Newgen Software Technologies Limited (NEWGEN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of Newgen Software Technologies Limited hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Deepti Mehra from Newgen Software Technologies Limited. Thank you, and over to you, ma'am.

Good evening, everyone. I am Deepti Mehra Chugh, Head IR, Newgen Software Technologies Limited, and I welcome you all to the Q2 FY '21 results of the company. I hope everyone on the call is keeping safe. Connecting with me today is our management: Mr. Diwakar Nigam, Mr. Varadarajan, Mr. Virender Jeet; and Mr. Arun Gupta. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning Newgen's business prospects and profitability, which are subject to a number of risks and uncertainties, and actual results can materially vary. Past performance may not be indicative of future performance. The company does not undertake to make any announcement in case these forward-looking statements become materially incorrect in future or they change from time to time. For further details, you may please refer to the IR section of our website. I would now hand over to Mr. Nigam for the presentation of results.

Good evening, everyone, and thank you for joining us at our Q2 FY '21 post-result conference call. We closed Q2 with a strong performance and demand uptick from both existing and new customers. We remain deeply entrenched in our existing customers and are adding more solutions for them, expanding the digital capabilities and making them viable today as well as future-ready. All executions, including integrations with their enterprises, were accomplished remotely. The feedback from our customers have been extremely positive and motivating. Increased usage at existing customers will lead to increase in license revenue and subsequent ATS/AMC revenues in coming quarters. In the next phase of new normal, working remotely has become a global mandate for enterprises. Enterprises are now accelerating their digital transformation initiative to create an integrated environment for working from anywhere. The environment would encourage the workforce to stay connected and effectively collaborate for work and provide a seamless experience to their customers. With our low-code and cloud capabilities, we fit in well to provide agile, resilient and quick implementation solutions to the customers. Decision-making has improved over the past few months, although it is still slower on large deals. The crisis is driving technology investment. Across geographies, we are witnessing an increased interest as digital, I believe, has become a global priority. There is a desire to add business value, reduce cost, remain competitive, drive simplicity in processes and enhance the customer journey. The pandemic has got digital transformation to the forefront this year. We made 17 new customer additions during the quarter, fairly distributed across geographies. This includes a license deal with a premier student loan financing organization in Americas. We are also providing solution for a very large international bank in Singapore, and a few deals for a U.S. bank. Our annuity revenues continued to remain strong and comprised 63% of the revenue and witnessed a growth of 8% Y-o-Y. Of this, SaaS revenue continued to grow rapidly at the rate of 42% Y-o-Y. In this environment, SaaS-based workflow solutions are catching on and are becoming a new class of solutions. They provide a scalable, secure and reliable environment. In terms of geographies, U.S. region continued to be strong for us this quarter as well and witnessed a revenue growth of 11% Y-o-Y. India and APAC market, too, has picked up this quarter. We continue to pursue opportunities in PPP forgiveness in U.S. banking from the last quarter we talked about. The banks that opted for our services are engaged and are considering us for additional opportunities. In term of verticals, banking and financial services, shared services and government and PSU verticals were the growth drivers during the quarter, with growth of 3%, 11% and 13%, respectively. In banking and financial services, the uptick in business has been in areas that banks are investing in significantly post-COVID customer support, loan origination, et cetera. Our margin profile has expanded substantially compared to last year due to strong operational efficiencies and cost rationalization measures that we undertook in Q1 and Q2. As we had mentioned in the last quarter, we have made substantial cost rationalization efforts across all spheres, including manpower costs and operational costs. We have optimized our execution capabilities, while we are still continuing with long-term investments in R&D and sales. EBITDA was up 350% and reached INR 41 crores and profit after tax was up by 592% at INR 29 crores. Operating cash, cash flows grew significantly in H1 driven by our consistent focus on liquidity and cash management. Our net cash from operating activity was INR 116 crores during the period compared to INR 39 crores last year -- last quarter. Our net trade receivables as of March 31, 2020, were INR 175 crores, which resulted in a DSO of 97 days. In the current era, low-code platforms are helping businesses to rapidly build relevant applications and are becoming an emerging trend. With the structural shift in the industry towards low-code development and cloud adoption, we are happy to be part of journey. I am extremely happy to share that we featured for the first time in Gartner's Magic Quadrant for enterprise low-code application platform. Gartner estimates that by 2023, over 50% of medium-to-large enterprises will -- would have adopted low-code as one of their strategic application platform. This would significantly expand the overall market size for our products and solutions. Our partnership strategy with GSI is gaining ground. Our ECM, BPM and CCM combined platform is becoming very attractive from cost as well as quick implementation point of view. Our case pipeline with GSI partners is good and growing continuously in all geographies. Going forward, we see possibilities of accelerated growth in acquisition of new logos, both directly as well as through partners. We continue to invest in partner sales, support and enablement to facilitate our partners' relationship further. Looking ahead, we continue to see strong traction in our business across geographies. Growth is accelerating as economies across world are opening up gradually, and clients are focusing on technology to help overcome impediments. We expect strong acceleration in demand and adoption of digital solution across all verticals and regions in the medium and long term. New logo acquisitions are picking up as decision-making is accelerating. For the remaining part of the year, we expect to return to better growth momentum. Seeing growth potential in coming times, we intend to increase our efforts in R&D and product development. We are going ahead with investment in this direction. We see scope of further investment in this area without compromising our margins. Our employees are our best, biggest strength and have displayed immense dedication during this phase. We continue with our caring and proactive approach towards the safety of our employees and their families. Keeping in mind the business recovery and long-term growth, we are announcing salary revision for our major workforce. Superior customer experience, differentiated value proposition and operational resilience remain our key strategies, helping us sustain our growth and profitability. We are now open for Q&A.

