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

Ladies and gentlemen, good day, and welcome to Newgen Software Technologies Limited Q2 FY '22 Financial Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Deepti Mehra Chugh from Newgen Software Technologies Limited. Thank you, and over to you, ma'am.

Thank you. Good evening, everyone. I am the Senior Investor Relations Newgen Software Technologies Limited, and I welcome you all to the Q2 FY '22 results for the company. I hope all are keeping safe. Joining with me today from our management is Mr. Diwakar Nigam, Chairman and Managing Director; Mr. Varadarajan, Whole-time Director; Mr. Virender Jeet, Chief Executive Officer; and Mr. Arun Kumar Gupta, Chief Financial Officer. Before we move on to the discussion, let me highlight that this call may contain certain forward-looking statements concerning Newgen's future business prospects and profitability which are subject to a number of risks and uncertainties and the actual results may vary materially from the forward-looking statements. Past performance may not be indicative of the future performance. The company does not undertake to take -- make any announcements in case any of these forward-looking statements become materially incorrect or update any of these forward-looking statements made from time to time on or by on behalf of the company. For further details, you may refer to the Investor Relations section of our website. I now hand over to Mr. Nigam for presentation of the results which will be followed by the Q&A. Thank you.

Good afternoon, everyone, and thank you for joining us on our Q2 FY '22 earnings call. I'm pleased to present another quarter of profitable growth with margins and cash improvements. To begin with, I'd like to announce changes in the management structure. Virender Jeet has been promoted to take up the role of CEO; and Tarun Nandwani has taken up the role of COO in the organization. Both have played key roles in shaping the company over the last 25 years and have been pillars of Newgen. With this transition towards a professional structure, I firmly believe this would bring in new energy in the company and position us strongly to path significant global opportunities. This internal promotion also reflects the company's core philosophy to invest in developing leaders in the organization and bring up Newgen as a family. We all continue to be infused by the same vision, focus and strategy with renewed vigor. On the operational front, we continue to work on a hybrid model. The senior management is now coming to office 2, 3x a week. Project teams are now coming to work together as and when needed. Face-to-face meetings are happening. Training in person are taking place for new joiners. Our sales and business people have started to move to customer location as things are opening. We hope that by the end of this quarter, this will get further streamlined. In terms of performance for the quarter, revenue witnessed a growth of 20% to reach INR 186 crores (sic) [ INR 185.5 crores ] during the quarter. All the geographies have performed well and continue to grow steadily. During the quarter, especially EMEA, India region, has witnessed a growth of 59%. And India has grown -- witnessed a growth of 14%. We continue to help our existing and new customers in creating digital capabilities across the modern days' business needs. The quarter marked significant additional business from our existing customers again. We also added 9 new logos during the quarter. Some of these logos are in the process of being built currently. Some key orders during the quarter included providing a solution for a subvention system, the government organization in Singapore; providing IVPS platform, a great sub-leading private sector bank in India; rolling out our commercial loan origination system solution for a leading bank in Kenya, offering from range of financial services; providing an enterprise-wide banking solution support and relation of banking entities with National Bank of India. Our annuity revenues continued to grow stronger. Annuity revenues were at INR 115 crores, witnessing a growth of 17% Y-o-Y. This represents 62% of our business now. We continue with our transition towards subscription revenue, which witnessed a growth of 23% Y-o-Y, reaching to INR 61 crores on SaaS, we witnessed a growth of 35% Y-o-Y. Banking & Financial Services and insurance continue to be our key growth verticals. Our [indiscernible] offering an opportunity. On the product front, our NewgenONE platform is receiving good acceptance from the customer and system integrators. Newgen's market differentiation is based on our [indiscernible] of capabilities for automating complex processes at this space. Our platform manages rapid application development with business complexity, enterprise-wide data access, customer experience and integration with back-end applications. The future belongs to simplifying the way we are simplifying complex content and process requirements of our customers. This includes offering enhanced self-service experience, handling business complexity with full context and simplicity, automating processes, eliminating paper and manual interventions as much as possible and using data insights to offer personalized services and products and our platform does just that. Reinforcing our strong position in the industry, we have featured in the 2021 Gartner Magic Quadrant, a Low-Code as a Niche Player this quarter. This is our second time in a row that we have appeared in the Low-Code volumes. The key focus areas of our platform direction adhere on our improved customer and employee experience, enable the upper application development, facilitate intelligent automation and enhance the platform scalability, security, manageability and deployment. Companies are fast adopting retail-first business practices ways of working to [indiscernible] the changes caused by pandemic and ensure the long-term success. Newgen is the life, long-term partner in this journey for the companies. As an organization, we are taking all the necessary steps for creating a solid foundation for continued and sustainable business momentum. Low-Code development is becoming a large wave in the world. With our iBPS platform, we are one of the front runners in Low-Code process developments. We are enhancing it app development as we see unlimited opportunities worldwide in this space. Profits and margins. We have maintained our growth momentum on the profit margins. Our EBIDTA was up by 13% Y-o-Y at INR 47 crores. And profit after tax, up 28% Y-o-Y at INR 37 crores. We continue to invest heavily in our global expansion, our products and our people. During the quarter, R&D expenses comprised about 10% of sales and marketing expenses comprised 21%. Our balance sheet is strengthening with every quarter. We have a cash-on-bank balance of INR 298 crores, and the net cash generated from the operation -- operating activity was -- reached INR 104 crores for the first 6 months of the year. Our debtor days continues to show improvements. Our net trade receivables were INR 174 crores at the end of the quarter, which resulted in net DSO of 87 days on the back of robust sales and collection. For the half year ended September 30, our revenues were INR 345 crores, witnessing a growth of 20% Y-o-Y. And profit after tax was INR 59 crores, growing at 54% Y-o-Y. We are happy to be back on track on our historical growth path and hope that uncertain environment is behind us and markets open quickly. On the GSI relationship, our partners are stepping up and taking greater interest in working with us. Our pipeline is strong and growing over the last year across markets in APAC, EMEA and Europe. We are seeing actions in new geographies like Australia as well. With this, I end my commentary on the results and wish you a safe and happy [indiscernible]. We are now open for Q&A.

