Rategain Travel Technologies Ltd (RATEGAIN) Q2 FY23 Earnings Concall Transcript

Rategain Travel Technologies Ltd (NSE:RATEGAIN) Q2 FY23 Earnings Concall dated Nov. 07, 2022

Corporate Participants:

Bhanu Chopra — Chairman & Managing Director

Tanmaya Das — Chief Financial Officer

Analysts:

Ankit Kanodia — Smart Sync Services — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Hitesh Zaveri — Axis Mutual Fund — Analyst

Rahul Jain — Dolat Capital — Analyst

Prolin Nandu — Goldfish Capital — Analyst

Ashish Chopra — GSAM — Analyst

Satish Saraf — Tusk Investments — Analyst

Rishi Jhunjhunwala — IIFL Institutional Equities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q2 FY ’23 earnings conference call of Rategain Travel Technologies Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on-date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Bhanu Chopra, Chairman and Managing Director. Thank you and over to you, sir.

Bhanu Chopra — Chairman & Managing Director

Thank you. A very good afternoon to everyone, and thank you very much for joining the earnings call for Rategain Travel Technologies Limited for the second-quarter and first-half year ended September 30, 2022. We are very excited to meet all of you again and share some key highlights from our Q2.

Joining me on the call are Mr. Tanmaya Das the, CFO of Rategain; Mr. Chinmai Sharma, President of Americas and our Distribution Vertical; Mr Divik Anand, Head for Investor Relations; and Thomas Joshua, Company Secretary of Rategain; and alongside we have our Investor Relations partner, Strategic Growth Advisors.

We announced our second quarter results for the fiscal year 2023, and I hope you’ve had a chance to go through our financial results, the press release, and investor presentation that are available on the stock exchanges and our on our company website. We are proud to announce another quarter of healthy, broad-based growth, but strong performance across all our three business segments. We continue to witness strong traction with existing clients and healthy volume growth with travel demand holding up well along with new client additions, contributing to the underlying growth performance.

The standout for us this quarter is the operating leverage kicking-in with expansion in our operating margins to a trend quarter high of 15.2%. This is a testament to the strength of the business fundamentals and our commitment to prudent growth as we continue to be one of the very few profitable growing SaaS companies globally. On a run-rate basis, we are now exceeding our pre COVID annual recurring revenue by 22%, and are well on our way to meet or even exceed the annual growth guidance given at the time of the IPO. Also considering the Rule of 40, with that as the typical benchmark for SaaS companies globally, we are exceeding this Rule of 40 by a great margin as we are now at 62%, which is an aggregate of 15% EBITDA plus 47% growth. We are focused on our mission and commitment to our customers to help them unlock new revenue by helping them acquire guest, retain and engage them, and expand on the wallet share.

In-line with this commitment, I’m pleased to announce the launch of our latest AI-powered offering developed in-house at RG Labs called Engage AI. This is a virtual concierge tool that will be a available to hotel guests on their preferred messaging apps like WhatsApp, right from the time of booking to the culmination of their stay. The tool will assist them with virtual check-in and check-out, answer their simple quires to making reservations at a restaurant or a spa of their choice, and get personalized recommendations for shopping and tours and activities, thus enabling the hotels to engage better with their captive audience and also grab a share of all the travel spend. We already live in some properties and in talks with some large clients.

In terms of global travel trends, we continue to see that the demand remains strong despite growing concerns on macro headwinds. Volumes in reservations continue to remain strong with a strong holiday season coming up in a key destinations globally. Also there are several reports indicating that the consumer have put travel experiences on top of the discretionary spend. The global health travel index released by [Indecipherable] continues to hold steady and many geographies are at or above pre COVID levels now. While the near-term demand remains strong, we are cautiously optimistic in our outlook for next year and are cognizant of the macro headwinds that we’re facing that might affect demand.

Our big customers like [Indecipherable] OTS, the biggest car rental companies and hotel company have reported record Q2 performance in terms of revenue and profit and given the need for digitization and record profits, we continue to see robust demand for our products. On a year-on year basis, we continue to see very healthy improvement across all our critical business metrics, with strong margin expansion in this quarter on the back of operating leverage kicking-in, as our revenue scales up sequentially while our cost have essentially remained flat.

We continue to focus on our sales and marketing efforts. With more events happening, our teams have been participating in hosting events focused on new technology trends and it is giving us a chance to physically reconnect with a lot of our clients. We built-up a very-very healthy pipeline of INR315 crores. I want to commend the team on their continued endeavor to deliver consistently strong all-round results. With that, I will briefly now touch upon the performance across our three business sements, starting with Distribution segment. This division accounted for 35% of our total revenue with a recurring revenue of 99.3%. Volume growth continues to be strong on the back of robust recovery across the mid sized hotel chain segment and pickup in GDS business, which is a barometer of the business travel. We’ve closed some good deals this quarter in terms of parings between popular OTAs and large hotel chain and some of the parings from previous quarters are scaling out well. We continue to invest in scale new products like content that will enable us to position our distribution verticals with a 10x differentiator.

Within our Martech business unit now has a recurring revenue of 99%, contributing 38% of our overall revenue for Q2. We are seeing some good signs of early traction in APAC, and specifically in Middle East region as these markets open up and have on-boarded multiple properties for one of the largest global luxury chain. Our growth within this segment continues to be driven by an increase in existing engagements as customers are looking to include our metasearch products, properties are focusing on optimizing their distribution cost and reduce customer acquisition costs to tackle inflationary pressures.

