Newgen Software Technologies Limited (NEWGEN) Q4 FY23 Earnings Concall Transcript

Newgen Software Technologies Limited (NSE:NEWGEN) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

Deepti Mehra Chugh — Head, Investor Relations

Diwakar Nigam — Chairman and Managing Director

Virender Jeet — Chief Executive Officer

Analysts:

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Mihir Manoha — Carnelian Asset Management — Analyst

Harsh Shah — Dimensional Securities — Analyst

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Saurabh Sidhwani — Sahasrar Capital — Analyst

Manoj Bahety — Carnelian Capital Advisors LLP — Analyst

Devang Bhatt — IDBI Capital — Analyst

Rahul Jain — Dolat Capital — Analyst

Dhruv Bhatia — AUM Fund Advisors LLP — Analyst

Jiten Parmar — Aurum Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Newgen Software Technologies Limited Q4 FY ’23 Financial Results Conference Call. [Operator Instructions]

I now hand the conference over to Ms. Deepti Mehra Chugh. Head, Investor Relations thank you and over to you ma’am.

Deepti Mehra Chugh — Head, Investor Relations

Thank you. Good evening, everyone. I’m Deepti Mehra, Investor Relations, Newgen Software Technologies Limited, and I welcome you all to the Q4 FY ’23 results of the Company.

Joining with me today on our call is the Management, Mr. Diwakar Nigam, Chairman and Managing Director; Mr. Varadarajan, Whole Time Director, Mr. Virender Jeet. CEO, Mr. Arun Kumar 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 profitability. These 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 would now hand over to Mr. Nigam for presentation of the results, which will be followed by Q&A by Mr. Jeet.

Diwakar Nigam — Chairman and Managing Director

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 INR1,000 crore milestone 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 metrices 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 have now reached INR323 crores. This revenue stream is stable and recurring in nature and grew faster than the overall revenue growth rate of the organization at 31% y-o-y. We now also comprise 33% of share of our total value.

Morning, large customer base. Our solutions really are driving deeper penetration into our customer base. We have been seeing an increasing trend of average ticket size per customer. Of the 520-odd active customers today, 51 customers had a billing in excess of INR5 crore for the year, compared to INR38 crore. At the same time, we continue to maintain low level of client [Indecipherable].

Moving to updates on our offering and opportunities. Innovation is at the core of Newgen, and we continue to invest 10% of our revenues on various R&D initiatives. We are excited to see that our innovative offerings are well position to tap the large market opportunity for automation at scale by enterprises. 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 costs and business operation and team collaboration. It helps businesses deliver exceptional customer experience, achieve operational excellence and drive continued innovation. The solutions are quick to implement and very cost effective.

NewgenONE is backed by back-bit cloud native multi-persona AI ML, bigger ANSYS platform that enhancement [Phonetic] of document classification and extraction capabilities. Integrated process and robotic process automation. And it send us dev-ops for easy application deployment and update. Newgen’s RPA

[Indecipherable] low code application development capability and is expected to further empower our customers to achieve end-to-end process automation.

Our trade finance solution is taking us deeper into the banking and financial services vertical and opening up opportunities for larger deal sizes. We are not targeting larger sized banks and financial institutions across the globe. We are still to be recognized as a leader by various reputed industry analysts across segments. During the quarter, we have been recognized as a leader in the Forrester Wave Content Platform report. We believe this recognition validates our dedication to empowering business with cutting edge solutions as we remain at the forefront of content management innovation.

NewgenONE has been also acknowledged as a strong performer in the Forrester Wave RPA report. On the operational front, the prioritization of initiatives aimed at enhancing employee engagement, talent management and capability building, our focus as been on 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 talent. This is essential for driving our long-term growth.

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 the system integrators who expand our markets. 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 towards the strengthening our relationship with the GSI. We are driving joint sales and marketing activities and campaigns, as well as joint solution development with our partner. We’ve entered into a strategic partnership with Mambu, a leading cloud banking platform based in Amsterdam and Sopra Banking Software of Europe to expand our geographic presence.

On profits and margins, we delivered a healthy margin during the year. Our EBITDA was stable at INR212 crores, resulting in a margin of 22%. And profit after tax was INR176 crore leading to net margin of 18%. During the year, apart from investing 10% of our revenues 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 network, 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 INR136 crores. Our net trade receivables was INR388 crores at the end of March, which resulted in net DSO of 145 days.

In Q4, our revenue were at INR305 crores, with a growth of 32% y-o-y. This is the first quarter for us where we crossed the revenue milestone of INR300 crores. We witnessed acceleration and business from customers especially from 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 opportunity for automation at scale in enterprises, especially in banking and financial services domain.

