Ladies and gentlemen, good day, and welcome to Newgen Software Technologies Limited Q4 FY23 financial results conference call. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Deepthi Meera Rao, Head Investor Relations. Thank you, and over to you, ma'am.
Thank you. Good evening, everyone. I'm Deepthi Meera, Investor Relations, Newgen Software Technologies Limited, and I welcome you all to the Q4 FY23 results of the company. Joining with me today on our call is the management, Diwakar Nigam, Chairman and Managing Director , Mr. Varadarajan, Independent Director, Mr. Virendra Jeet, CEO, Mr. Arunkumar Gupta, CFO. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning Newgen's future business prospects and pro-profitability, which are subject to a number of risks and uncertainties, and the actual results could materially vary from the forward-looking statements. Past performance may not be indicative of the future performance. The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect or update any forward-looking statements made from time to time by or on behalf of the company.
For further details, you may please refer to the investor relations section of our website. I will now hand over to Mr. Kannan for presentation of the results, which will be followed by Q&A by Mr. Ji.
Good afternoon, everyone. Thank you for joining us today for our Q4 results call. It is a happy moment for us at Newgen as we crossed the INR 1,000 crore milestone of total income in this financial year. We witnessed a growth of 25% in revenue over last year. The growth was primarily driven by our traditional markets, with India growing at 41%, followed by EMEA at 28%, APAC at 17%, and U.S. at 10%. We have made significant progress as an organization and delivered strong performance across all key business matrices during the financial year. Expansion of subscription revenue. While accomplishing the growth in revenue, we continued with our smooth transition from license to subscription revenues. Our subscription revenue has now reached INR 23 crore.
This revenue stream is predictable and recurring in nature and grew faster than the overall revenue growth rate of the organization at 31% YOY. They now also comprise 33% of share of our total revenue. Growing large customer base. Our solutions today are driving deeper penetration into our customer base. We have been seeing an increasing trend of average ticket size per subscription. Of the 520-odd active customers today, 51 customers have a billing in excess of INR 5 crore for the year, compared to 38 last year. At the same time, we continue to maintain low level of client concentration. Moving to updates on our offerings and opportunities. Innovation is at the core of Newgen, and we continue to invest 10% of our revenues in various R&D initiatives.
We are excited to see that our innovative offerings are well-positioned to tap the large market opportunity for automation at scale by enterprise. With the new version of NewgenONE, we are enabling our customers to achieve their digital goals and automate their operation at scale. Our platform is ideally suited to achieve enterprise goal of revenue enhancement, increased productivity, and optimization of cost and business operation and team collaboration. It helps businesses deliver exceptional customer experience, achieve operational excellence, and drive continuous innovation. The solutions are so quick to implement and very cost-effective. NewgenONE is backed by flagship cloud-native multi-persona AI ML data sciences platform that enhancement for document classification and extraction capability, related process and robotic process automation capability. It enhances DevOps for easy application deployment and update.
Newgen's RPA complements our low-code application development capability and is expected to further empower our customers to achieve end-to-end process automation. Our credit finance solution is taking us deeper into the banking and financial services vertical and opening up opportunities for larger deal sizes. We are now targeting larger-sized banks and financial institutions across the globe. We are thrilled to be recognized as a leader by various reputed industry analysts across segments. During this quarter, we have been recognized as a leader in the Forrester Wave Content Platforms report. NewgenONE has been acknowledged. Also acknowledged as a strong performer in the Forrester Wave RPA report. On the operational front, the year marked prioritization of initiatives aimed at enhancing employee engagement, talent management, and capability building.
Our focus has been on capacity, fostering culture of inclusion, promoting diversity, investing in learning and development, and empowering our employees. We believe that by investing in the growth and development of our employees, we can enhance their skills, knowledge, and capabilities, while also driving the retention of top talent, which is essential for driving our long-term goals. On the sales and marketing front, we are continuously working on building our direct sales channel, along with the focused alliances with our partners, especially system integrators, to expand our market. We have been participating in and hosting multiple face-to-face events across the globe. We also hosted customer meets across Delhi, Mumbai, and Dubai for our customers during the year. We continue to work towards strengthening our relationship with the GSI. We are driving joint sales and marketing activities and campaigns, as well as joint solution development with our partners.