[Operator Instructions] The first question is from the line of Mr. Hardik Sangani from ICICI Securities.

So just for -- one question. So just wanted to know, in this quarter how much would our revenues be coming from the COVID-19-related projects, which would be PPP or loan forgiveness? Secondly, wanted to check has the normalcy returned in kind of the spend which we are looking for? And growth from -- so what would be the -- what are -- what is -- what do we plan for the growth in the new -- from new clients in this coming year? And just wanted your comments on the SI-related deals and pipeline, how do we see this going forward?

Yes. Thanks, Hardik. Hardik, this is Jeet here. Yes, this quarter, like Q1, we had a lot of cases which we won in U.S. have been around PPP initiative and the forgiveness initiative, which are typically banks. The whole idea was that, that would be an entry point for us and going further, we should be able to build these. So I think there are good healthy deals progressing in all those cases. Though any, what you call, COVID-related revenue, we have almost nil or insignificant revenue this quarter. This quarter is all normal business in the related revenue. So I would say on that front, this quarter has been more normal than the previous quarter. Even seeing on previous quarter, the COVID-related revenue was a very small part. I think the overall revenue was less than $1 million or $1.3 million revenue. So this quarter is more normal, so that is about the COVID. From normalcy of business, we have seen that as you look at -- we have been able to win new deals across all geos. So the decision-making has started. But it is not still at the same speed as last year, though we were able to achieve 17 new logos this quarter. We have expected on a normal quarter to be -- seems to be more like 25 to 30 logos. So I would say that it's still slightly slow. But Q3, Q4, we are feeling that the momentum on the market is picking up. Decision-making is speeding up and people are getting more equipped to finding more digital solutions to normalize their businesses. So the whole traction around cloud and digital is growing. And we are very well placed in this whole low-code space and digital space to really leverage it. I think over the next 2 quarters, we see still better deal flow momentum. On the growth from new clients, I told you, I think, new business was good this year. I think it was almost similar to the new logo business we did last year at the same time. So it is normalized, but still much more is desired over the next 2 quarters. The SI initiatives are going well. I think our funnel out there has become much better. Though I don't think we have any major conversions this quarter, but over next 2 quarters, again, we are looking at some significant conversions coming on the SI ecosystem. Our funnel in the U.S. is becoming better, also the funnel has started growing in both Europe as well as in Australia in SI. I hope that answers your question, Hardik?

Yes. Just one last question. So relating the SI deals, like how is it progressing?

Sorry, could you repeat? I couldn't get what it is.

The system-integrated related deals, which we are planning to expand in our portfolio, so just wanted your commentary on how it has been this quarter and what do we see going forward?

So I think right now system integrated -- basically, we are talking about 2 things. We have already partner-driven revenue, which is roughly around 20% of our revenue, which are related to different kind of partners. But initiatives, we talked about last time as well as this time, about the GSI, the global system integrators, which are big 4, 5 companies, out there our relationship with companies like Infosys, TCS, that's what we are building and trying to mature. We previously had some wins along with them. And over next few quarters, we're expecting a few more wins. I explained that our overall funnel size, along with these SIs, there is a significant improvement in that. But so far, the conversion itself has not been there, any material conversions this quarter. We expect next few quarters to have more conversions on that.

And sorry, just 2 question -- one last question. So in terms of -- like all the IT companies have started to give the pay hikes in from -- starting from at least Q4 or from Q3 of this year. So do we plan to do anything on payment?

So are you asking for hike -- salary hike?

Yes.

Yes. So I think Mr. Nigam in his announcement already said that we are considering increments and salary hikes for majority of our workforce, almost more than 80% of our workforce, starting sometime this quarter. We'll be announcing that in the next few days.

The next question is from the line of [ Amit Kumar from Indian Capital ].