Newgen continues to empower enterprises towards a more holistic or enterprise-wide automation, which is built 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’re very fit to take this journey with our cutting edge products, focus on innovation, [Indecipherable] and deeper customer relationships across the globe.

We are now open for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital. Please go ahead.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Hi, Mr. Nigam, Virender, 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 that the U.S. is subject today, is there a risk to our pipeline, per se? What’s the sense from your current conversations?

And secondly, our go-to-market success in the U.S. this quarter, was that courtesy our system integration partners or were they courtesy our organic initiatives. And what’s your sense of traction in the geography per se or banking?

Virender Jeet — Chief Executive Officer

Thank you. Thank you, Sarkar. I think for the U.S., as you take us, the understanding, our business is pretty diversified in deals, and the present for us in the U.S. is in accounts which are typically in financial services and some large enterprise coming from GSIs. Today, we don’t see any risk in terms of our pipeline on that. Probably, we don’t have the same concerns as the larger GSIs because I believe that most of our business is still doing from licenses and which are — the opportunities are generated on both sides in terms of when people are looking at efficiency and reduction of costs, our platform plays a very important play, as well as when they are looking at growth and scaling up.

So, in that case, I don’t see 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 closed some deals organically from our banking side, but also we got some support from the GSI deals, especially from the existing accounts, which we have already acquired over previous quarters. So 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 have started coming in, but there is still a long way to go before we are completely out of woods out there. But 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.

So, going further for the next year, as of now, we don’t see any systematic risk or any risk in terms of recession or any other thing from a comp…

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Sure, sure.

Virender Jeet — Chief Executive Officer

Does that answer it?

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Yeah, it does. On the same lines, the 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 just given the commodity prices have been, and it will be difficult for us to kind of repeat this kind of performance, your sense of the Middle East business.

Virender Jeet — Chief Executive Officer

So, it’s not cyclic in a way, but what we have always cautioned about Middle East that the market behavior changes when oil hits very extremely low levels. But in a moderate climate, even oil going up $50, $60 or so, I don’t think there’s any impact on our business.

And I think there are two parts of the Middle East business. I think though it is an oil-based economy, but now as many companies are trying to de-link their economies from oil, there is not of economic activity happening in territories like Oman, Saudi is being a great territory, even UAE. So, I don’t see anything which leads to substantial change in the whole scenario on the market. So, what we have witnessed in last two, three years and Middle East, I don’t see any reason why we should not continue the growth momentum this year also.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Right, that’s helpful, Virender. So, given where your pipeline and conversation is, you reckon we are on course for a 20%, 25% kind of growth this year as well for your overall business?

Virender Jeet — Chief Executive Officer

Yeah, I think we don’t give guidance and I think that’s a standard answer, you guys are pretty used to. But what I’m saying is, I think we have a historical trend of growing about 20%, 25%, and what we have aimed for in last two, three years is to accelerate that growth rate. Some amount of that acceleration has come in last year, and as of now all the main things remain the same, we think that we can continue the growth format into the next year.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Sure. And the last question before I get in, gentlemen, your payout this year relative to your cash flows have been rather muted. So, what are the broad thoughts on that? If there’s a cash pile that’s increasing? I don’t think we are of the DNA that will make aggressive M&A. So, what’s the long-term plan on the cash build up and your distribution to stakeholders?

Virender Jeet — Chief Executive Officer

So, I think we are following the policy of dividend payout which we have maintained over last year, so which is kind of a percentage of what we make as PAT. And of course, you are right, we are generating build-up cash, and so far, we have not deployed for any other purpose, but the organization’s whole purpose is to invest for growth. And we are aggressively looking at opportunities, both on organic side and inorganic side for that growth.

I think it will take us at least few more quarters to come up with a [Indecipherable] policy either on dividends or looking at how do we deploy that cash. So, till that time, we’ll have to be little bit patient on that.

Baidik Sarkar — Unifi Capital Pvt Ltd. — Analyst

Sure. I’ll look forward, gentlemen. Thank you. All the best.

Operator

Thank you. Next question is from the line of Mihir from Carnelian Capital. Please go ahead.

Mihir Manoha — Carnelian Asset Management — Analyst

Yeah, hi. Thanks for giving the opportunity and congratulations on a good set of numbers. Largely wanted to understand the traction on the trade finance side of the piece. How are you seeing the traction of the trade finance platform given the deal sizes are slightly larger here? And also wanted to understand in this context, I mean, you mentioned that you’re moving from traditional banking to larger accounts in the U.S, so I mean, given the fact that how are we looking at trade finance platform plus this comment that you made upon, and how is the organic sales channel specifically panning out in the U.S.?