We have recently entered into strategic partnerships with Mambu, a leading cloud banking platform based in Amsterdam, and Sopra Banking Software of Europe to expand our geographic reach. On profit and margin, we delivered healthy margins during the year. Our EBITDA was stable at INR 212 crores, resulting in a margin of 22%. Profit after tax was INR 176 crores, leading to net margin of 18%. During the year, apart from investing 10% of our revenue on R&D initiatives, the company invested 22% of revenues on various sales and marketing initiatives. Our balance sheet is strengthening with every quarter. We have a strong net worth, no debt on our books, and a healthy cash and bank balance, enhancing our financial stability. Our net cash generated from operating activities during the year was at INR 136 crores.
Our net trade receivables were INR 388 crores at the end of March, which resulted in net DSO of 1,000 days. In Q4, our revenue were at INR 305 crores with a growth of 32% year-over-year. This is the first quarter for us where we crossed the revenue milestone of INR 300 crores. We witnessed acceleration in business from customers, especially in U.S. and India region during the quarter. As we close this financial year, we are excited for the year ahead as we believe there are huge opportunities for automation at scale in enterprises, especially in banking and financial services function. Vision continues to empower enterprises towards a more holistic or enterprise-wide automation, which is great for change. This is essential towards building sustainable organization of the future.
This would in turn ensure faster time to market, minimization of cost, and superior customer experience, all building blocks of the organization of tomorrow. We are well equipped to take this journey with our cutting-edge products, focus on innovation, and deepening customer relationships across the globe. We are now open to Q&A.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use hand first while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue settles. Participants, you may press star and 1 to ask a question. The first question is on the line of Randy Sarkar from Unified Capital. Please go ahead.
Hi Mr. Viren Birender and the rest of the team. Congrats on a very strong print. A couple of questions. The U.S. has shown good traction this quarter, but, in light of the systemic banking crisis the U.S. is subject to, is there a risk to our pipeline per se? you know, what's the sense for your current population? Typically our gold market success in the U.S. this quarter, what do you see our certification partner or, what do you see our organic initiatives and, you know, what's your sense of traction when it comes to banking?
Thank you. Thank you. I think from the US, as you correctly understand, you know, our business is pretty, you know, diversified in geos. The presence across US is in banks, which are typically in financial services and some large entities coming from GSIs. Today we don't see any risk in terms of our pipeline on that. Probably we don't have the same concern as the larger GSIs is because I believe that most of our business is still grown from licenses and which are opportunities are generated on both sides in terms of when people are looking at efficiency and reduction of costs. That currently is a very important thing as well as when they are looking at growth and scaling up.
In that case, I don't see no substantial risk right now, and at least it's not visible for us from the accounts we are dealing with. What has happened in last quarter, I think we have built some deals organically from our banking side, but also we got some support from the GSI leads, especially from the existing accounts which we've already acquired over previous quarters. That's what it has led to. For the year, since we are resetting the U.S. strategy in terms of some amount of shift from our traditional banking accounts to slightly larger accounts. I think some amount of early wins have started coming in, but it's still a long way to go because we are completely out of the woods out there. You know, if U.S. has started contributing towards growth, that's what we are happy.
At the year end it was, still a significant two-digit growth, when our first two quarters was not really good in U.S. You know, going further for the next year, as of now, we don't see any systematic risk or any risk, you know, in terms of, recession or any other thing from the next account.
Sure. Yeah. Exactly. You know, on the same line, you know, Middle East one really understands the correlation between energy prices and growth investments, right? Do you reckon we can continue with this momentum or would you caution saying that this is a cyclical high, you know, just as and when prices have fell and, you know, it may be difficult for us to kind of, you know, keep this kind of performance, you know, your thoughts on this please?
you know, it's not cyclic in a way, but what we have always cautioned about Middle East that the market behavior changes when oil has hits very extreme low levels. On a moderate climate, even oil going up to $50-$60 or so, I don't think there's any impact on our business. I think there are two parts to this Middle East business. I think though it is an oil-based economy, but now as many countries are trying to de-link their economies from oil, there's a lot of economic activity happening in territories like Oman. Saudi is being a great territory, even UAE. I don't see anything which would substantially change in the whole scenario on the market.
What we have delivered over last 2, 3 years in Middle East, I don't see any reason why we should not continue the growth momentum this year out.
Right. That's well. Given where your, you know, pipeline and conversation is, you reckon we are on course for that 20% 10% this year as well for your overall business?