Our end-to-end digital marketing offering covers all essential customer acquisition channels, including Google, Meta, and social media, including Facebook, WhatsApps, TikTok, SNAP, etc., and we were able to drive higher returns on ad spend for our clients with real-time demand and parity insights through our DaaS products. The DaaS business unit grew at a healthy pace in the second quarter on the back of stronger volumes and new logos added within our OT and Airlines segment. You must have seen some of the press releases on new airline customers we’ve added in the past quarter.

Our newly adjacent sub-vertical within the travel space, which is vacation rentals, has been seeing some good traction and is a promising new growth segment. We are seeing some good opportunities within the vacation rental space with some of the largest OTA customers. The recurring revenue for DaaS business was 98.3% and contributed to 27% of the revenue in the second quarter. One of our new products under DaaS, which is REV AI, continues to perform well and has seen strong traction within the car rental space and we have recently completed integrations with some of the largest VRS systems or car rental companies, which will allow us to make further inroads with the franchisees of these car rental company. Our strategy is to penetrate these verticals and then look at other sub-verticals within travel industry.

On M&A, we have a very-very robust pipeline and we’re looking to consummate if the value is right. These opportunities spread across strengthening our existing business lines of DaaS, Martech and distribution. On the people front, Rategain was given the award for talent management by Economic Times National Awards. We are constantly investing in upskilling talent and have recently instituted a digital learning platform with over 80,000 courses. This along with more from within policy and opportunities for the people to grow within the company, are been key to retaining talent. In terms of awards and recognition, we received the Best General Manager and the best Car Rental Technology Provider Award from World Travel Tech Awards, which is a prestigious awards program for the global travel industry.

I’d like to now ask our, CFO, Mr. Tanmaya Das, to take you through the performance of Q2.

Tanmaya Das — Chief Financial Officer

Thank you, Bhanu, and very warm welcome to everyone on this call. I’m proud to report that the company has posted another quarter of strong performance with the margin expansion being the standout, which has exceeded the guidance provided in our last quarter earnings call. The improvement in margins year-over-year and sequentially is a testament to our strong fundamentals of driving sustainable growth resulting in operating leverage.

Our revenue growth continues at a healthy pace with more broad-based growth across all three segments. We witnessed another quarter of healthy performance across key KPIs contributing to all-round growth in margins. The growing pipeline and strong client additions despite a volatile global environment highlights the strength of the travel industry and the adoption of tech products to drive revenue. Continuing with the momentum last couple of quarters, the company registered a 47% year over revenue growth with the Q2 FY’23 revenue of INR124.6 crore compared to INR84.8 crores in the corresponding quarter last year. The growth in the first half of FY’23stands at 52.7% with the company posting a total revenue of INR243.9 crore in Q1 for this year. The growth is primarily on the back of continued monetization clients audit along with an uptick in volumes of bookings seen across our platforms.

In terms of profitability, happy to report that the company has posted its highest adjusted EBITDA margin 15.2% in the past few years and this is against 8.4% in Q2 FY’22. As I had mentioned in our last call, we have managed to post healthy sequential growth in our operating revenue with our cost remaining flat. With operating leverage kicking-in, we have managed to post an operating margin of 15.2%, exceeding the guidance given. This takes the adjusted EBITDA margin to 12.8% in the first-half of FY’23. The adjusted EBITDA for the quarter grew at an impressive 170% to INR18.9 crore against INR7 crores posted in the same quarter last year. The adjusted PAT has grown 5.3 times to INR19.6 crore in Q2 FY’23 compared to INR3.7 crores in Q3 FY22. The adjisted PAT for H1 stands at INR34.4 crore.

The EBITDA margins of Q2 were a significant improvement sequentially last year, in line with the guidance given last quarter but you should see quarter-over quarter growth in revenues leading up to Q4, while our cost will largely remain flat. Our payroll and other costs were flat sequentially, in-line with the guidance given. The company continues to have strong customer relationships that are helping in building a scalable, predictable, stable and sustainable revenue streams. Recurring revenues for the quarter stood at 99% and 76% revenue were in subscription in nature.

Gross revenue retention and net revenue retention stood at 90% and 105% respectively. Our new contract wins posted healthy year-over-year growth of 8.5% and came in at INR21.2 crore and with that, we saw an improvement in our LTV to CAC, which has remained at 12.2% for H1. A marked improvement over 8.9% reported in Q1.

Our employee headcount was flat subsequently sequentially with the revenue per employee saw 12% increase over last year at INR78 lakhs. Our annual recurring revenue stands at INR483.4 crore, almost 20% above the pre COVID levels. Our pipeline increased by 10% to INR314 crore as compared to last year. We continue to have a strong balance sheet, while our network saw an increase by 3% as compared to last quarter and stood at INR653.1 crores. Our cash and cash equivalent balance for the quarter increased by INR18 crores, stood at INR435 cores. Our cash ffrom operations saw marked improvement in H1, where we had generated 1.4 times of cash generated in the entire fiscal year of 2022. In respect of guidance for Q3 FY ’23, we expect to continue our growth around 30% year-over-year and our margins levels would be similar to Q2.

With this, thank you, and I’ll give it back to you.

Operator

Shall start with the question-and-answer, sir?

Bhanu Chopra — Chairman & Managing Director

Yeah.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you for taking my question, and congratulations on good set of numbers. My first question is on the net retention rate. So in our last con-call we mentioned that the net retention rate will sequentially move-up from 105% to 110% and maybe 115% by the end-of-the year, but we are still at 105%. If you can provide more color into as to how it has been and how do we see for the rest of the year, how we’ll achieve that 115% mark? Or do we want to revise that guidance? That would be great.