So, that was my first question. And second question was on the GSI. I mean, how is the traction now in GSI? If you can quantify the number of deals won this particular quarter and for the full year, and how is that compared to last year. And how do you see traction you’re building up? So, those were the questions.

Virender Jeet — Chief Executive Officer

Thanks, Mihir. And let me try to answer one by one, and remind me if I miss something. So, I think you’re right, absolutely on the trade finance, we did this new product, it has been almost like one and a half years since we hit the market with this, and we’re finding substantial traction in the market. And 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 amount of interest coming from U.S. and other markets as well. But right now I think, if you ask from a business planning perspective, we have closed some significant deals in markets as some marquee accounts, I think which you’ll be very proud of once we announce the — once we have the permissions to announce. And going this year, [Technical Issues] 7 more deals across the geos for trade finance, which should hence our topline growth as the deals are substantial in size. But as you know, these are projections and I think we’ll have to wait for actual results to come in.

For the U.S., 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 are still focusing on moving up the value chain on accounts which are slightly bigger than $20 billion on the banking side and try to sell our traditional products which have been typically in the lending side, both on the commercial as well as retail, as well as there is an opportunity of looking at both platform sale in ECM and BPM and low-code platform what we’re trying to sell.

That’s the market we are focusing on. Out there we have have started seeing early signs where — we — last quarter also, we closed two deals on that front. So we are thinking that strategy probably is going to show some kind of returns in coming months and coming quarters.

On the GSI traction side, as we’ve shared, the GSI movement 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 in his address, we have formed new relationships and new alliances with lot of other companies and other product paid companies which are adding to the funnel size. Of these, we closed around 3 deals, if I’m right, I mean I’d be sure about the number, in this quarter which are all new deals, but also we are able to get substantial deals from the existing accounts which we have closed previously. Compared to last year, the number of new logos acquired from both sides was a number which was not significantly very high but on the revenue realization from those accounts, we are at a much better position.

So, Mihir, I will stop here. Does that answer your question?

Mihir Manoha — Carnelian Asset Management — Analyst

Yeah, sure, sure. That’s really helpful. And lastly on the marginal side, I mean, given the fact that we saw margin recovery happening in 4Q, your 4Q is a seasonal quarter, but how should we see your FY ’24, FY ’25 going ahead, given the fact that there is like a 300 basis points kind of a decline, at least from a y-o-y basis for FY ’23?

Virender Jeet — Chief Executive Officer

Yeah, So, Mihir, as you see that on the last year we have — the margins had not been what had been the previous year because the previous year cost base was not realistic. And 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 operating expenses — I mean, almost we are at 99% of our workforce, has in some ways started coming back to office, whether on part-time or on full-time basis. So, on operational basis, a new cost base and we had set up a target of doing around 18% net margin in the long-term view and to do 20% of EBITDA. I think we are very close to that.

Going this year, we are still looking at this year as our growth year. So, we are — we continue to invest aggressively in both sales and marketing side and are building capacity for that growth. Lot of manpower costs, which have been incurred last year would also have an impact this year. So, I think we should be able to maintain these margin levels for this year, and then really have a bit more PAT for growth.

Mihir Manoha — Carnelian Asset Management — Analyst

Sure, yeah. That’s it from my side. Thank you very much.

Virender Jeet — Chief Executive Officer

Thank you.

Operator

Thank you. Next question is from the line of Harsh Shah from Dimensional Securities. Please go ahead.

Harsh Shah — Dimensional Securities — Analyst

Hi, good afternoon, sir. Sir, just wanted to understand how the competitive landscape is emerging, especially in your traditional markets? And also in U.S., given that the larger companies are seeing some sort of pressure or some kind of slowdown in revenue growth, is there any sort of pricing pressure that you are facing to — how is the competitive scenario emerging now?

Virender Jeet — Chief Executive Officer

Yes, thanks, Hash Shah. So, regarding competition, I think it’s for our core product categories. I think the competition is pretty standard. And those are — typically if you look at the Gartner’s and Forrester Quadrants, you will see all the news out there because predominantly, they play in all the markets. Beyond that, for our our vertical products, what we do in lending, what we do in origination or what we do in trade, there different set of, which are typically what we call vertical banking products, those are the competition.