I think we won't give guidance. I think that's a spend down. You guys are used to. What I'm saying is, you know, I think we have a historical trend of growing both NBP and subscription. You know, what we have seen for the last two, three years is to accelerate that growth rate. Some amount of that acceleration has come in last year. You know, as of now, if all remains, everything remains the same, we think that we can continue the growth momentum going next year.
I have a last question before I get it gentlemen. You know, your payouts are this year relative to your cash flows as we'd rather meet it, right? You know, what are your thoughts on it? You know, there was cash pile that's increasing. I don't think we are at the end of the day compared to the M&A. What's your long-term plan on this cash build up and your distribution in future years?
I think we are, you know, following the policy of a dividend payout we have maintained over last year. This is kind of a percentage of what we make as cash. You know, of course, you're right. We are generating, good cash and, so far we have not decided any other purpose. You know, the organization's whole purpose is to invest for growth. We are definitely looking at opportunities from organic side and inorganic side for that growth. I think it will take us, you know, at least two more quarters to come up with a reset policy either on dividend or looking at how do we deploy that cash. During that time we'll have to be bit patient about it.
Sure. Looks all gentlemen. Thank you.
Thank you. Next question is on the line of PM from Garnieri and Castle. Please go ahead.
Yeah. Hi. Thanks for giving the opportunity and congratulations on good set of numbers. Largely wanted to understand your action on trade finance from this year. You know, how are you seeing the traction of the trade finance platform, given that deal sizes are slightly larger here? Also wanted to understand from this quarter. I mean, you mentioned th at you are moving from traditional banking to larger accounts in the US. I mean, given the fact that you know, how are we looking at the finance platform plus the comment you made on and how is the organic sales channel specifically turning out in the US? That was the first question. Second question was on the DSO. I mean, you know, how is the position now in DSO?
What are the opportunities, going into this quarter and for full year? How does that compare to last year? How do you see our traction here building up? Those are the questions.
Thanks, Mihir. Let me try to answer. Number one, let me remind me from this content. I think you're right. Absolutely. On the trade finance, we did this new product, which, you know, has been almost like 1 and a half years since we hit the market with this, and we are finding substantial traction in the market. The traction so far, what we are converting is predominantly in Middle East and India. That's the market we are really going focus on. Having said that, we do sense, you know, amount of interest coming from U.S. and other markets as well. Right now, I think if you ask from a business planning perspective, we have closed some significant deals in these markets, some marquee accounts I think you'll be very proud of.
You know, once we announce, once we have the permissions to announce. Going this year, we expect 7 more deals across these years, for trade finance, which should help our top line growth as these are potential in size. As you know, these are predictions, and I think we'll have to wait for the actual results to come in. For the U.S. we have a... You know, we have seen interest on trade finance, but I would be slightly cautious in terms of we don't have a real go-to-market strategy built around trade finance right now.
We're still focusing on moving up the value chain on accounts which are slightly bigger than $20 billion, you know, on banking side and try to sell our traditional products, which has been particularly in the lending side, be it on commercial as well as retail. As well as, you know, there's an opportunity of looking at our platform sales, doing CM and DCM and low-code sales are what we are trying to sell. That's the market we are focusing on. Out there we have started seeing early signs. We last quarter also we closed few deals on that front. So we are thinking that strategy probably is going to show some kind of out returns in, you know, coming months and coming quarters.
On the GSI traction side, as we've shared, you know, the GSI momentum in the business, it has added value but has not added value at the speed we've expected. Having said that, as Mr. Nigam said, is that we have some new relationships and new alliances with lot of other companies or other product-based companies which are adding to the funnel side. We did close around 3 deals quarter right, you know. I mean, I'm not sure about the number in this quarter which are our new deals, but also we are able to get a substantial deals from the existing accounts which we have closed previously. Compared to last year, the number of new logos acquired from GSI, the number is not significantly very high.
On the revenue realization from those accounts, we are at a much better position. Mihir I will stop here, you know. Does that answer your question?
Yeah, sure. That's really helpful. Lastly, on the margin side, I mean, given the fact, you know, we saw a margin recovery happening in full Q or full Q is a seasonal factor, but how should we see EBITDA going ahead, given the fact that the bench like basis points decline at least on a YOY basis.
Mihir, you know, I think, as you see that, on the last year, we have, you know, the margins, have not been what has been the previous year because the previous year cost base was not realistic. Last year for whole of industry, the manpower costs have been revised substantially, and that has been the predominant cost base growth. Also, what has happened is our travel restoration as well as, you know, the operating expenses of coming back to almost we are at 99% of our workforce has in some way started coming back to office, whether on half-time or on full-time basis. On operational, this is a new cost base.