Many congrats on a good set of numbers, sir, first of all. I just wanted to understand, sir, we did extremely well during the COVID season. But then also, you see the promoter has not increased their shareholding when the price has collapsed from a high of INR 400 to INR 100 in the month of April and May. So isn't it a great idea to do a small buyback of around 3%, 4% if we are generating so much cash? Secondly, I wanted to learn what kind of new -- we have given the results in September, but after that what kind of inquiries or what kind of big clients or what kind of deals are there in the market for a company of your size? If there is any trend that a lot of people -- we have heard in Europe or U.S. are shifting to the small-sized companies just to save the costs there. So can you throw some light on that, sir?

Yes. So I'll take the second part. I think as you are seeing that with this whole COVID, there has been an acceleration in 2 things. One is the cloud journey. People are relying more and more that the cloud is a way to go ahead and solve their problems. And secondly, eventually, they are accelerating their digital journey so that they can connect their internal ecosystems with customers better. So all the areas across all markets we see there is a strong interest in such. And Newgen is a company which is very well placed in the areas, which -- with low-code platforms, we are able to really accelerate the digital transformation. And with our ECM, BPM and CCM, we are able to really take their current solutions that can migrate them to cloud and provide a great transformation service with an extremely compelling value profit at cost. So we see the market -- the lines of business of the areas of interest are exactly what we have been pursuing previously. But there is an acceleration of overall interest in the market, though we again say that the decision-making has not returned to the old cycle, still the larger projects do take some more time to really go and finalize. On the other side of -- I think we have been doing business for the last 5, 7 years, we have shown a consistent growth momentum, both in terms of margin as well as profit. And I think that market prices for shares have different dynamics. And I think as a company, we can only work on our own performance. That's what we are working. I think we have the promoter holding in this company is substantial at -- almost at 66%. In fact, we have very little float in the market of really shares available, which can be. So we don't see there is any reason for going for buybacks or any other -- right now, there's no plan for that. In case that plan is considered, we'll be happy to share that. Amit, does that answer your question?

Yes, sir. We get about 56% of annuity revenues as per your recent PowerPoint presentation. The large annuity revenue stream is around 56% of the total revenue. So what kind of revenues in this particular annuity we can expect in H2 or the coming year, sir? Any guideline -- guidance you can give?

So overall, if you look at our annuity revenue compromises of -- sorry, comprises of ATS, our cloud and our recurring support revenue, which are typically contracts which just keep on getting renewed year-after-year. And we have shown that year-after-year, this revenue stream grows better than the overall growth rate of the company. So like -- if I'm not wrong, for the H1, we are about 60% as a percentage of overall revenue. So overall coming quarters also, we'll see there's always going to be an increase in this. So we do expect that this number to grow substantially over the next few years, so that we can expect in this 60%, 65% on a normal basis.

Okay. And some of the key verticals, where we work on, like government sector and the health care are doing extremely well. So what kind of -- means, solutions, or what kind of demand is coming from these sectors, sir? Basically -- because a lot of midsized companies from Bangalore and Chennai like Techsoft and other companies are getting big orders from these particular sectors. Are we also positive about these sectors, sir?

So we are predominantly -- if you look at our predominant sectors are BFSI, then government and followed by shared services. So we still find traction in all 3 sectors. There is a interest. Our primary sector where globally BFSI is much more positive; government in certain markets, we don't do government in across all territories, but in markets somewhere in the U.S. as well as Southeast Asia, EMEA and India, we do have some government deals. So we don't see any -- a single segment behaving very differently. We think this demand is overall across all segments. And depending on the right fitment for our products and solutions, we will find better traction.

Okay. And off the line, sir, I'll tell one of my technical guys to speak to you personally. He can explain us some of the banking financial services solutions to us, what kind of technology you are giving as solution to the existing. So we will write a mail to your Investor Relations or company secretary for that, sir.

Sure, Amit. You can write to me, and I'll take -- respond to that.

What's the e-mail ID, ma'am?

It's [email protected].

Can you repeat?

It's [email protected].

The next question is from the line of Nagraj Chandrasekar from Laburnum Capital.

Hello. [Technical Difficulty]

Mr. Chandrasekar, I'm sorry, but your voice is breaking, sir. Can you please check?

Hello? Am I audible?

It's still not audible.

Hello? Am I audible now?

Yes. But it is still -- you can disconnect the line and you can rejoin back, sir, because we are unable to hear you properly. [Operator Instructions] The next question is from the line of [ Rohit Krishnan from Ready Capital ].

Yes. Am I audible?

Yes, Rohit. Go ahead.

So sir, just wanted to understand your business a bit better. In terms of, I believe, a large portion -- as per your presentation, a large portion of your revenue comes from banking and financial services. So in terms of your competition, could you probably point to who could be your key competitors in the global market and as well as in the Indian market?