One of the important developments which has happened is on the core product categories which is ECM where we also been rated as a leader by Forrester and [Indecipherable], but there has been lot of consolidation, and in fact now, we do only see two or three key players emerging in the market and we think that should help us in terms of where we [Indecipherable] modernization of enterprise, content management, we should be able to make more in those.

On the larger, what’s happening in U.S. companies, since our revenues are diversified across these territories, we are not seeing the same impact or we don’t have the same insight into what’s happening with larger companies in U.S. And we do — we are growing fast, but on the revenue side, some of the problems of larger companies are from the base accounts which are sitting in probably typically in Tier 1 in U.S. and Europe, and that’s where we are seeing the pain.

For us so far, we are not seeing that coming into our — but I think as the next few quarters show, I think more clarity will come in. We have a very extremely healthy funnel for the next year. Our order books has improved beyond the revenue numbers we have done. So, we are quite confident we should be able to have a good year. And — but environmental conditions can be very acute these days, and we saw that a couple of years back. So, we have keep our fingers crossed till actual thing happens.

Harsh Shah — Dimensional Securities — Analyst

Thank you. And if I have to talk about your growth potential for next three to five 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?

Virender Jeet — Chief Executive Officer

So, as a software company, our aspiration is to be a $500 million and $1billion company, so — and that aspiration is based on that there is an unlimited market potential for the product categories we play in. And what we are thinking that our penetration in mature markets [Technical Issues] is that potential [Technical Issues]. Having said that, we have seen enough growth coming in emerging markets over last three, four years. They have been growing and there have be multiple drivers for that growth as they’re adopting technology. So, I’m very excited that next four, five years, we are designed to grow at a much higher speed than our traditional growth rates.

And the growth is coming predominantly from two factors, which you said right. One is, I think as a product company, net client addition is an important. We are pivoting towards slightly larger deals so. So, our ability to add roughly around 50 new logos in terms of — which have been names is what has been — what — is the run rate we’re working on. We do expect to improve that in next two, three years. But on the other hand, on average deal sizes, as we are shifting to larger accounts, that is improving as well as the ability to mine from existing customers as our solutions stack becomes broad. We are able to do. So, per account realization is improving, average deal sizes are improving, but acquiring new logos is very essential to building long-term, the tale for the business.

Does that answer your question, Harsh Shah?

Harsh Shah — Dimensional Securities — Analyst

Yes, yes, certainly. Thank you so much sir, and and wishing you all the best.

Virender Jeet — Chief Executive Officer

Thank you.

Operator

Thank you. A request all the participants, please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. The next question is from the line of Chirag from Ashika. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Yeah, congratulation on good set of numbers. I have a couple of questions. In your opening remarks you mentioned that we are targeting large banking and financial groups. So, I would like to understand what strategy we are following to tap such large corporates?

And second, on logo addition front, the net logo count compared to previous years is relatively on lower side. So, what strategies led to increase the momentum in terms of logo addition? Yeah, I would like to know these two questions.

Virender Jeet — Chief Executive Officer

Thanks, Chirag. So, Chirag, when I said our ability to — we are trying to shift. So initially, our banking in U.S. was focused on typically banks which were somewhere in say, sizes of $1 billion to all the way up to $20 billion. We have slightly pivoted and started focusing typically on banks which are at least $10 billion or more, up to all the way up to $50 billion to $100 billion. And what we have seen is as we have been able to partner in some — garner some more support in terms of referenceability in U.S. and our solutions have become more mature, we have seen we are able to enter those accounts. We are still not talking to Tier 1 banks, we are still talking of mid-level Tier 2 banks rather than Tier 3 banks and that.

That’s what I mean is that U.S. banking and we already have referenceability in that market. We’ve got early wins, even this quarter, we closed some deals out there. So, we think that’s going on as per plan. On the logo side, you’re absolutely right. I think at one time, we have moved over last four, five 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 that through channel partners or through, in terms of debt. We have slightly moved away from that market and looking at lifetime values of those customers have not be in our favor.

So we have slightly pivoted. On the — acceleration over next two, three years will come from more markets we’ve entered. Our Australia has started showing results, our UK subsidiary has started winning logos and U.S. as soon as we stabilize our strategy and 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 a huge potential. We are looking at — actively looking at how do we diversify to more adjacent verticals which can grow for us. And I think over the time, we’ll see that there is going to an acceleration in our logo acquisition.

Does that answer your question, Chirag?

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Yes, Sir. Sir, one follow-up question. You mentioned that we are targeting new geographies for logo addition. So the new geographies having similar size of deals which we’re targeting in the existing geographies.