We had set up a target of being around 18% of net margin and around 21%-20% of EBITDA. I think we were very close to that. Going this year, you know, we are still looking at this year as our growth year. We continue to invest aggressively in this space in marketing sign that are building capacity for growth. Lot of manpower costs which have been incurred last year will also have an impact this year. I think we should be able to maintain these margin levels for this year and then, you know, really have a bit more bias for growth.
Sure. Yeah. That's it from my side. Yeah. Thank you very much.
Thank you.
Thank you. Next question is from the line of Harsha from Dimensional Securities. Please go ahead.
Hi, good afternoon. Just trying to understand how the competitive landscape is emerging, especially in your remediation package. Also in U.S., given that the larger companies are seeing some sort of pressure, some sort of slowdown in their need to... Is there any sort of pricing pressure that you are facing? How is the competition emerging now?
Yes, thanks, Harsha. Thanks. Regarding competition, you know, I think it's for our core product categories, I think the competition is pretty standard. Those are, if you see, if you look at the partners and core street partners, you will see all the names are out there. One, we play in all the markets. Beyond that for our vertical products, what we do in lending, what we do in, you know, automation or what we do in sales, the key competitors are typically what we call vertical banking products. Those are the competition. One of the important developments which has happened is in the core product categories in ECM, where we have also been rated as a leader by industry institutions.
There has been more consolidation and that now, you know, you only see 2 or 3 key players emerging in the market, and we think that will help us in terms of where there's a modernization of enterprise content management and should be able to make more inroads. On the, on the larger what's happening in U.S. and companies, since our revenues are you know, diversified across these industries, we are not seeing the same impact or we don't have the same, you know, insight into what's happening with larger companies in U.S. We do...
You know, we are growing fast, but on the revenue side, some of the problems of larger companies are from the base accounts which we are sitting in, only typically in tier one in US and Europe, and that's where we are seeing the pains. For us so far, we are not seeing that coming in power. I think as the, as the next few quarters show, I think more clarity will come in. We have a very extremely healthy funnel for the next year. You know, our order books have improved, you know, beyond the revenue numbers we have done. We are, you know, we are quite confident we should be able to have a good year and. You know, environmental conditions can be very acute these days, and we saw that couple of years back.
You know, people fingers crossed will actual things happen.
Thank you. If we have to talk about the growth potential for next 3 to 5 years, how do you expect the growth to come? Will it be largely from more client addition or will it be more from increasing the revenue per client? How will that pan out?
As a software company, you know, our aspiration is to be a $500 million and a $1 billion company. That aspiration is based on that there's an unlimited market potential for the product categories we play in. What we have seen is that our penetration in mature markets is still very, you know, potential very high. Having said that, we have seen enough growth coming in emerging markets for last 3-4 years. We have been growing and there have been multiple drivers for that growth as they're adopting technology. I'm very excited that, you know, next 3-5 years we are designed to grow at a much, you know, higher speed than our traditional growth rates. The growth is coming predominantly from 2 factors you said, right?
One is, I think as a product company, that client addition is important. We are, we are pivoting towards actually larger deals through our ability to add roughly around 50 new logos in terms of which are the new names in what have been, what domains we are working on. We do and, you know, expect to improve that in next two, three years. On the other hand, on every deal sizes as we are shifting to larger accounts, as you can see, as well as ability to mine some existing customers as our solution stack becomes broad, we are able to do. Per account evolution is improving, average deal sizes are increasing, but acquiring new logos is very essential to building a long-term, you know, appeal to the business. Does that answer your question, Taja?
Yes, certainly. Thank you, sir. Wish you all the best.
Thank you.
Thank you. I request to all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for follow-up question. The next question is from the line of Chirag from Ashika. Please go ahead.
Yeah. Congratulations on good set of numbers. I have a couple of questions. In your opening remarks, you mentioned that we are targeting large banking and financials groups. I would like to understand what strategy we are following to test those large corporates. Second, on logo addition front, the net logo count compared to previous years is slightly on lower side. What strategies are to, you know, increase the momentum in terms of logo addition? That would like to know these two questions.