Bhanu Chopra — Chairman & Managing Director

Thanks. No I think the net retention rate will continue to see improvement. Look, our business is little bit seasonal in the sense that our Q4 is our highest quarter and the volumes are pretty high in Q4. We continue to see the improvement from Q2 to Q4. So we don’t need to change any projections at this point of time.

Ankit Kanodia — Smart Sync Services — Analyst

Okay Air. And my next question would be — when we look at our performance Q-on-Q, so our employee expenses and other expenses have been flat, but we have seen big bump-up in the ESOP expenses. So would you elaborate as to why that could be? And is it the same we can expect for the rest of the year and in the future as well, or do we see any changes there?

Bhanu Chopra — Chairman & Managing Director

Yeah, so we in the month of June we approved a stock appreciation rights team, which was rolled-out in June. So the only one month cost was factored into Q1and this Q2 around three months cost. That’s why there is a bump-up. The stock up appreciation rights were issued at-market price. There was no discount given to the employees. The strike price was the market price. So ideally that should not have been any cost but because of the black [Indecipherable] method and the accounting treatment were carrying emotional cost for that, which is non gas cost. Yes, I think this will continue for the rest of the quarters as well. But because we have not given discount, so the cost is lesser than what it should have been.

Ankit Kanodia — Smart Sync Services — Analyst

Yeah, and in terms of the employee expense and other expenses, any color, more detail on that as to how we see them?

Bhanu Chopra — Chairman & Managing Director

It should remain flat, at least in Q3. It will remain flat. Q4 might be slight increase, but not materially because there is a plan for this growth and all. But more or less it will not be reduced from Q1 and Q2.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you. And we won a contract from Akasa Air. If you can show some — throw some more light as to what was the nature of the contract and how big it is in terms of the overall scheme of things that would really help us?

Bhanu Chopra — Chairman & Managing Director

I’m not sure I can, again talk about the quantum of the contracts, but it really shows the value of this product-line because Akasa which even had not started its operation, they had to sign a price comparison, competitive price intelligence product from Rategain, on the back of we also won from Air India and most of all the Indian airlines are with us. So that’s shows the value that this product really carries because without this the entire pricing strategy will fall flat. So this is a significant contract for us and pretty good brand. And with this I think all the Indian clients are with us. So it’s a it’s a very good sign.

Ankit Kanodia — Smart Sync Services — Analyst

However, in the overall scheme of things, India still forms a very small part. Am I correct on that? Should we expect that that to get better or a period of time?

Bhanu Chopra — Chairman & Managing Director

That’s right. In the overall scheme, India carries less than 1% of our revenue, but there are other brands like Singapore Airlines and Emirates, etc., which are also our clients. So yeah.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you thank you so much and all the best for the rest of the year.

Operator

Thank you. The. Next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Hello. Yeah, ma’am. Thank you very much sir for the opportunity. Sir, I wanted to understand on the first part on the revenue front, I think in the past as well we have been iterated at the minimum we should be growing at about 30% CAGR rate. I mean, so just wanted to understand this — that is, that is largely our organic aspiration rate. I mean, through organic route that is the CAGR we are looking at?

Bhanu Chopra — Chairman & Managing Director

Right. So any inorganic aspirations also we have or anything on the cards, so anything on those front?

Tanmaya Das — Chief Financial Officer

Let me take that. So as we’ve stated all along since the IPO part of the reason we — the fresh capital was to actually go out and consolidate. As you may recall, we’ve actually demonstrated that we have the ability to acquire companies and turn them around and make them very-very value accretive for Rategain. So, we’ve done three acquisitions already and so even we raised the money to do M&A. I’m happy to share that although the tech markets, especially in the US have crashed, it has created some very-very interesting opportunities for Rategain. So when I look at our pipeline in relation to the beginning of the year, it has been pretty robust and we run an active M&A program as well. So we are talking of a bunch of companies and given we have the experience in doing this and we’ve been judicious about how much we are willing to pay, it’s also a game of patience. right? So sometimes it takes longer to engage and get the right price at which you are willing to consummate the deal because we look for very large alpha returns after we consummate the company in terms of synergistic value that we can drive both on revenue and costs. So net-net, like I said, there are — there are some very-very good conversations in play. I’m pretty hopeful because the valuations have come off for Rategain also, but I do think that it should create some very good opportunities for us and there is active activity happening in that area.

Deepak Poddar — Sapphire Capital — Analyst

So what I understand is that we are on conversation with various opportunities since the evaluation has also kind of tapered off. So this is one area where we are actively looking and any kind of inorganic route would be over and above the 30% revenue CAGR that when might look at, right?

Tanmaya Das — Chief Financial Officer

That’s correct. So what we had guided was that we are in terms of deeper penetration of our existing product lines is continuing to cross-sell ups has, we showed organically see 30% and then whatever we do sort of from an M&A perspective will be above and beyond.

Deepak Poddar — Sapphire Capital — Analyst

Fair enough. I got the point. And my second question is regarding your margins. I mean, currently it is 14%. Is that a going forward at least — the run rate one can envisage? Will not see any kind of the weakness that we’ve seen in the past in terms of margins?