Virender Jeet — Chief Executive Officer

Yeah, Chirag, I think the new geography that typically the mature markets. So, we expect the deal sizes to be same or better.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay. All the very best, sir. Thank you.

Virender Jeet — Chief Executive Officer

Thank you, Chirag.

Operator

Thank you. Next question is from the line of Saurabh Sidhwani from Sahasrar Capital. Please go ahead.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Hello, everyone. So, two questions. First one, given the macroeconomic conditions and there’s been a negative nature of major peers, are we…

Operator

Sir, sorry to interrupt you, your voice is coming little distant. Can I request you to speak through the handset?

Saurabh Sidhwani — Sahasrar Capital — Analyst

Yeah, I am speaking through the handset, is it correct — is it better now?

Operator

Yes, sir.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Yeah. So, I was asking that given the macroeconomic situation that the free money has stopped and EBITDA negative nation — nature of the business of our peers, are we seeing any passiveness in bidding by them, and have we been able to take advantage of that?

Virender Jeet — Chief Executive Officer

Yeah, Saurabh, thanks for question. Saurabh, I think the business, most of the conversation what we hear about, the Indian IT and the economic is typically from service companies’ angle, and I think predominantly driven by the Tier 1, Tier 2 companies which operate at a very different size and ratios. So, I’m — we are not very sure about how to answer that question, because we are slightly not in that business. We are still in the business of acquiring acquired — accounts and being in terms of what we call a high cut sale or what we call serious enterprise sale.

In terms of right now, what we have seen traditionally before the COVID, before the demand cycle really went out the route, we really felt that the GSI ecosystem was more hungry for these. And they were fighting for these more aggressively in the market. So, what I sense is also there’s 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. And that happens in — and in that case, we are looking at that that should help our costs what we are building in terms of investments along with [Technical Issues].

Other companies is down — I think every company is more hungry for business. I don’t think there’s any lack of competition. So, I think there’s going to be a more heightened competition in this in terms of — if there’s a slightly downward economic tide.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. And the second question was related to a simple business clarity that I wanted to understand was our product — Newgen’s product are built in India and given the labor arbitrage that we have, do we make our products as a lower cost compared to our peers, and — so all else equal, we should be always winning on pricing, right?

Virender Jeet — Chief Executive Officer

Yes. I think, Saurabh, you’re absolutely right. I think there is a 6%, 7% advantage on R&D costs. At the same R&D, if it was supposed to be done in U.S., the cost would have roughly maybe 20% of the revenue or 22% of the revenue. So, there is a cost advantage, you are able to do with lesser cost, you’re able to do, and more.

So you have an inherent advantage of doing things. But then, I think that the advantage gets balanced by the size of some of our peers. Generally, we are fighting much larger companies. So, they have much larger budgets at the size they are in terms of R&D. So, it’s a — so, I think the whole cost arbitrage is just an advantage to at least compete out there. And the post of developing R&D does not translate into cost of the product, cost of the product is a market reality, the benefit is transferred to the customers. So, pricing of products are benchmarked to what the market determines. So, there is no direct correlation. What you’re saying is true is more about more directly related to services.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. Thank you. That’s all.

Virender Jeet — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Manoj Bahety from Carnelian Asset Management. Please go ahead.

Manoj Bahety — Carnelian Capital Advisors LLP — Analyst

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 inroads with our GSI partners. So, just wanted to understand is there something which is not clicking or something which is leading to a delay in terms of getting the traction on DSI strategy. So, if you can give some more color on that, that would be helpful.

Virender Jeet — Chief Executive Officer

Manoj, thanks. And you’re absolutely right, last two, three we’ve building on this GSI strategy. And I think we’re very lucky to get some very extremely good early wins which really established both recall of Newgen within GSI Mindshare and also [Technical Issues] relations with GSI. See, what — in terms of success or failure of GSI is determined by the ambition we have around that. We do get lot of business with GSIs. I think, in fact 20% of the revenue today is driven by partners. And we have some amount of marquee wins every year with GSIs. What we expect this to drive the next phase of this growth in mature markets for us. Out there and we have not really reached a number where we could say that, hey, it is at a delta of 5% to 10% of our revenue growth. So, it is all adding up, but not at the speed we desire.

Having said that, I think we have — we looked at that strategy while we continued what we’re doing out there. We’ve expanded the ecosystem, we have looked at pairing the partners out there. We also looked at ecosystems beyond GSI, which is the product pay as Diwakar Nigam talked about some of the relationships what we’re trying to build with Sopra or Mambo or any other company. So, we are expanding. The reality for a product company is that their next stage of growth does come from the partner ecosystem, what we call as GSI Other thing. I am very sure our company will continue to perform great and grow as the markets which we are operating in right now have huge potential and upside for our kind of product.