Thanks, Chirag. Chirag, when I said, you know, We are trying to shift. Initially our banking in US was focused on typically banks which were in somewhere in asset size of billion to all the way up to $20 billion. We have slightly pivoted and started focusing specifically on banks which are at least $10 billion or, you know, more up all the way up to $50 billion-$100 billion. What we are seeing is as we have been able to partner, you know, some partners have more support in terms of referenceability in US and our solutions have become more richer, we're seeing we are able to, you know, enter those accounts. We are still not talking tier one banks. We are still talking of mid-level tier two banks and rather than tier three banks and that.
That's what I meant in that U.S. banking, we already have referenceability in that market. We have got early wins. Even this quarter we closed some deals out there. I think that's going on as per plan. On the logo side, you are absolutely right. I think at one time, you know, we have moved over last 4, 5 years from around 60, 70 logos to around 50 logos. That's also to do with lot of smaller account deals which we were initially pursuing like through channel partners or through, you know, in terms of direct sales. We have slightly moved away from that market and we see that license values of those customers have not been in our favor, so we have slightly pivoted. The acceleration over next 2, 3 years will come from more markets we are entered.
Our Australia has started showing results. Our U.K. subsidiary has started winning logos and U.S. as soon as we stabilize our strategy in banking, we should see the acceleration in logos. Having said that, our traditional markets which are driving the growth right now, India, Middle East, and APAC also have huge potential. We are actively looking at how do we diversify to more adjacent verticals which can grow for us. I think over the time we'll see that there is going to be an acceleration in number of logo acquisitions. Does that answer your question, Chirag?
Yes, sir. One follow-up question. You mentioned that we are targeting new geographies for logo addition. The new geographies having similar size of deals which we targeted with the existing geographies?
Yes, Chirag. I think the new geographies are typically the mature markets. We expect the deal sizes to be, you know, same or better.
Okay. All the very best. Thank you.
Thank you, Chirag.
Thank you. Next question is from the line of Saurabh Sidhwani from Sahasrar Capital. Please go ahead.
Hello, everyone. 2 questions. First one, given the macroeconomic conditions and other negative news of recent years.
Sir, sorry to interrupt you. Your voice is coming little distant. Can I request you to speak through the handset?
I am speaking through the handset. Is it correct? Is it better now?
Yes, sir.
Okay. I was asking that given the macroeconomic situation that the free money has stopped and the return expectation, nature of the for three years, are we seeing passiveness in reading by them, and has GSI been able to take advantage of that?
Yeah. Yeah. Saurabh, thanks for the question. You know, I think the business, most of the conversation, what we hear about Indian IT and the economic specifically from service companies angle. I think predominantly driven by the tier one, tier two companies which operate at a very different, you know, size and, you know, ratios. You know, we are not very sure about how to answer this question because we are slightly not in that business. We are still in the business of, you know, acquiring accounts and, you know, being, you know, in terms of what you call a high touch scale or what we call serious enterprise sales.
In terms of right now, what we have seen traditionally before the COVID, which demand cycle really when companies, we really felt that the GSI ecosystem was more hungry for deals and they were, you know, fighting for deals more aggressively in the market. What I sense is also is going to be a tightening of probably the economic situation. We will see more and more hunger coming in GSIs to go and approach customers and deals. That happens in all. In that case, we are looking at that should help our cause as we are building in terms of investments along with that. There are other companies in some firms. I think every company is more hungry for business. I don't think there is any lack of competition.
I think there's going to be a more heightened competition in terms of, you know, if there's a slightly a downward economic cycle.
Okay. The second question was related to a simple business clarity that I wanted to understand. Our products, Indian products, are generally cheaper. Given the labor arbitrage that we have, do we make our products at a lower cost than competitors here, and all else equal, we should be always winning on pricing, right?
Yes. I think, Saurabh, you are absolutely right. I think there is a 7% advantage on R&D cost, right? The same R&D, if it was to be done in U.S., cost would have been roughly maybe 10% of the revenue or 20% of the revenue. There is a cost advantage. You are able to do with lesser cost, you are able to do and more. You have an innate advantage by doing things. Again, I think that advantage gets balanced by the size of some of peers. Generally, we are targeting much larger companies and they have a much larger budget to decide they are in terms of an R&D. I think the whole cost arbitrage gives us an advantage to at least compete out there.
The cost of developing R&D does not translate into cost of the product. Cost of the product is a market reality. The benefit is passed through to the customer. Pricing products are benchmarked to what the market determines. There is no direct correlation. What you are saying is true, is more about more directly related to services.