[Operator Instructions] The first question is from the line of Kunal Shah from Carnelian Capital.

Congratulations on good set of numbers. I had one accounting query basically while...

Mr. Shah, there's a lot of disturbance in your line.

Okay. Just a moment. Is it better now?

This is better sir. Please go ahead.

So I had basically one accounting query. So if I observe over the years the accounts, right, I had lot optimism when our debt days over the years has ranged, specifically in the last 3 years, almost in the range of 12% to 15% of our PBT. So just wanted to understand how do we go about revenue recognition and about the collection policies. And if you could basically help understand the revenue and collection cycle sir, a little bit, it would be of great help.

Well, Kunal can you repeat the question once again? We can't hear you properly.

Yes, sure. So basically, while going through the accounts for the last 3 years, I had an observation where debt days, net-debts what we booked in the accounts from almost like 17% to 20% of our PBT, that is profit before tax. So just wanted to understand how do we go about the revenue recognition and collection. If you can help understand the revenue and the collection cycle, right, that will be a great help.

Kunal, thanks for the question. I'll try to answer and probably you can seek more data from Deepti. So you are right, in terms of any kind of a product business, we do expect some amount of provisioning and write-offs. Generally, they should remain in the range of between 1% to 2%, 2.5%, depending on the markets you're operating in. Generally, we'll have more cases of probably default in markets like EMEA and India, prominently government and other territories. So right now, the provisioning is happening, so is the ECL measure, just typically looking at the cost trend. And what has happened somewhere during the year, the currency issues were very predominant in Africa, we had higher provisions on those 2 years. And as the times have changed in the last 2 years, they have substantially started getting reduced. In fact, this quarter, we had almost [indiscernible] provisioning in terms of having selected also what has been provisioned. So it is improving and -- but also on the forward, we are looking, there is going to be a kind of default. It could be between 1%, 1.5% of overall revenue. That's the way usually, don't look at the PBT level. On the revenue realization front, I think the realization factors are the ones which are very quite standard in the industry. On the license business, we have realizations as soon as the economic value is transferred, as soon as the license gets transferred and deployed at the customer side. And on the services side, the revenues are realized as the services are rendered to the customer in terms of -- even the milestones as well as realization of the efforts we put in. Does that answer your question?

Yes. And also how does the collection part goes, right? Because outstanding greater than 6 months or caters right also terms a very good portion of the overall data. So while revenue recognition i can understand, right? But how does this collection goes, I mean is it linked to milestones and the [indiscernible] like we receive from that 90 days or on completion of certain -- I mean, how does that part work out in both the segments of the business [indiscernible]

Yes. So on the license, generally, the collections are not linked to any milestones. They are realized as soon as part of the advantage or on deployment of the software. On the services, they are on the milestone basis, predominantly a milestone. And those are the cases where sometimes a milestone billings do occur more significantly because there could be an acceptance of a milestone which will take more time or issues in payment -- after the milestone even issue with the customer. And most of these deals generally would have been now if you look at the 180 and above days -- collection, that amount has reduced substantially. Now I think if I'm sure, much more than 80% or 85% of our will be less than 90 days now. And a small part of it will be between roughly around, I think, INR 200 crores, around INR 30 crores -- INR 230 crores it's something which is above 180 days. You can count daily days become a very small amount. And out of that, also more than 50% will be all only provide in some ways. Just the ECM has come down back to almost 80, 80 days.