But I’m very sure that for our $500 million and $1 billion achieving target, the GSI and the partner ecosystem strategy has to fire. And it may take one year, two year, three year, five Year, but we’ll be on it, till it fires.

Manoj Bahety — Carnelian Capital Advisors LLP — Analyst

Just to further on this, like, when you enter into a partnership with a GSI, I’m sure that must be dealing with your competitor product or they may have another — other competitive products. So, just wanted to understand that vis-a-vis their existing product, what kind of — or in terms of our offering vis-a-vis their existing product, generally is it a cost factor which plays big consideration or is it something else?

Virender Jeet — Chief Executive Officer

Yeah, so, Manoj, I think that — this is typically a very, very large question and a very large answer, but I’ll try to summarize. So, what is happening in any product company, I think we’ve become very good in certain areas of operations. Today, Newgen for any content based process automation for any automation which needs scale in terms of when you’re hundreds of processes, we are probably the best product in the market. Now, the whole world may not know it, but some of the GSIs do know it because they have done this work with us for multiple customers in different geos. So, they understand the positioning.

Having said that, they also have in their portfolio, other products. So, one is that GSIs do understand the value we bring in, and that value is in terms of coverage of our product, the value is in terms of flexibility which we exhibit as we have a closer relationship with them, but also as a company, it is finally our goal to sell to the end customers. So, we have to influence the end customer that’s about our brand, that’s about our presence in that Gartner’s and Forrester, that’s about our size as a business. So, it has to work on both sides. While we will with GSIs, show the unique value prop we provide them, we show them the advantage of cost and flexibility, but also we have to work with the end customers in terms of if there’s a customer willing to buy my product.

So, most of the products are not sold by the GSIs, it’s also there the customer has a big play in 70% of the cases what product they choose. The issue is — if they choose me, then they will think that there’s a trained GSI ecosystem which has an implementation capability to implement that. So, that’s what we cover with GSI.

Manoj Bahety — Carnelian Capital Advisors LLP — Analyst

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 the scope of big operating leverage. So — and as you mentioned in one of the questions earlier that right now your emphasis will be growth rather than expanding margins, but in terms of operating leverage, how do you think that at after what level, what scale operating leverage will start kicking in and we will start seeing good expansion in margins along with topline growth?

Virender Jeet — Chief Executive Officer

So, see, the question is, we are already sitting a decent margins and I think yeah, product company generally can generate much higher margins as our gross margin position is much better. I think we do generate around more than 50% gross margin. And roughly around 55% of our revenue has no direct cost associated with it, which is our license, subscription, APS. So, there is — but also you have to understand for product companies to exist and survive, they have to continuously invest in R&D and seize the market.

Now, the global benchmarks for the product companies are much higher than what we enlist today in terms — because we get some amount of operating leverage because the cost base is in India. So, as I said, our bias is for growth and to maintain healthy margins. But, naturally, once you become a very sizable company and sizable companies, we have seen roughly around $400 million and above companies, and if they become on slower growth trajectory, they end keep on expanding margins for many, many years. So, I think our ability to generate a net margin of somewhere between 18% to 20% is what we think right now is feasible for next two three years, and then investing everything else on growth.

Operator

Thank you. Manoj, sorry to interrupt you. I’d request you join the queue again for a follow-up question. The next question is from the line of the Devang Bhatt from IDBI Capital. Please go ahead.

Devang Bhatt — IDBI Capital — Analyst

Hi, am I audible.

Virender Jeet — Chief Executive Officer

Yeah, Devang. Please go ahead. Yes.

Devang Bhatt — IDBI Capital — Analyst

Thanks for taking my question. Congrats on a good set of numbers. So one, of your GSI highlighted that low-code and no-code is gaining traction in this scenario. So, are you seeing similar increased traction in mature markets in the current scenario? That’s question number 1.

Virender Jeet — Chief Executive Officer

Devang, I’m sorry. Could you just repeat that? I couldn’t understand that.

Devang Bhatt — IDBI Capital — Analyst

Okay, let me go to my handset. Yeah, hi. So, one of your GSI highlighted that low-code and no-code is gaining traction. So, are you seeing such increased traction in mature markets in the current scenario?