Okay. Okay. Thank you. That's all.
Thank you. Thank you. Operator, you may press star and one to ask a question. The next question is from the line of Manoj Vaidya from Carney Wade Asset Management. Please go ahead.
Hi. Hi. Good evening. Thanks for taking my question and congratulations for good set of numbers and superb execution. I have couple of questions. First one is, just wanted to check that our GSI strategy particularly the way the things are shaping up like last two, three years, we are trying to get reports and with our GSI partners. Just wanted to understand, is there something not clicking or something which is leading to the delay in terms of getting that traction on GSI strategy. If you can give some more color on that will be helpful.
Manoj, thanks. You're absolutely right. Last six years we've been building on the GSI strategy, and I think we are very lucky to get some very extremely good early wins which really established both recall of Mitek within the GSI mind share but also as innovations for other GSIs. See, what you know, in terms of success or failure of GSI is determined by the ambition we have around that.
Sure.
We do get lot of business with GSIs. I think it's like 20% of the revenues today is, you know, driven by partners. We have some amount of marquee wins every year with GSIs. What we expect this to drive the next big growth in mature markets for us. Out there we have not really reached a number where we could say that, "Hey, it is an average of 5%-10% of our revenue." It is all adding up but not at the speed we desire. Having said that, I think, you know, we have re-looked at the strategy while we continue what we are doing out there. We've expanded the ecosystem. We have looked at scaling the partners out there.
We also looked at ecosystems beyond GSI, which is ultimately which Sandeep talked about some of the relationships that we are trying to build with Indra or Momo or any other company. We're expanding. The reality for a product company is that their next stage of growth does come from the partner ecosystem, what we call a GSI or other thing. I'm very sure our company will continue to perform great and grow as the markets which we are operating in right now have huge potential on upside for our kind of products. But I'm very sure that our $500 million and $1 billion are achievement target. The GSI and the partner ecosystem will be helped to that. It may take 1 year, 2 years, 3 years, 5 years, but we'll be on it with that.
Just to further on this, like, when you enter into a partnership with a GSI, I'm sure that GSI must be dealing with your competitor's product or they may have another, other competitive product. I just wanted to understand that Visage is their existing products. Or in terms of our offering, Visage is their existing product. Generally, is it a cost factor which plays big consideration, or is it something else?
Manoj, I think that we are very large section. I have a very long answer. I'll try to summarize. What is happening in any product company, I think we become very good in certain areas of the operation. Today, Newgen for any content-based process automation or any automation which is scaling from when you're doing hundreds of processes, we are probably the best product in the market.
Mm-hmm.
Now the whole world may not know it, some of these GSIs do know it because they've done this work with us for multiple customers in different geos. They understand the positioning. Having said that, they also have interest to follow other products. One is that GSIs do understand the value we bring. The value is in terms of the average of our product value is in terms of flexibility which we exhibit as we have a closer relationship with them. Also as a company, I think finally our goal is to sell to the end customers. We have to influence end customers that talk about our brand, talk about our presence, talk about infrastructure, talk about our size of a business. We have to work on both sides.
While we work with GSIs, show the unique value prop we provide them, show them the advantage of cost and flexibility. We have to work with the end customers in terms of as a customer who will buy my product. Most of the products are not sold by the GSIs. It's also their customer has a big say in 70% of the cases what product they choose. If they choose me, then we just think that there is a trained GSI ecosystem which has an implementation capability to implement that. That's what we cover with GSI.
Right. Right. No, that's helpful. I have one last question. If you can touch briefly on operating margin, because what I understand our kind of business has a scope of big operating leverage. As you mentioned in one of the questions earlier that right now your emphasis will be growth rather than expanding margins. In terms of operating leverage, how do you think that after what level, what scale operating leverage will start kicking in and we will start seeing good expansion in margins along with top-line growth?
If the question is we are already sitting at decent margin. I think, yeah, product companies generally can generate much higher margins as our gross margin position is much better. We do generate around more than 60% gross margin. Roughly around 64% of our revenue has no direct process associated with it. This is our license subscription APIs. Also you have to understand that product companies to execute well are able to continuously invest in R&D and sales and marketing. The global benchmarks of the product companies are much higher than what we invest in it because we get amount of operating leverage because of the cost basis in India. As I said, our bias is for growth and to maintain healthy margins.