Bhanu Chopra — Chairman & Managing Director

What we have guided, if you recall in sort of couple of quarters ago was we will we were at 10% and then we said look this year we’ll get to 12% and going forward we can expect between 200 to 300 basis points expansion. Getting to about 20% to 25% by FY’25. So yes, we are exceeding that number for FY’23, like you saw we are already at now 15%. Then I can tell you that the forecast for Q3 and Q4 is similar. H2 of our business is usually stronger than H1, so we do see maintaining these margins from a Q3 and a Q4 perspective. Q4 should be even better because its usually the strongest quarter for us. But at that point we will look at — we will look at the situation and also because there is a growth aspiration also we want to continue to grow the company and we follow this rule of 40 just to recalibrate. This is leading the aggregate of 40,. which is the EBITDA percent and growth percent. So if we continue steady course, yes, I do see the margins continue new expand. But like I said, if there is — holidays to to accelerate, we will — we will look at those opportunities as well.

Deepak Poddar — Sapphire Capital — Analyst

Fair enough, fair enough. And since you mentioned that two to three years, I mean this 200 to 300 basis point every year. So largely if we continue performance this year, our margins could be in the range of 13% to 14%. So a 200 to 300 basis points for next two, two-and-half years, ideally that means FY’25 20% margin could be a possibility, right?

Bhanu Chopra — Chairman & Managing Director

Yes.

Deepak Poddar — Sapphire Capital — Analyst

Okay, yes. I got it. That’s it from my side. Thank you very much. All the very best.

Operator

Thank you. [Operator Instructions] The next question is of Chirag Kachhadiya from Ashika Institutional Securities. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Hello. Congratulations on a wonderful number sir.

Operator

I’m sorry to interrupt you Mr. Chirag, but you are not clearly audible. Your voice is breaking.

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Is it proper now?

Operator

Yes. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Yeah, sir. Congratulation on a good set of numbers. Sir, I have a few question on our predictable revenue part which we have given in on Slide 7. So you mentioned that the subscription revenue constitute about 76.8% and recurring is 99%. So I just wanted to know some basic understanding. When we enroll any client, do we have any such contract that the minimum service period should be of this month length or something like a tenure of, let’s say, one or two-year or anything, sir? Condition is mentioned over there in contract?

Bhanu Chopra — Chairman & Managing Director

Yeah. Majority of our clients are one year or a — its auto renewal clause like, you can terminate the service at the end-of-the year. If you don’t do, then your auto renewed for another year, right? That’s the subscription nature of the contracts. But some of the large customers do sign-off for multi year deals, but this is — is around one year auto renewal nature of contract.

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Okay. My second question. The digital technology space and IT is passing-through rough phase due to this attrition and all, so is there any impact of such a broader issues of industry on our business?

Bhanu Chopra — Chairman & Managing Director

For the employee attrition, it is high across the board, especially in the tech space. Our attritions are currently around 22% to 24%. Historically, we have been around 16% to 18% attrition rates, but we have taken steps towards it’s like there is lot of obstacle, training. There is lot of investment going into L&D. Secondly, we have a predictable hiring methods where we have hired buch of as many trainees from Tier 1, Tier 2 colleges in July, which were utilized to refill the batches — the attrition, which really helps bought from margin front as well as tenure of the employees. At the same time, our average tenure of employees in our organization is more than four years and that is higher than any of the new age companies, newest tech companies, or even IT, ITES companies. So it has not impacted our business as such as of now. But the trend is continuing to go down. We are seeing lesser attrition month-over month now. So hopefully it will go back to the 16% to 18% attrition rate in coming quarters.

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Sir, one final question. If attrition again back to the normal level of 16% to 18% range which we used to have earlier, will it have any impact on employee expenses on positive side? And will it result into higher EBITDA than what we posted even in this quarter?

Bhanu Chopra — Chairman & Managing Director

Yeah, it should, because generally there is higher attrition and you replace people, you generally replace at a premium, right? So if attrition comes under, like 16% to 18% historically, then the average cost of employees will obviously reduce.

Chirag Kachhadiya — Ashika Institutional Securities — Analyst

Thank you so much. Best of luck.

Operator

Thank you. The next question is from the line of Hitesh Zaveri from Axis Mutual Fund. Please go-ahead.

Hitesh Zaveri — Axis Mutual Fund — Analyst

Yeah, hi. Thanks for taking the question. So when I’m looking at the quarterly top-line revenue number at 15 million and so on and the number of customers and so on. Of course, I do understand the SaaS company and the number of switch phenomenon. So having said that, you know as compared to the number of customers we have and the revenue number currently, is fairly low realization per seat kind of situation, how should we think about this?

Bhanu Chopra — Chairman & Managing Director

I’m not sure I understood your question fully.

Hitesh Zaveri — Axis Mutual Fund — Analyst

I’m just looking in that revenue of the company, number of customers that we serve and so on. So therefore, per customer ralization and if you can provide some color there and the trajectory there that would be useful.

Tanmaya Das — Chief Financial Officer

Tanmaya, let me make an attempt and then you can. At the end of Q1 we were sitting at about 2,300 customers and we added about 200 customers but we lost about 50. So the et addition was about 150 customers. So if you look at customer addition, it was roughly about 6%, 7%. And if you look at our quarterly revenue growth, it’s similar sort of 4%, 5%. I don’t know if that sort of addresses the question you had.

Hitesh Zaveri — Axis Mutual Fund — Analyst

So, and I’m just looking. In case you are aware of some other competitors of yours who are based in the, lest say, in any of the advanced countries and so on, either maybe in Western Europe, US and so on, I’m just wondering how in your vertical are the realization of the pricing?

Bhanu Chopra — Chairman & Managing Director

Are you referring to sort of the position in terms of market-share and as a result of which our ability to sort of charge more?