Yes. So you're right, we do -- more than 50% of our business comes from BFSI. But the products which we have are across all verticals. We have sold our installations across more than 17 verticals, with BFSI, government, shared services, insurance, have been the primary verticals. If you look at traditionally the enterprise content management, business process management and customer communication management, these are the 3 areas we operate in. And the global competition names are companies like Appian, Pega, IBMs of the world. So you can just research this topic and you will find the structure. Also in some local markets, there are local competitions, which can be more coming from the functional likes, like if you can have companies who have specialized in banking software competing in certain banking areas. Broadly, I think our competition remains from global companies and global players, which are the just mentioned names like Pega, Appian, OpenText, IBM.

Okay. Okay. And sir, if I look at the historical numbers in this quarter has been one of the best margin for us and largely driven by cost reductions. So 2 questions. So one, I mean, typically, in our business, what kind of margins does one typically work with? And I mean, consequently, I mean, these kind of margins are they sustainable given, right now, the costs are a bit low given the way things are functioning, but once they come back, some of these costs will come back or do you think these margins are sustainable?

See, if you understand our business, the business has overall very large gross margins because we are still into a license and a cloud-based license business. The majority part of the revenue, which has direct costs associated with that. So as a result, since these -- previous quarters, we had some optimization on costs on various trends and also some inability to spend cost on international travel, our marketing expenses, so there was expansion of margins in terms of the results we saw. I think going forward, we are looking at 2 things. We are looking at quarters becoming better on growth. We do expect some cost to go on the front -- improve on the front of manpower as well as when the international travel restores, the cost will go up. But still significantly, we'll be able to deliver healthy margins. They may not be at the same level of this quarter, but they will be substantially better than previous years.

Got it. And I believe at the time of our listing, a large part of our growth story was from -- I mean, expected growth was coming -- was expected to come from advanced markets like U.S. So I think we have now derived revenue of almost 1/4 or close to 1/3 from U.S. So in terms of future growth, do you think the pie from geographies like U.S. and Europe, those -- that will contribute the largest share of revenue, like around 75%, 80% or both India and other geographies like in Asia will be like very dominant?

See, you're absolutely right. What happens as our larger growth over next few years will come from more mature markets. That's also where investments are going in terms of our U.S. operations, our Australia operations, our Europe operations. But in immediate quarters, I think all the markets are showing positive signs of growth. So we'll continue to grow. But as we grow as a company and become a larger company, the overall availability of market size, which is in mature markets, will start reflecting also in our numbers. So overall, slightly larger horizon, it will almost shift to the availability of market size, which is predominantly U.S., Europe which are the larger markets.

Right. And sir, just longer term, just taking from there, I mean, what kind of growth rates are you broadly looking at? I mean in terms -- not just in FY '21 I'm asking. Let's say, 3, 4 years out, what is our aspiration in terms of revenue growth rate, right now at about INR 660 crores of revenue, like do you want to double this? So broad aspiration if you can share over the next 3, 4 years.

See, we have shown a continued performance of around 20% growth rate over the last many years. I think organically, we have been able to do that. And with our push in mature markets and the GSI initiatives, we are expecting that we can even push it up higher. Because for our business, the availability of market is not there. So it's not a challenge. So we think the addressable market, especially with the low-code initiative and the interest in digital, we think the growth in overall available market is going to be high. So we do expect that we can even push it up than our traditional growth rates.

The next question is from the line of Nitin Sachdeva from -- an individual investor.

My -- I have 2 questions. One is on the revenue growth, which was partly answered before. But I just have an extension to that question. So is it fair to say that do you expect, in the next 3 to 5 years, the company returning to largely 15% to 20% revenue growth rate, which is our last 3 to 5 years average? And my second question on the revenue is, do you actually calculate the net recurring revenue number in terms of percentage for both your cloud as well as your annuity business and what's that number?

Yes. I think you're -- see, I think if you look at historically, we have shown around 20% growth rate. I think we find no reason why we can't even push it up over next coming years. So we are looking at -- for all product companies, they do expect much higher growth rates or at least for a series of number of years. So we are all working on that momentum. And as the market is opening up, we think we can come very fast to our traditional growth rates and we will exceed that. On the net recurring revenue, so today, we have been traditionally a software license company. So our recurring revenues are coming out of ATS. And last 2, 3 years, we have gone -- and in the U.S., we are predominantly selling our systems with cloud. So cloud plus ATS plus our support revenue are right now the net recurring revenues for us, which is traditionally around 55% of the annual revenue coming from the recurring revenue. And we see that revenue stream to have growth...

Sorry, sir. Did you say 55%?

It's 55% for the year. For this H1, it's slightly higher, it's around 62% or 63%, yes.

Okay. Got it. That helps. And my -- and just one more question. And that's, again, partly it was addressed from -- by earlier participant. But it's mostly on the competition. So, A, can you tell us what's your total addressable market? And, B, we have seen a lot of competitors, especially in the U.S., like there's cloud-based analytical, enterprise software companies like nCino, they are -- and they have this amazing fully operating system for banks, and they are very aggressive in getting that market share. So do you see these kind of new-age software players as a threat to our business?

