Explained — Why Newgen Software Shares have declined 32% in five trading sessions

Shares of Newgen Software Technologies Ltd. fell as much as 9% on Wednesday, January 22, following up an 18% decline on Tuesday post its results. This is the fifth straight day of losses for the stock, during which it has declined 30%.

The stock fell 18% on Tuesday, January 21, after brokerage firm Jefferies downgraded it to "underperform" from its earlier rating of "buy" after its December quarter results.

The brokerage has also cut its price target on Newgen Software by 21% to ₹1,240 from ₹1,500 earlier.

Jefferies wrote in its note that while Newgen's results were a miss on expectations, the slower growth in annuity revenue and India operations are the key negative surprise.

Although the new license wins remain strong for the company, the longer execution cycles are affecting growth in annuity / implementation revenue, Jefferies said.

For the December quarter, Newgen Software

reported a 5.5% growth in its topline compared to the September quarter, while its net profit for the period grew by 26.5%.

License sales for the quarter increased by 70% from last year due to good deal velocity.

"We think Newgen's strong revenue growth positions it well to continue delivering healthy margins, despite its investments in driving growth," Jefferies wrote in its note, raising its margin estimates by 10 to 40 basis points between financial year 2025-2027 to factor in the beat in the current quarter. It anticipates a 25% margin range over the next two years for Newgen.

However, the brokerage has cut its financial year 2025 - 2027 Earnings per Share (EPS) estimates by 4% to 6% to factor in the slower revenue growth. It expects Newgen's EPS to see a Compounded Annual Growth Rate (CAGR) of 23% during this period.

At 55 times financial year 2026 price-to-earnings, Jefferies finds the risk-reward for Newgen to be unfavourable and hence has downgraded the stock along with a cut in its price target.

Out of the eight analysts that have coverage on Newgen Software, four have a "buy" rating on the stock, while two each have a "hold" and "sell" rating.

Shares of Newgen Software are currently trading 9% lower at ₹1,190. The stock is down 33% from its peak of ₹1,794.