Hitesh Zaveri — Axis Mutual Fund — Analyst

You can you can use that picture.

Bhanu Chopra — Chairman & Managing Director

So, yeah in terms of basically our pricing, there is initiatives that we talked about in the last quarterly also, which is we are sort of adjusting our pricing because when we were coming out of COVID on compassionate grounds, we were very accommodative of clients where we gave them sort of discounts as well as give them free periods. So now that we are completely out and as I mentioned earlier, our customers, they are having record performance and absorb revenue and profit. So we are trying to restore back; A, we’re trying to restore back our sort of pre COVID pricing; and B, we are now going back into each of our contracts and ensuring that we have CPI clauses such that all the renewals that come up on an annual basis organically see CPI increase in our contracts. And the fact that we have moved from being a two-three product company to now almost 10 to 12 products and we are able to effectively bundle them, it does create a much, much larger ticking poing and basis that we are able to charge more. One of the examples is our REV AI offering for instance., which is a vertical integration of the pricing process for car rental franchisee. So we started with giving them competitive intelligence and now basis knowledge of demand and supply, we also were able to make recommendations on how they should price. So as an example of car rental franchisee which was a $50,000 contract for us, now with REV AI bundled in, that’s $0.5 million contract for us. So; A, w are able to ncrease our pricing because we are out of COVID; and D, because we are moving higher up in the value change in terms of the value we provide, the integrated bundle we are able to charge more.

Hitesh Zaveri — Axis Mutual Fund — Analyst

Got it. That’s helpful. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rahul Jain from Dolat Capital. Please go ahead.

Rahul Jain — Dolat Capital — Analyst

Yes, hi. Hope my line is audible.

Operator

Yes you are. Please go ahead, sir.

Rahul Jain — Dolat Capital — Analyst

Yeah. So just couple of questions. Firstly, congrats on a very strong number. A, te other question on the Engage AI tool that we have launched that what is the typical pricing or earning model in this kind of a product and bundled with the other services that we are already offering or this can be stand-alone sole for a relevant incremental revenue? That is question number one. And what would be the incremental tang or any one or two year kind of a addition that this kind fo a production going in. So that is question number one.

And secondly, when you mentioned about and we’ve been also follwoing you over larger hotel or various travel compaines, we are seeing that are reporting very-very strong numbers, and their commentary also continues to do better so. So in that light, if they are doing far better than what they were doing in the recent quarter becasue we should be witnessing some more acceleration even on a sequential basis here on. And is there any thoughts on the conservation that you might be having with them versus how it is shaping verus what it was less than three months back? Thank you.

Bhanu Chopra — Chairman & Managing Director

All right. So on the question around Engage AI and sort of commercial model, it’s a subscription model and it’s based on the number of hotels that the — number of rooms that the hotel has. And then we also look at what is sort of the average daily rate. So because we are able to directly impact both on revenue and the cost side. On cost side, because we are able to automate a lot of the queries that guests might have at the hotel to the virtual board. And on the revenue side because we are able to cross-sell and upsell different services that the hotel may have at the property or outside the property. So the commercial model is basically looking at what is the average daily rate and then looking at the number of rooms.

And secondly we also have a model to take a percentage of share of what are the cross-sell, upsell revenue that we generate at the hotel. Now in terms of your question around the TAM, the TAM is everything that we do is basically targeted to the same mid market and enterprise market level of hotels that I always refer to, which is there are over million hotels, but really our key market is the 300,000 hotels that are part of this mid market and Enterprise segment. And in that sense, the TAM is very-very large, but we are still at sort of very-very initial days. We’ve just recently launched this product. We’ve got a few hotels that have recently implemented it. As you can tell from previous earnings calls also, that Rategain is a very-very innovative company, we’ve launched multiple products and some of these experiments will work and some will fail. But I’ll only be able to provide you more color — definitive color on where do we see, which of these experiments is really moving the needle. I can tell you from everything that we’ve done in the past 18 months, we are seeing huge amount of traction on our REV AI and that’s why we won the best car technology Provider Award from World Travel Tech Awards also.

The second question, I think you asked — can you repeat the second question, the follow-on question that you had?

Rahul Jain — Dolat Capital — Analyst

Yeah. So what essentially I was saying about these comment that you made about how some of the global — are making this record profits, who are you clients list. With those company having this kind of numbers, don’t we see there has to be some immediate acceleration on a sequential basis that we should also witness the way they are growing for next at least in the near future? Any thoughts and how that kind of a conservation changes on a sequential basis for you versus what they were saying three months back as what they are saying now.

Bhanu Chopra — Chairman & Managing Director

This is something as Tanmaya mentioned also, I think the way to look at our business is not really doing sequential growth analysis, but doing really more sort of an year-on-year and as you saw, we delivered a 47% growth. But having said that, I do see very, very good momentum going into sort of Q3 and in our business given the fact that most of our customers are being in US and Europe, they start doing their annual budgeting and planning exercise going into 2023. So a lot of the decision are made in this next couple of quarters, especially this Q3 in terms of new bookings. So we have some very, very good momentum and I’m pretty hopeful that in terms of new bookings this should be again a very-very strong quarter for us.

Rahul Jain — Dolat Capital — Analyst

Okay. And this, if could add one more. I mean, if you look at this number, of course these number on a Y-O-Y basis are very,very — we definitely some Advantage coming from some of the past acquisition coming to business run rate. So we to the arugment of of that 40% SaaS kinf of a thought process, how one should look at FY’24 right now becasue profitability I think can stay were it is like it if not more more, then should we think of that FY’24 you should be comfortably above third-party prest number with 25% plus kind of a growth or you would stick to that 40% for now.