Virender Jeet — Chief Executive Officer

See so, I think we are really — see, I think we have a methodology of last 20 years on pushing low-code, no-code. And I think they have come to different names that have been BPM, IDPS, low-code, no-code, hyper automation. These are all categories of the same name. There is a huge interest in enterprises across the world that they don’t want to take the traditional engineering method for building their apps. They want the low-code method. So, that way, there’s an interest.

Having said that, that interest is also very [Technical Issues] every customer, every application has to be low-code. So that’s a huge market opportunity across the globe. And we are really very excited about helping customers in that automation side. So, we are seeing interest in lot of RFPs coming on low-code across markets, not only U.S. market, but also other markets. And we are really strongly pushing our strategy on low-code and hyper automation to be one of the core product plays in that space.

Devang Bhatt — IDBI Capital — Analyst

So, a follow-up is that will you be able to see higher U.S. growth in this year because of this? And will you be able to sustain the Q4 kind of margins that you have seen in this quarter?

Virender Jeet — Chief Executive Officer

Yes, I think as part of what we sell, all things we sell are based on low-code strategy. So, I don’t think there’s any different thing out there. We do expect that as soon as in the downturn when the cost optimization project comes, there’s a — if it’s new, it’s just automation. And automation is low-code based automation, because you don’t want to have very, very long projects. But I think we’ll have to wait for how the market unfolds in those opportunities, and how many opportunities that GSI can take us out there and how many can we generate on our own.

So, that’s about low code. Sorry, what was the second question?

Devang Bhatt — IDBI Capital — Analyst

Just a bookkeeping, like in your tax rate, it is being lower, around 19%. So, will you be able to sustain this kind of tax rate in FY ’24?

Virender Jeet — Chief Executive Officer

So, I think on the tax rate, we are fine for the next one year, two years. So, because we are still under the SEC rules for many of our revenue. On the Q4 margin, I think you should also understand that we have — large percentage of our revenues in license-based. We are — there’s a sequential revenue growth from Q1 to Q4, Q4 and Q3 being the largest quarters for us. So, the margin positions since the cost curve will flat generally a very substantially large margins in Q4, but in Q1, Q2, we’ll have muted margins. And then again, Q3, Q4 margins will be like that. So, that is — having said that, yes, we should be able to sustain the overall margins.

Devang Bhatt — IDBI Capital — Analyst

Sir, my question was more related to the U.S. Q4 margin because we have seen some dip and improvement in U.S. So, that margin.

Virender Jeet — Chief Executive Officer

I would say we are still smaller revenue size to look at segment margins. I would still focus as a company on the overall margin because in segment margins, lot of our cost is attributed cost because we operate out of India. Predominantly all the services are provided to that. So, if the topline growth is high in U.S., the margins will be high. So, but I would still recommend that you look at the margin positions any the annual — company level and at the annualized.

Devang Bhatt — IDBI Capital — Analyst

Thank you. Thank you, sir. Thank you, for taking my questions.

Operator

Thank you. Next question is from the line of Rahul Jain from Dolat Capital. Please go ahead.

Rahul Jain — Dolat Capital — Analyst

Yeah, hi. I just have one question that you talked about the partnership with Mambo and Sopra, can you just explain how things are beneficial and what are the intersection of the offering and what other complementary element involved here?

Virender Jeet — Chief Executive Officer

Yes, so, thanks, Rahul. So, Rahul, I think what we have done is, we are looking at the whole partner ecosystem more broadly in terms of we’re finding what are the complementing products and go-to-market strategies because these are typically, these both, we do banking. So 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 our alliance. And Mambo, I think this is the a banking — core banking product basically, more for digital banks. We are — again, we are looking at how to extend beyond core banking, more structured loan products. Enterprise Content Management, Customer Communication Management products with them.

So, both these things, we are in the early stages, and I think in Mambo, we have some successes in the market. We are also working quickly to have some more success with Sopra.

Rahul Jain — Dolat Capital — Analyst

So, specifically, let’s say, for example, for Sopra, don’t they have their lending solution as of now?

Virender Jeet — Chief Executive Officer

So, 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 attractive what they can parry to large number base, and they have other product categories. And it complements their offering.

Rahul Jain — Dolat Capital — Analyst

Okay. And in this kind of say go-to-market arrangement where they are also primarily a software business, are they going to sell on their own or this is also through pair partnership eventually being sold by SI, and how the revenue share would come in case they generate these leads for us.

Virender Jeet — Chief Executive Officer

So, they are — see, they are in their own — they have got a huge customer base across those places. They are looking at their customer base and their prospects. So that’s a sales for them, and we are selling jointly along with them. What — wherever we are selling, we are looking at net to Newgen revenues. And finally, the net to Newgen revenues is what predominantly is at list price of somewhere around 35% minus list price. So, in our books it’s always net to Newgen.