Yes. There are 2 parts to the question. See, total addressable market share is defined in 2 ways. One is the overall addressable market of the ECM, BPM and CCM, which are the traditional product lines, which are very well tracked by Gartner and other guys. Broadly, it's around $20 billion industry and growing at around 7% to 8% CAGR. But the low-code initiative, which has been the recent stake on all the digital companies, I think that has expanded the market size to much larger. I don't think -- we cannot quantify right now in numbers, but some reports can suggest it as big as $60 billion to $200 billion additional market. That's what I said, there is no dearth of addressable market. On the competition side, I think you can understand, as a company, we on our own platforms are very well recognized. We are in Gartner and Forrester Magic Quadrants' for last -- more than 10 years. We are, in fact, one of the few companies on horizontal products for all our 3 product lines, we are recognized by the leading analysts, right from visionary to challenger and leadership quadrants we have reached. So globally, in our area, we are one of the top players. So we don't see that as a challenge. Companies like nCino, which are contemporary, but we are as contemporary as them in technology, products, and we do compete them in the U.S. for certain banking deals. And regularly, we end up winning some or losing some, that's part of the business. So we don't see that as a challenge. Our core differentiation is predominantly the investments we have done in our products and technologies and our approach, which has been always to deliver return on investment at a very fast pace to the customers. And that is a winning streak. To test that, I think the challenge was earlier, in last 4 years, we have more than 70 to 100 customers in the U.S. right now who are working with us. So entry in a mature market is the toughest, but we have done the tough job. Now the second challenge is scale it up, and that's what we are working on.

Got it. Sir, can I just suggest one last thing. If you can show the net recurring revenue in one of the slides going forward, that would be great. Just a small suggestion if that's possible.

We call it -- I think in the presentation, you'll see that it's called annuity revenue. And we've differentiated between annuity and the cloud revenue. So annuity revenue has grown by around 11% and cloud by around 40%. So I think that's in the presentation. And otherwise you can contact Deepti, who will give you more data.

The next question is from the line of Hardik Sangani from ICICI Securities.

So actually, my questions are answered, but just 2 questions. So firstly is, so in the last quarter, when we discussed that, we have got a lot of PPP and loan forgiveness fee due COVID related. But here, I wanted to check that in this new clients which we have got, do we see a potential to cross-sell? And are those talks happening? And secondly, in terms of the provisioning, so what would be our provisioning in this year -- what we estimate?

Okay. And I'll talk about the PPP, and I'll ask Arun to talk about the provisioning. So on PPP deals, I think last quarter, we had X number of PPP deals. I think most of those customers, we are already running multiple cases in all these opportunities. We understand our -- generally, these evaluations are complex, and our sales cycles are anywhere between 6 to 9 months. So we do expect in next coming quarters, we are able to convert those deals. And that those are all very positive engagements with those customers. So that was the whole advantage of getting into the PPP. On the provisioning side, I'll ask Arun to add to it.

So Hardik, on provisioning, we have done a provisioning of around INR 20 crores in this H1. And I think we have done some amount of adjustment provisioning also because of current year. So that's about it.

Hardik, does that answer your question?

Yes, yes. It does.

Thank you.

The next question is from the line of Shivam Saxena from ICICI Bank.

So I want to understand the partner has forecasted that there will be a 7% decline in client spending this CY '20 because of the COVID. But aren't you witnessing reduced -- some bargaining from clients -- from existing clients for reduction in budgets? That's my question actually.

So Shivam, thanks for the question. So you know our existing clients, what we do is very, very sticky. So most of these clients are in banking, lending -- doing their loans, insurance companies processing their claims. So the installations are very critical and very sticky. We have had a request for certain customers to negotiate or to provide discounts, and we have found individual solutions around that. But none of these are any substantial or have any impact on revenue, they are very minor. They are to extend support to the customer at this tough time, and we've been quite flexible to extend that support. But none of these have reflected any kind of a significant reduction in our revenue or recurring revenues.

The next question is from the line of [ Vaibhav Prasad ] from ICICI Prudential.

Just wanted to know your DSO has improved this quarter. So what has happened and...

Vaibhav, sorry, I can't hear you. Can you come close to the mic?

Yes, can you hear me?

Yes. Slightly better, yes.

Yes. I just wanted to understand your DSO has improved this quarter...

Sorry to interrupt Mr. Vaibhav Prasad, but your audio is very low. Can you increase the volume of your phone?

Yes. Can you hear me?

Yes. Go ahead.

Okay. Sorry. Yes, so I wanted to understand that your DSO has improved this quarter. So what is the outlook going forward and what is driving this improvement in this quarter?