Bhanu Chopra — Chairman & Managing Director

You’re talking about the Rule of 40?

Rahul Jain — Dolat Capital — Analyst

Yes, yes.

Bhanu Chopra — Chairman & Managing Director

So, like I said, right now as you can see there is tremendous amount of momentum and we are at almost 62% in terms of our aggregate of our EBITDA and in growth. And our endeavor is going to continuously be to continue to exceed that number. I very comfortably see the 15%. EBITDA margin for this this Q3 quarter and hopefully exceeding that in Q4 as well. But like I said, we are — we want to do a balancing act. We will continue to see the margin expansion happening given the operating leverage is kicking-in, but we also then want to see if there are opportunities to accelerate our growth as well.

So if we continue being operating the way we are, we could see much, much larger expansion of our margins. But, like I said, we are doing all these experiments by launching new products. This quarter we are also making investments to expand our teams in Latin America. And as we see the results of these incremental investments we are making, if there is an opportunity to sort of seize and get accelerated growth, we don’t want to hesitate to invest in that. But like I said, we’re doing all of this in a very, very calibrated fashion such that we continue to maintain that rule of 40.

Rahul Jain — Dolat Capital — Analyst

I mean, Bhanu’s whole point is that you are adding new products which are doing well and well accepted by the client. We are consistently adding new customers. Your customers are doing well which is not the case with most of the industry at this point. So everything clicking in, somehow that optimism is not visible. Is it that you are consevative because of in general macro hedging that we all hear about on you think we will do well here on?

Tanmaya Das — Chief Financial Officer

Yeah, I would say look we are cautiously optimistic, I mean having come out of COVID, you don’t take anything for granted and there is a lot of talk about inflation in recession in our key markets, although we don’t see anything in our numbers. We want to be careful about what we guide the market. So I think so-far we have overdelivered and we want to continue to do the same in the future.

Rahul Jain — Dolat Capital — Analyst

We always like any company doing better than what we think we of but should not be extremely higher, so I think should your thought should be aligned — also with what is the realistic growth, just a thought. Ond one incremental request. Is it possible to also try and get the revenue mix from a geo perspective in a manner where in terms of where the service are getting consumed, I know it’s not an easy thing, but just to get the thought here. For example, if you are doing, let’s say INR100 of business with one big hotel chain, what part of their revenues are actually earned, let’s say in India market because the customer will be called as American or European customer, but maybe the bulk of the revenue that brand was consuming maybe can grow in some of the Asian market including India. Is there a way to understand which are the key market by the way?

Bhanu Chopra — Chairman & Managing Director

I think it’s a great question and you’re right it’s a little bit of work for us to sort of reverse engineer it. Because you’re absolutely right. Marriott may have hotel across the world, but we will record it as US revenue because the entity that pays us is from the US actually. So I get your question. Let us come back to you. Tanmaya has a pretty phenomenal finance team here. So I’m hoping next time we speak with you, we’re able to sort of reverse engineer and share that information with you.

Rahul Jain — Dolat Capital — Analyst

Because if we have that, I think it will makers get more confidence beause most of us, I mean most of you would agree that in India we are paying all-time high hotel rates and very high air fares for near-term bookings and if those companies are actually making lot of profit than someone, say is very-very positive, all the hotel companies in India, but somehow…

Operator

Sorry to interrup Mr. Jain, may I request you to please rejoin the queue, we have participants waiting for their turn.

Rahul Jain — Dolat Capital — Analyst

Sure. Thank you.

Operator

Thank you. Ladies and gentlemen in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. If you have a follow-up question you may rejoin the queue. The next question is from the line of Prolin Nandu from Goldfish Capital. Please go ahead.

Prolin Nandu — Goldfish Capital — Analyst

Yeah. Hi Bhanu. Thank you for giving me this opportunity. Two questions from my side. One is that you mentioned this subscription-based revenue or recurring revenue. Now you gave an example of how we your are able to bundle and upsell, right? But I want to understand your pricing structure in a single product, right? I mean, now we have seven eight products or eight, nine products in your kitty. But in a single product is there a — I mean, is there a tiering in the pricing where you start with low rates and then you’re able to take up for the similar surveys, not by adding more hotels or not by adding more rooms, for example, but is there a tiering wherein there is an opportunity to upsell within the same product by offering some more features in the same product and is there a metric that global SaaS companies also report on cross-sell and upsell and can we also get some qualitative or quantitative color on the same?

Bhanu Chopra — Chairman & Managing Director

Sure. So on the question about how does the model work. So it’s basically different for our product lines and the fundamental pricing methodology that we follow is what is sort of the economic driver for our customers. So in case of our distribution business, the economic driver is the number of rooms that the hotel has and how many outlets or distribution channels that we enable them on. So more rooms connected to more channels means more transactions and as the number of bookings or transactions increase, we get a higher realization as a result.

Similarly in our DaaS business, our inflammation enables the customer to be more competitive so the more data that they get from us the more we are able to charge. So a lot of the growth that you’re seeing in our business is really — not really cross sell or the funding itself, a lot of it is upsell because you know as the demand has come back, our customers — the larger customers, for instance, have become data hungry and the data volumes have really gone up and similarly on our distribution business, more people travel and more bookings happening and as a result. And we are also enabling them on more shelves or more marketplaces or OTAs and thus we are able to realize more more transactions and we see significant amount of volume in that. And so the question about giving you some more metrics around cross-sell or upsell. Tanmaya, do you want to take that? Is there something that — I know we don’t provide some specific numbers, but is there something that we could do and maybe take up with them at a later stage.