Naturally, you know, once you become a very sizable company and sizable companies, we are seeing, you know, roughly around 200 million and above companies, and if they become a slower growth trajectory, they end up keeping expanding margins for many, many years. I think our ability to, you know, generate a margin of somewhere between 15%-20% is what we think right now is feasible for next 2, 3 years. Then investing everything else on growth.
Thank you. Manoj, sorry to interrupt you. I'll request you to join the queue again for a follow-up question. The next question is from the line of Devang Bhatt from IDBI Capital. Please go ahead.
Hi, am I audible?
Sure. Yeah, sure.
Thanks for taking my question. Congrats on a good set of numbers. One of your GSI highlighted that low-code and no-code is gaining traction in this scenario. Are you seeing similar increased traction in mature markets in current scenario? That's the question number one.
Devang, sorry. Could you just repeat that? I couldn't understand.
Okay. let me go through. Yeah. Hi. one of your GSIs highlighted that, you know, low-code and no-code is gaining traction. are you seeing such increased traction in mature markets in the current scenario?
I think we are gaining... I think we have a methodology of last 20 years of pushing low-code, no-code, and I think they have come through different names such as BPM, iBPS, low-code, no-code, hyperautomation. These are all categories of the same name. There's a huge interest in enterprises across the world that they don't want to, you know, take the traditional engineering methods for building their apps. They want the low-code method. That's where there's an interest. Having said that, interest is also very horizontal. Every customer, every application has to be low-code. That's a huge market opportunity across the globe. We are very, very excited about, you know, helping customers in that automation space.
We are seeing interest in lot of RFPs coming on low-code across markets, not only U.S. market, but also other markets. We are really strongly pushing our strategy on low-code and micro automation to be one of the sort of players in that space.
A follow-up is that, you know, will you be able to see a higher U.S. growth in this year because of this? Will you be able to sustain that useful kind of margin that you have seen in this quarter?
Yes. I think that as part of what we sell, all things we sell are based on low-code strategies. I don't see any, you know, difference in all that. We do expect that as soon as in the long term the cost optimization will just come to renewed interest in automation. Automation is low-code based automation because we don't want to have very long service. There's an interest. I think we'll have to wait for how the market unfolds in those opportunities and how many opportunities of GSI can be set out there and how many can we generate on our own. What about, you know, soft low-code? Sorry, what was your second question?
That you know, just a bookkeeping like in your tax rate is being, you know, lower around 19%. Will you be able to pursue this kind of tax rate in FY24?
I think on the tax rate we are fine for next one year, two years or so because we are still under tax easy rules for many of our revenue. On the Q4 margins, I think you should understand that we are still, since there's a large % of our revenue, which is a license base, we are a, you know, there's a sequential revenue growth from Q1 to Q4. Q4 and Q3 being the largest quarter for us. The margin position, since the costs are very flat, generally you are very susceptible to large margins in the future. If you want Q3 will have muted margins and probably Q3, Q4 margins will be like that. Having said that, yes we should be able to sustain the overall margin from this. Yes.
My question was more related to the US Q4 margin because we have seen some different than improvements in US...
Yeah.
that margin.
Yeah. I would say we are still, you know, smaller revenue size in the segment margin and it's still a company on the overall margin because in segment margins a lot of our customers activity would cost because we operate out of, you know, India predominantly, all the services are provided to that. If the offline growth is high in U.S., the margins will be high. I would still recommend that we look at margin position at the annual company level and then the annual level.
Thank you, sir. Thanks for taking my question.
Thank you. Next question is from line of Rahul Jain from Dolat Capital. Please go ahead.
Sir, hi. I just have one question that you talked about the partnership with Mambu and Sopra. Can you just explain how these are beneficial and what are the intersection of the offering and what are the complementary elements involved here?
Yes, Rahul. Thanks, Rahul. Rahul, I think what we have done is we have looking at the whole partner ecosystem more widely. We are finding what are the complementary products and go-to-market strategies. These are typically both we do with banking. While in Sopra we are working on the digital lending side, how we can sell our digital lending product in Europe and adjacent areas because Sopra is very strong in those markets and that's where we align. Mambu I think this is doing a banking, core banking product, basically more for digital banks. We are again looking at how to expand beyond core banking, more structured loan products, enterprise content management, customer communication management products with them.
Both these things we are in the early stages and I think in Mambu we have some successes in the market. We are also working closely to have some more successes with Sopra.