So [indiscernible], if I have understood correctly, we book the revenue on reaching that milestone. That would be very much in line with the time when the amount becomes due, right? In that case there should not be any impact on receivable delays, right? Because we are eventually booking the revenue also when the amount is kind of becoming due, that is -- -- achieving that particular milestone, right?

Yes, you're absolutely right. So I think you have to compare historically, if you look at -- we are in product license business. And if you look at product license as companies, whether it is our Indian and U.S. company, there generally DSOs are very high, because in respect of the revenue realization practices, customers do end up holding payments because you are delivering products as well as services. But sometimes because of smaller issues, you end up holding payments for a longer period of time. That's when an average DSO of a product company generally be high. Now it has become started becoming better as the licenses have shifted to subscription or more annuity-based licenses, then you have lesser of such problems. So you can see companies have shifted to annuities where majority of revenues and their DSOs will be more closer to the service companies. But on traditional significant part of our revenue is still the license. We still operate in a DSO range of around 100, 110 days. And over last 3 years, it has come from roughly around 200 days to 100 days, now it's almost at 88 days as the contribution from Latin markets and subscription part of revenue growth, this keeps on improving.

Okay. Okay. And just two more questions as a follow-up to this question, sir. Historically, what is the amount that we have written-off? I mean where we might have not provided it will have to written-off. You said that it is in the range of 1% to 1.5% of the overall revenues. Is that understanding correct? And that is what something which eventually wanted to write off?

Deepti can send you the data -- historical data. And in future, we look at that way at around 1%, 1.5% of the future revenue may be affected by provisioning or DSOs.

Actually, last 2, 3 years, basically, there is a change in accounting standard also which has also impacted this number. So basically a major part of provision is deferred because of change in accounting standard also in the last few years, especially earlier 2 years. So that has also impacted, but we can come back with the data more promptly.

Sure, sure, sure, sir. And just one question, again, pertaining to this only, we work with a lot of system integrators, right? And we are seeing good traction out there as well. So how is the revenue recognition and the receivables work with the system integrator? I mean we directly get from the end clients or basically we have to receive it from system integrators, how does that work? If you could shed some light, that would be helpful as well. That's it from my side, sir.

Yes. So on the system integrator business, predominantly our focus is on transfer of licenses or sale of subscription. So since the service components are lower, so the realization of license and subscriptions are more cleaner. And also our contracts can be both taken through a system integrator or through a direct end client. So both models do exist. So we will have revenues coming directly from end clients or they will come in through system integrators.

Okay. But the DSOs more or less would be the same, about 90 to 120 days? Or with system integrators, again, it would be a little on the higher side?

No. I think we expect it to be much lower because as I told, there is no service component to it. But I think this business is still forming. We have established over the last 1 year, 1 year -- 1.5 years. So I think as the time goes by, our expectation is, the DSO figures in system integrators will be lower than our services business.

[Operator Instructions] The next question is from the line of Ashok, an investor.

[indiscernible] Hello?

Sorry to interrupt, Ashok, we're not able to hear you.

Am I audible?

Yes, sir, please go ahead.

First of all, congratulations on a very good set of numbers. And also, I would like to congratulate Mr. Virender Jeet and Tarun for taking up the new roles. And we expect [indiscernible] is going to be [indiscernible] into the new roles. Sir, my first question is regarding your travel expenditure. Could you please throw some light whether we are back to the pre-COVID levels in terms of the travel expenditure or not? And I have a follow-up on that.

So Ashok, thanks for your question. And the travel expenditure right now is very, very we small, it's almost negligible. I think our initial travel expenses would be in the range of around INR 8 crores to INR 10 crores a quarter. Right now, they may be less than INR 2 crores. So we expect them to improve over next -- this quarter, next quarter to grow, but not to come to that level in the next 1, 1.5 year at all. because the some of the part of the changes in that model are more permanent. But while as the markets open and the business takes up momentum, the travel will grow in size, but may not be at the same level as it was at a historical level ever.

Okay. So if I understand it correctly, even if you take the best case scenario, the max expenditure of the travel but i would say would be another 8% to 9% delta, correct?