Tanmaya Das — Chief Financial Officer

I think on the upsell for net retention rate is quite good metrics to assess. I think it’s 110% is a good metric to follow. On cross-sell, net retention rate we generally report in every quarter.

Prolin Nandu — Goldfish Capital — Analyst

No sir, just a follow-on that. What I understand Bhanu is that maybe nine right now that whole operating leverage which might come because of cross-sell, that lever is something which here — which we are yet to press in the business, right? Is that a fair comment? And also as a follow-on to that. I mean, if I look at the growth across your three segments, the fastest-growing has been Martech and which is a latest innovation in our armor right?. We have added that business sometime in 2018 and 2019. So is that is that a worry because if I look at the size of the opportunity that we are playing with, I would have thought that there would be an equal opportunity in each of the three segments that we are present. So is that a worry that ex of Martech our growth is not as attractive as maybe what the underlying demand is suggesting?

Bhanu Chopra — Chairman & Managing Director

Yeah. So let me — I think you asked a few questions here and let me try to address and I forgot any one of them you can ask them again. I think the first one that you asked is that the whole cross-selling capability as a growth lever has that kicked-in. It doesn’t feel like it. YTou’re absolutely right because if you look at sort of the chronological order of all the capabilities we’ve added, it’s really happened in 2019 because our first acquisition happened in 2018 and 2019, and then a lot of these new product capabilities that we have launched really its happened over the last 18 months. So we have sown the seeds, I would say for future growth over the last two, three years, both organically and inorganically. But then we were hit with COVID and now that we’ve come out of the COVID, we are beginning to realize the fruits of our hard labor that was done. But yes, it’s not full taken. I think we are still at a very, ery infancy stage on a lot of the new capabilities that we’ve added and that’s why it makes me very excited about the future growth prospects of Rategain.

On the overall, growth prospects for all the three business lines. Look, if you’ve attended our previous quarterly calls, there is definitely — was more bullishness on Martech and maybe lesser bullishness on distribution and DaaS. But then its happy to report that our DaaS and distribution business are doing extremely well on the of penetration of our existing product, getting new logos and as I talked about, there is more consumption of data, there are more transaction happening, we are connecting more parings. Also in distribution what’s been a very, very positive surprises that the business traveler bounce back. And for us, the parameter of that is really the GDS connectivity that we do for the larger chains and we have recently won some business and we see a very, ery healthy pipeline there as well. And we are also launching additional products both in DaaS and distribution. So net-net, it’s a positive surprise that both these segments are growing significantly faster than what we have anticipated. It’s, like I said, function of this whole business travel bouncing back and also success with some of these products that we have launched under these product line and service lines.

Prolin Nandu — Goldfish Capital — Analyst

No that’s great, Bhanu. Just one suggestion I have to give is that in this Martech part, I mean, and this requires a slightly more detailed discussion on a different forum, but it would be great if you can share — having a sort of an Analyst meet where each of your products are highlighted in a better manner. The reason why I’m harping on this Martech is like we are probably looking at what is happening in US, right, to do with the whole at industry and the ad revenue growing and what Apple is doing. So that is the reason why we probably, in case if you can highlight each of the product in the Analyst meet that will help us to understand the product better, right? So just a suggestion.

Bhanu Chopra — Chairman & Managing Director

No, no I think it’s a great situation. And we do have in our pipeline to have like an Analyst Day to actually do these product demos. We intend to do a virtual session and followed by like a physical session to showcase all our capabilities.

Prolin Nandu — Goldfish Capital — Analyst

Great, Bhanu. Thanks a lot investors and best wishes.

Bhanu Chopra — Chairman & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ashish Chopra from GSAM. Please go ahead.

Ashish Chopra — GSAM — Analyst

Yeah. Hi. Thanks for the opportunity. Just a couple of questions from my end. Firstly, Bhanu out of the INR488 crores of annual recurring revenues that you disclosed in your presentation, how much of that currently would be from the new product initiatives that we launched during COVID?

Bhanu Chopra — Chairman & Managing Director

Ashish, the number — I don’t have the exact number, but it is not — it’s not a significant number at this point. As I mentioned, these are fees that we have shown over the last 18 months. And, but I have huge amount of conviction and confidence that as we sort of read-out all the teething issues that we have around sort of go-to-market and implementation, these can be big revenue generators for us. For instance, the REV AI product that I talked about that does pricing recommendation requires us to integrate with the key car rental company CRS systems so those integrations are taking place and we have one, two car franchisees sort of using that product as we establish the success with these pilot customers, it can open up the floodgates and really give us the ability to scale across all the car rental franchisee so. So the number is not significant, but w are quite confident that they these are seeds of future growth. And as I mentioned, they have other sort of intangible benefits of positioning the company and the company as an innovator, we are sort of vertically moving up the value chain from a bundled offering customers look for one integrated tech stack. So it also enables us to possess and give new offerings as 10x differentiators to Rategai’ns existing product set.

Ashish Chopra — GSAM — Analyst

Understood. And Bhanu, secondly from my end if you could just help me understand a little bit about any seasonality that persist in the Martech business as well where I guess this quarter at least sequentially the number was down, although I understand we should be looking at it on a Y-o-Y basis. But considering the fact that 99% is recurring revenue and you added 80 properties, I think those were new additions to the Martech customer base, so I was just wanting to understand as to what drives the quarterly, maybe upticks and downside revenues?