So I think nothing. If you look at historically, our DSO in the second quarter is the lowest in the year. So we have maintained that our average DSO will be in the range of 120 days. And from there, going further, as our mature markets revenue and the cloud subscription revenues increase, the DSO will start coming down. So on a long term, we have a target -- say, a target of 3 years, we have a target of reaching 90 days. But right now, we are very well in that range, and we over few -- next quarter, it will vary a bit. Generally, it's the lowest on the -- at the end of the Q2 and highest at the end of Q4. So I think that's kind of a natural change in that. But as you're rightly seeing, I think we traveled a long way over the last 8 quarters, which really reduced that number from a very, very high number. And it's better discipline on collections, better discipline on incentivizing collections on time and follow-ups.

So 90 days is on gross or net, the target set for...

Our long-term target is on the net level.

Net level.

Okay. And what is the outlook on Indian banking sector and the government and PSU because last few years, this has been, let's say, challenging?

See, everything you see -- what is happening post-COVID, everything is opening up slowly. There is a renewed interest across all segments, all sectors, all places. In India, we have faced challenges because of -- a lot of challenges in the marketplace, and I think everybody knows that I don't need to repeat that. Right now, I think we have a huge interest coming from our existing clients in India, a lot of big banks were our customers, they are looking at really launching a lot of digital initiatives, and we are finding strong interest. Also, there is interest from some new logos on that. So overall, we are very positive also about India business this year. But having said that, I think our long-term future and growth will come from mature markets, and that's what we look forward, and that's where we are investing.

Okay. And of the 17 logos, how many would be from U.S. this quarter?

I think 5.

Okay. And just last one from my side. I mean, is there any sustainable way to improve the average license per client, which is around $150,000, $200,000? And do you see if there is any room for that to go up?

I think it's -- yes, we are working on that. I think it's happening. There are 2 ways to do it. One is to increase the portfolio of what we sell. So we are creating -- investing in our R&D, investing in technology, creating more offerings for the client, which will do cross-sell and up-sell. The second is our GSI initiative, which -- where we are targeting Fortune 2000 clients. Of course, the room out there to sell licenses -- also headroom to grow licensing is very large. So between these two tactics, we should be able to overall increase our per account realization.

Okay. Okay. And what is the sustainable margins one should work? Is it like between 20% to 22% is a fair range now post-COVID? Because right now...

Yes. I would -- we would still discover and see over next few quarters what is going to be there. Because right now there are a lot many variables. We would also look at -- some of the cost optimizations right now are because of certain costs which we can't incur. That's why we are not also showing substantial growth because we are not able to do business travel, we are not able to do our business promotions and events and other things. So as they realize and as we end up growing, I think, overall, the business, keeps on expanding and has got enough margins. So we have huge margins because of our license and cloud sales. And we can -- depending on how we balance our investments and our growth aspiration, we should be able to also deliver consistent margins quarterly.

The next question is from the line of Sagar Goel, an individual investor.

Congratulations, sir, for the amazing results. So I think one question what I have is in the Australian market, how do you see the Australian market growing? And I see some revenue that is coming in this quarter. So could you just give some information around it?

Yes. So Australia is interesting. We started investing around 1, 1.5 years back in this market. We are in the early stages of developing. We are working predominantly through our global system integrators. And -- because they know this company and they have carried us to -- across different markets. We are also pursuing some direct deals. We are hoping that over next few quarters, we should start getting early deal wins. By next year, we can look at kind of a number which we can reflect in the Australian business.

Yes, sure. So another question that I have is, I don't know if it has been answered earlier, but could you just throw some light on how would we -- how does the company look for improving the ARPU from each customer? So do you see ARPU going up this -- post-COVID or during the COVID period?

Sorry, I couldn't get that. Could you repeat the question?

Yes, sure. Do you see, in the current situation, ARPU going up for each customer? Or is it the same with the historical? Average revenue per user, I mean.

Okay, okay. Average revenue per customer is dependent on also 2 things; one is about our ability to sell initial deal sizes; and then also available to mine and keep on selling licenses out there. So the average revenue is dependent, as I explained, on 2 things. One is about the width of our portfolio and the depth of penetration in that account in terms of how wide, how many users, how many functions, how many solutions, and overall also on the size of the customer. So we are working on both. On each vertical area, we are making better, what we call, solution accelerators or better products. So in banking, we have more than 20, 30 products which we can sell. So our overall realization per that account will improve. Similarly also on the account profile, as we get into larger customers, our deal size -- just because the utilization is more, our deal size will improve. So our deal size improvement is a general trend. Along with growth, you'll always see that there is an improvement on average deal size year-after-year.

The next question is from the line of Ritesh Gandhi from Discovery Capital.