Specifically let's say for example, Sopra don't they have their lending solution as of now?
You know what we have as a product in lending, which is a low-code based lending platform configurable. I think they have found that to be more exactly what they should carry to their larger customer base. They have other product category which complements our offering.
In this kind of arrangement where they are also primarily a software business, are they going to sell on their own or is this also through their partnership eventually being sold by SI and how the revenue share would come in, deal base and rates, at least for us?
They are on their own. They have got a huge customer base across those places. We are looking at, you know, looking at their customer base and their cost base. That's a very serious commitment of selling jointly along with them. Wherever we are selling, we are looking at net Newgen revenues and finally, you know, the net Newgen revenues is what our predominantly is either list price or somewhere around 55 minus list price. In our book it's always net Newgen.
Okay. How we define the market in terms of what is targeted through this channel versus what is targeted directly and what is targeted through SI in this market?
I think in some much more detail, I think there is a clear cut on our direct channel go-to-market message in terms of what we do. Basically we follow name account strategy. Smaller market, we have certain target accounts and some target verticals where we have six, seven offerings which we want to take to our enterprise sales. The GSI we focus on more horizontal products such as content management, replacement, modernization, low-code offerings. We are looking good at any vertical because we have the knowledge of other verticals. Alliances like Sopra, Mambu, it's around adding capabilities to their overall go-to-market strategy and product offering. As long as we adding our content management and lending capabilities to their product offering.
I think, Kapisha, I'll request you join the queue again for a follow-up question. This is Hemoprasad from NN One to ask a question. The next question is from the line of Pruthvi Padia from AUM Fund Advisors. Please go ahead.
Hello.
Yeah. Please go ahead.
Can you just throw light on the increase in DSO days to 145 days in the current quarter?
See, it has increased over the last year. Generally, what happens over year-end DSOs are very high, as I said. A lot of billing happens in, you know, towards the later part of the year and that's the nature of our business due to license fees. We have done roughly around more than INR 350 crore in billing. Predominantly that is the last month will be significant part of that billing. That's, you know, as is the DSO. Our revenues have, our billing has grown at much higher speeds than our revenues. They are much higher DSO.
Having said that, you know, we have optimized it from a very large number. We are targeting that to be around 120 is the right number and safe number to be around that, and then look at optimization beyond that. I think in some markets, like EMEA and India, we are slightly at higher number and that's pushing it up. In APAC and US, that two are much lower number. I think in our annual is gonna come to this round, so number of 120 and then. It's gonna be generally for the next three quarters, it's gonna be much smaller number. As an annual number, we are targeting is at a figure and it should be less than 120.
Okay, thank you.
Thank you. Next question is from the line of Jiten Parmar from Kotak Capital. Please go ahead.
Yeah. Most of my questions are answered. I have only one question more of, you know, what do you think is the threat of AI, and, you know, basically, the way things are moving in that particular domain. If you can throw some color on that. Is it beneficial for us or?
Yeah, within it's a million-dollar question, and I think, you know, everybody has. I have a personal opinion on it. I don't have an official. You know what? Any disruption in technology, any technology disruptions like cloud, mobility, smart, we have always seen that it helps product companies at the end of leveraging that technology faster than the market and then creating more products and services around using that technology. The recent, you know, what has happened over the last few months in the generative AI, we think that throws up lot of opportunities for us in different services, in search optimization, in content generation. There are a lot of areas for us on the table as an opportunity next three, four year.
I believe that the speed by which we can innovate over next, you know, 3, 4 quarters is gonna determine whether we lag or whether we can ride this. There are other wide implications of generative AI which will happen over next 3, 4 years in the market. It's around, augmenting capability for engineers being able to do much more faster work. I think those should be much more operational benefits which we can. I think some amount of challenges with the IT industry in which we have generative AI is more from the services nature in terms of when you are deploying hundreds and thousands of people to do routine jobs. Fortunately, we are not in that business. We are still in the business of innovation.
If generative AI can help our innovation cycle, I think we should be very happy with it.
Great. Thank you. That's the only question I had. Thank you.
Thank you very much. Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference to Ms. Shakiri Nairasha for closing comments.
Thank you so much everyone for joining us on the call. For any further questions, you can connect with me or you can go to our website. Thank you.
Thank you very much. On behalf of Newgen Software Technologies Limited, we conclude this conference. Thank you for joining us. You may now disconnect your lines. Thank you.