middle East and APAC regions are doing well but the US is lagging due to high employee attrition at clients, which is delaying decision-making, highlighted Jefferies in a note. 

The company's revenues from SI-led engagements are also being delayed. For FY23, the management expects 20% revenue growth and a YoY margin contraction. The global brokerage has maintained its Buy rating on the IT stock with a target price of 650 apiece, implying over 30% potential upside from current levels. 

Further, a stronger scale-up of SI-related revenue streams will be key to further potential upside for Newgen Software shares, as per Jefferies.

“Newgen Software has benefited from the rise in oil prices, which has boosted growth in the Middle East (+43% YoY over 9MFY22), particularly for new license sales. This is likely to continue in FY23 given the sharp rise in oil prices. The company has also seen a pick-up in growth in the APAC region (21% YoY in 9MFY22), led by a scale-up of its presence in these markets," the note highlighted.

However, Newgen's growth in the US and India has stalled, with revenues being flat over 9MFY22. In its recent meeting, the CEO and CFO highlighted that high employee attrition, possibly due to the Great Resignation, is affecting the pace with which new initiatives are being taken up among clients in the US. This may impact new license sales in the US, Jefferies added.

In addition, given the sharp rise in attrition levels across the industry, the brokerage sees employee cost escalation remaining high in FY23. Though, the Newgen's management expects revenue growth of 20% in FY23 which is largely in line with pre-pandemic levels.

 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Published: 29 Mar 2022, 09:48 AM IST
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