Just had a couple of questions. We've been getting a mix bag of feedback on -- from clients with regards to service offerings. And specifically, there were a couple of clients that had some concerns in the U.S. where some orders needed to be reached, et cetera. Could you share a little bit of your own insights on how your customer feedback is with regards to growth in the U.S. because, obviously, we've got some pretty large heavy competitors out there. So just wanted to understand our ability to actually win in the U.S. market.

Ritesh, the customer feedback is very a different exercise. We do it globally or we have third party who would assess that. And I think overall, year after year, we are progressing. In fact, our feedback from U.S. market are pretty good out there. On scope of competition and our win rates out there, we have been winning deals. Over the last 4, 5 years, you have seen we have been winning deals. Of course, our aspiration is to accelerate that deal win ratios to a much larger number, and that's where we are investing. And our funnels are looking positive. And with this GSI initiative opening up in the U.S., which we have already closed few deals, and now the funnel is looking positive, we should be able to improve. We don't see competition as a major concern for our growth. Because in competition, we have had all kind of competitions and our values prop to our customers, we are able to articulate and very well defined out there. We are one of the few players who goes with a great combination of platform playing as well as vertical depth in the solution accelerators because we have done substantial investments both on the vertical side and on the horizontal platform. So customer with the -- both these advantages, he is able to get a substantial ROI on that. So that's not a challenge. It's able to really get and accelerate the whole process of selling, get capacities of -- U.S. is a large territory. So we have to really expand and invest. So we're looking at now next stage and we will be giving it a big push. Over next few years, I think we should be able to accelerate our sales in U.S. to a much larger number.

And is there -- and I mean, are there any specific holes with regards to our product offering that we feel we need to improve, specifically based on clients' feedback or overall almost all our clients have been sort of happy with us? Because we've gotten a sort of mixed bag where a few clients from the channel checks have been extremely satisfied, a few have ended up sort of terminating services. So just wanted to understand like where the kind of main concerns lie with the clients that haven't been happy.

See, on the feedback side, in terms of if you look at when we draw our investments on product and portfolio road map, there are many feedback areas. One of the feedback is also the customer feedback or the client feedback, which is they are going to evolve the product. But I think the more our feedback is rather than -- rather from the hole, it's more on the opportunity side, where is the technology going? Which are the areas we should invest in? And of course, there will be some pain areas. Like in U.S., there is always about -- areas around interface or product marketing are a big challenge area. So we're investing in that. I think some of the areas, we have already communicated that we are going to invest more heavily in our R&D to fix some of those areas. But I think our major investment is still going to be opportunity areas. In terms of terminations, I think we have -- substantially at company, we have very, very sticky customers. I think if you look at our history of customers, the customers we onboarded 20 years back are still going and working with us. And this is true across all geos and major accounts. In mid-cap areas and smaller accounts, there may be some churn and the churn is for various things. So there is a churn because of changing priority of a customer decision. Sometimes we have also churn in terms of disputes in terms of our ability to meet all the customer expectations. But we don't see those as concerns. Those are still at a rate which are negligible and are similar to other markets for us.

Got it. So if we were to look at churn rates, how high would that be, especially for our annuity kind of products which we have?

So we have -- if I -- Deepti will give you more data, but customers who are above like INR 50 lakh for us or INR 1 crore, we have almost 97%, 98% retention rate.

The next question is from the line of Jitendra Chawla, an individual investor.

A couple of questions. The first one is regarding the cost and margins. Your release mentioned some rationalization efforts, and we noted there's a huge drop in the employee cost. So I just want to understand how much of that is sustainable over the coming quarters? Because you also mentioned some salary revisions are going to happen now? And usually, in the second half, your -- because of operating leverage, your margins are usually higher. So I wanted to understand whether the expansion will be similar or some of it will be sustaining or it is temporary. Secondly, earlier in one of the calls you had mentioned about challenges in the domestic market where some banks were going through mergers and hence the process of account acquisition had kind of got tampered. So is it back to normalcy? How is the domestic market moving?

Yes. So on the margin side, as you are rightly pointing out, there has been some amount of optimization, both on the employee benefit cost. But I think there's also a major optimization happening on behalf of our travel -- rationalization of travel costs and our market -- direct marketing cost of events and other things. So if you look at Q3 and Q4 generally are our larger revenue quarters. And we do -- we see no reason why we can't repeat that this year also. There will be revenues -- larger. And with some amount of rationalization or rollback, our cost on manpower and giving increments, we should still be able to deliver very healthy margins over Q3 and Q4. So we don't see that as a challenge. We may not have -- as a percentage of margin, we may not reach at the same percentage, but over -- generally around what we have been delivering previously, we'll be far better than that. So there's going to be still margins in the next 2 quarters. On the...

So it'll be a just...

Yes. Sorry, go ahead.

So it'll be an improvement over previous years or you're talking about improvement over the current as such?

Improvement of -- over previous years.

Okay. And the second question, sir, domestic market...