Bhanu Chopra — Chairman & Managing Director

Yeah. So as I stated earlier, Q3 and Q4 are sort of the big quarters for us. So H2 is bigger than H1. So that’s what you will find seasonally in Q4 being the best quarter. However, in the Martech business, as I was mentioning earlier that as we were coming out of COVID, they were — we were very, very aggressive in doing the kind of deals that we take as we were sort of coming out of the COVID, I think there is some correction that we have done given the fact that we are, and that’s why you’re seeing a huge margin expansion. Also that we want to make sure that we are escalating prices, whereas if some of the customers are unwilling, then I believe the separation of those customers as well. So we’ve cleaned up some of the contracts also on the Martech site, so there was small amount of impact with that. But as I stated, across all our three business verticals we should see some very good momentum in Q3 and Q4, and Q4 being the — simply the biggest.

Ashish Chopra — GSAM — Analyst

Understood. That’s very helpful. Thank you so much.

Operator

Thank you. The next question is from the line of Satish Saraf from Tusk Investments. Please go ahead.

Satish Saraf — Tusk Investments — Analyst

Hi. Thank you for taking my question. Just wanted to know on the IPO amount of INR90 crores rate for general corporate purposes. Is there a plan to use that? Or are you planning to return that to the shareholders in some form?

Bhanu Chopra — Chairman & Managing Director

So from the IPO proceeds we have got inorganic expansion is one of it which we’ll utilize. The strategic investment into AI-led products, that utilization has already started. And general purpose, we’ll utilize as part of the M&A or on the organic investment into the AI-led products.

Satish Saraf — Tusk Investments — Analyst

Okay, okay. Got it. And just one more question on RG labs and the products coming out of the lab, could you just help us with the sense of what’s in store for this segment or what kind of offerings are you experimenting in the segment?

Bhanu Chopra — Chairman & Managing Director

Yeah, sure. As I had mentioned in our — in the earnings call, the big new offering from RG Labs is Eengage AI. And prior to Engage AI, the three products that we had launched where demand AI, Content AI and REV AI. And our focus right now is as I mentioned earlier is to sort of continue to scale up on these products from a go-to-market perspective, iterate through what we are learning from the customer and continue to accelerate on these. So I think in terms of new product depth there is — there is a bunch already happened. Now we need to basically merger and cultivate the speed as we have shown.

Satish Saraf — Tusk Investments — Analyst

Okay got it. Thanks so much. Congratulations and all the best.

Bhanu Chopra — Chairman & Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.

Rishi Jhunjhunwala — IIFL Institutional Equities — Analyst

Yeah. Thanks for the opportunity. Just a couple of quick questions. Firstly, can you give some color on how much of our growth this quarter would be organic given that MHS should have been incorporated only from 3Q or maybe sometime in 2Q. And even growth going forward, because looks like it is it is a touch below 30%. So just trying to understand that we are in the middle of peak pent-up demand on travel and growing organically at 30%, so is there any scope to increase it beyond that or is it primarily because our business is volume-driven rather than value-driven that the growth is limited to that number?

Bhanu Chopra — Chairman & Managing Director

Okay, so Tanmaya — I’ll let Tanmaya to the exact organic growth numbers that we have. To your point about where do we see the growth. So look, again I’ll go back to — the core philosophy for the company is to really focus on sustainable revenue growth, keeping in mind this Rule of 40 where there is a focus on the margins as well. And this is what we should have learnt from the market as well. So we want to continue to be very, very prudent with how we sort of accelerate. So we feel very very good about where we are today. And as I mentioned earlier, we are sort of cautious, we are optimistic. We don’t want to to go crazy given — given there is a lot of talk about interest rates, then recession next year, although we’re not seeing anything, but it would not be prudent to step on the gas at this point. So we are making all these experiments both from a product and go-to-market perspective, but I think we are great company in terms of how we manage metrics and we are very, very data-driven. So we want to see proof points on success and calibrate and go forward in a very, very managed fashion versus cash and burn, right?. So although, yes it does feel like we could go crazy and accelerate and then Rishi next quarter you’ll come back and say why has the margin gone down. So we want to be just sensible about how we move forward given just the overall macro trends that we see. Tanmaya, can you comment on the organic growth point?

Tanmaya Das — Chief Financial Officer

Yeah, so organically grew around 33% and total was 47%.

Rishi Jhunjhunwala — IIFL Institutional Equities — Analyst

Understood. And just quickly. Is it possible to just give some breakdown in terms of margin expansion that has happened this quarter, broken-down between mix change given that Martech being lower margin business has gone down Q-o-Q, currency depreciation and other efficiencies? Thank you.

Bhanu Chopra — Chairman & Managing Director

Yeah, it’s primarily because of that. I think we have high-growth, sorry, high profitable business like Distribution, DaaS doing better than expectation, and that’s actually improved our margins. Look, currency depreciation actually had a — our hope it would helped us but the challenges that the US dollar appreciated but we had like more than that euro and GBP depreciating. So it has kind of a compensating impact both on revenue and profitability as well. But you’re right, I think the operating leverage kicked in because our I profitable businesses like DaaS and Distribution grew more than expected.

Rishi Jhunjhunwala — IIFL Institutional Equities — Analyst

Thank you.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Bhanu Chopra for closing comments.

Bhanu Chopra — Chairman & Managing Director

Thank you everyone for your support and. And as I mentioned, very, very proud of the team in delivering a great set of Q2 numbers and feeling very confident as we sort of go into the second half of the year, and looking forward to everybody’s support here. Thank you.

Operator

[Operator Closing Remarks]