Rahul Jain — Dolat Capital — Analyst

Okay. And have we defined the market in terms of what is targeted through this channel versus what is targeted directly and what is targeted through SI in these markets?

Virender Jeet — Chief Executive Officer

Yeah — so, I think it’s a much more detail. I think there is a clear cut on our direct channels [Technical Issues] go-to-market pursuits in terms of what we do. Basically, we follow named account strategy in all our markets. We have a set of target accounts and some target verticals where we have six, seven offerings which we want to take through as enterprise sales.

With the GSI, we’ll focus on more horizontal products, Enterprise Content Management replacement, modernization, low-code offering, where they can go to any vertical, because they have the knowledge of other verticals. With alliances like Sopra, Mumbo, it’s around adding capabilities to their overall go-to-market strategy in their offering. So, we are a predominantly adding more content management and lending capabilities to be their product offering.

Operator

Thank you. I’m sorry to interrupt you, sir. I’d request you join the queue again for a follow-up question. [Operator Instructions] The next question is from the line of Dhruv Bhatia from AUM Fund Advisors. Please go ahead.

Dhruv Bhatia — AUM Fund Advisors LLP — Analyst

Hello?

Virender Jeet — Chief Executive Officer

Yeah, hello. Please go ahead, Dhruv.

Dhruv Bhatia — AUM Fund Advisors LLP — Analyst

Can you just throw light on the increase in DSO days to 145 days in the current quarter?

Virender Jeet — Chief Executive Officer

So, yeah, it has increased over the last year. So, generally what happens, our year-end DSOs are very high. As I’ve said, lot of billing happens towards the later part of the year, and that’s the large culture of our business, we do licensees. We have done roughly around more than INR350 crores of billing. And predominant, that is the last month would be significant part of that billing, but that add to the DSO. So, our revenues have — our billing has grown at much higher speeds than our revenues. So, there are much higher DSOs.

Having said that, we have optimized it from a very large number, and we are targeting that would be around 120 is the right number. And a safe number could be around — and then look at optimization beyond that. I think in some markets like EMEA and India, we are slightly at higher that number, that’s pushing it up, but in APAC and U.S. we’re at much lower number. So, I think, again, our endeavor is going to keep on bringing it down to a number of 120 and then. So it’s going to be generally — for the next three quarters, it’s going to be much smaller number, but as an annual number, we’re targeting that at the year-end, it should be less than 120.

Dhruv Bhatia — AUM Fund Advisors LLP — Analyst

Okay. Thank you.

Operator

Thank you. Next question is from the line of Jiten Parmar from Aurum Capital. Please go ahead.

Jiten Parmar — Aurum Capital — Analyst

Yeah. Most of my questions are answered. I have only one question more of what do you think is the threat of AI and basically, the way things are moving in that particular domain? So, if you can throw some color on that, if it is beneficial for us or it could be some threat.

Virender Jeet — Chief Executive Officer

Yeah, Jiten, it’s a million dollar question and I think now everybody is — I have a personal opinion on it. I don’t know an official opinion. But what — I think when you look at any disruption in technology, solutions and technology disruptions like cloud, mobility, smart, we have always seen that it helps product companies because they end up leveraging that technology faster than the market and then creating more products and services around using that technology. So, the recent – what has happened, over last four months in the generative AI, we think that throws up a lot of opportunities for us in Content Services, in Search Optimization, in Content Generation. So, there are lot of areas for us on the table as an opportunity next three, four years. So, I believe that the speed by which we can innovate over next three, four quarters is going to determine whether we lag or whether we can ride this. But there are other wide implications of generative AI which will happen over the next three, four years in the market around augmenting capability for engineers, being able to do much more faster work. I think those will be much more operational benefits which we can get. I think some a lot of challenges in the IT industry is looking at generative AI is more from the services nature in terms of when you are deploying hundreds and thousands of people to do some routine jobs. Fortunately, we are not in that business. We’re still in the business of innovation, and if generative AI can help our innovation cycles, I think we should be very happy with that.

Jiten Parmar — Aurum Capital — Analyst

Great, thank you. That’s the only question I had. Thank you.

Operator

Thank you very much. Ladies and gentlemen, we’ll take that as the last question. I will now hand the conference over to Me. Deepti Mehra Chugh for closing comments.

Deepti Mehra Chugh — Head, Investor Relations

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.

Operator

[Operator Closing Remarks]