Yes. Coming to domestic market, I think we faced -- last 2, 3 years, we faced challenges both. One is about NBFC disruption because a lot of new logo acquisition was happening in NBFCs. And a lot of cases were lost because of merger exercises of banks. I think that has stabilized now. Of course, new banks have now got creative, so not of new logos, but I think in each of those banks, we are creating more opportunities. So now that these banks have merged and stabilized, they still need licenses for their merged entities, they're evaluating new products and solutions. So in India, we are finding recovery around existing accounts. The business is looking much more positive. On our new logos, of course, the market overall, there is some amount of revival of interest out there. But this does not compensate for what has been lost previously. So I will not really talk that where completely India is looking as a great market. But from our existing account relationships, we are finding a lot of opportunity out there.

This will be the last question from Shalabh Agarwal from Snowball Capital.

Hello? Am I audible?

You are.

Shalabh, please go ahead.

Congratulations for a great set of numbers. So the first question is, this recognition by Gartner on the low-coding metrics, how does that open bigger market opportunity for us? Do we get to enter into some new products or new areas where we were not present earlier because of this recognition? If you can give some details around that, that will be helpful.

Yes. So the issue is what happens is basically low-code is right now a very strong interest for all the digital initiatives across all customers. As Gartner predicts, 50% of the organizations, middle and larger, would have low-code initiatives running around. These initiatives are also in parallel with their digital initiatives. Low-code is a mechanism by which you solve your digital problems. Our being recognized in Gartner Quadrant opens up both opportunities for us. So otherwise also we would have competed in such opportunities, but initially, you have to handle objection because customers could say that you should feature in the Gartner Magic Quadrant to be considered for evaluation. So it does open significant market for us to be competing in that market. So it's a...

In the products that we had, we were already using the low-code applications in BPM, ECM and CCM product -- sorry.

See, products are not -- see, what happens, the products don't change overnight. It is whether your product can take the position and evaluate it for such needs. So we have worked with Gartner. We have got our products evaluated across hundreds of points. We've done thorough evaluations and found our products and solutions fit to be competing in this category of low-code. So organizations when they are looking at low-code platforms to solve their digital problems can also consider Newgen as one of the alternatives. And that's all what you want from these global recognitions. Rest anyway, you have to compete for your own business.

Sure, sure. So the other thing that we noticed was, though we are being consistently being recognized for ECM product, the BPM -- that consistency seems to be missing. Any reason or anything that you are missing in terms of when we are looking at the analyst report?

No. I think it's a very good observation. But if you track the BPM area, if you look at, there is no single BPM quadrant. It has been always analysts out there that have been making lot of suggestions. So it moved from BPM to iBPS, which is called Intelligent BPM suites that has now started shifting into a content-centric BPM and noncontent-centric BPM. Now lately, this got into no-code, low-code and also certain development areas. So the whole technology space is getting rapidly changed. So what is happening is each time when they stress this technology get rebranded, then you have to get into a new kind of a quadrant. So low-code is also very much alike to our BPM suite. So -- but now it has been rebranded or you have an additional quadrant to compete for. So BPM itself -- BPM has been a very stable kind of a terminology and a business segment, which has been very well tracked. While BPM, there is a lot of overlap between a lot of other technology players, so they keep on redefining as they're pushing it. That's the reason you do not find consistency out there.

Okay. And one thing more related to that like if we check, we've been featured in Gartner and Forrester, but if you look at over -- some other analysts, there, we seem to be missing. So any comment from your side?

See -- nothing -- I think you know broadly, globally, Gartner and Forrester are the 2 things I name broadly, apart from when it comes to verticals and there are cornerstones of the worlds in other reports. So we also don't compete in all those. So we don't go and pursue that right now. There's no reason why we can't be in them if we want to be. But there's also a finite bandwidth because we have very, very intensive exercises, relationships, and then we've got to maintain them year after year to keep on improving. So Ovum is not the guy who is really trapped out there for our customers seek their reports in these areas.

Sure, sure, sure. And sir, lastly, if you look at the vertical revenues, it seems the health care was doing very well I think till FY '20. And last year and this year, somehow, we haven't been able to get pace on that vertical. So any thoughts on that, sir?

You know, if you look at our health care business, also, it was more about health care and health insurance. It was more of a financial business rather than a solution. And I think if you remember that year, we have completely given a disclaimer this was a large one-off deal, which changed the revenue for us. Overall, health, we don't really -- are not in the health space. So there is not too much of revenue coming from health. So that was one-off deals. But broadly, we don't see health care as a growth driver for us. Health insurance is a market for us, which we're pursuing. And that's where some of these cases were.

Ladies and gentlemen, I would now like to hand the conference over to Ms. Deepti Mehra for closing comments.

Thank you so much for joining us on the call. For any further questions, you can contact me or can go to our website. Thank you.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.