Yes. I don't know exactly. What I'm saying is, that the exact invitation for us is that the travel costs will improve and increase over next quarter and the quarter after that. And also next year, they can substantially grow from the current number. But I think that will also result in growth in the business momentum because the travel predominantly is for the business.

Okay. And my follow-up question would be, sir, we have posted a very good set of number opening the Q1 and Q2 despite [indiscernible] for this progress, but still we have delivered a good growth momentum. First of all, congratulations on that. And I would like to know, you can take revenue -- sales already going to continue into the strongest quarter of the year which is Q2 and Q4. And are we really having to give those estimates of [indiscernible] growth, which you have added in the previous call.

So Ashok, right now, what we've seen in Q1 and Q2, we have almost come back to the growth rates which we had traditionally. And I don't see any significant change happening in Q3. But Q3, Q4, as you are rightly saying, are much larger revenue quarters for them. So the growth -- maintaining growth momentum is more challenging than what was in Q1 and Q2. But right now, looking at the funnel and the way the markets are going, we hope to continue the growth momentum. Whether it's going to be 15%, 20% or 25%, I think we will not be in a position right now to comment on that.

The next question is from the line of Venkat G, an individual investor. .

[indiscernible]

Venkat, repeat that.

Congrats with some of your good numbers this quarter. I'll keep short and sweet. Sir, I have gone through the data region-wise revenue numbers. We have done exceptionally well in India, APAC and EMEA. But on the U.S. side, the numbers are little lower compared to growth year-on-year or quarter-on-quarter. Can you help -- can you throw some light on the U.S. business?

Yes. You're right, U.S. growth are not at our expectation level. There are predominantly 2 reasons. Last year, I think for Q1 and Q2, we had significant jump up in quarter revenues on account of onetime business which was more on PC production program of U.S. So we had a substantial number in revenue in Q1 and also a follow-up substantial number in Q2. So maintaining the growth momentum over that number was a bit of a challenge. However, on the other things, we have also compensated a lot of things in terms of our what GSI initiatives are happening in the U.S. and other things. And we hope to fix the issue in the coming next few quarters.

The next question is from the line of Rahul Jain from Dolat Capital.

Congratulations on strong number and congratulation for the management congratulation, Jeet, on the elevation. My question is pertaining to this U.S. as an end market. So if you could give me a broad thought process because, of course, you just - I guess answering to the previous question, you alluded that there was a onetime kind of an opportunity that we benefited from last year. And now we are kind of not following on the same runway. But if you had to draw 1-year, 2-, 3-year to 5-year kind of a picture, how do you see this geography shaping up? And what is the area of focus that would drive that kind of number for us?

Rahul, thanks for your question. Rahul, the way we look at our geographies, we have 2 initiatives on the go-to-market going on there. One is we have our traditional market, which is the mid-tier banks in U.S., where we are capturing between 6 to 15 banks, depending on which year we are. And that is a space of roughly around 1,000 accounts where we are going and penetrating that market. We already have around 35 banks as our customers, and that's what we are doing. Of course, last year, we -- as you rightly said, PPP was a onetime initiative. But beyond that also last year getting new logo acquisition was a challenge last year. And it is to an extent even this year, it's not completely opened up, it's a bit of challenge. But over 2 to 3 years horizon, we think this is a area where we can -- we have a potential to get 20, 25, 30, even 40 accounts a year and do that as a business. Beyond the significant investment we are doing in India our horizontal sale of products should be global system integrators. That's what we are investing deeply right now, there be enough product recognition from Gartner, Forrester system integrators starting recognizing. And we are forming deep relationships with a few of them. And that is the U.S. market we are focusing on Fortune 2000 clients. And these -- this will be not our traditional customer base. We have been going on Tier 2 accounts in most of the mature markets. This we should think of a further acceleration of sales. For us to realize our long-term ambition, the U.S. has to become the primary market and has to become a significant growth driver. So in short-term, we could always have higher growth rates in APAC or Middle East. But in the 3 to 5 years for us then, we expect U.S. to do much higher growth rate than 20%, 25% for us to meet the goals where we have set for the company. So I expect that in the next 1 year, 2 years, the U.S. becoming the largest growth value for the company.

Right. If I would like to probe a little bit more on the key driver you have identified. So first of all, when you said, if I heard you right, you said you have 1,000 other bank into U.S. base which is your key target markets. And we already have 30 customer and 25, 30 customers what we can pass upon. So what could drive this client acquisition? So those are us in that market, does it include more foot in the ground of -- improved [indiscernible] what is going to drive it? And secondly, on the SI side also, we had this relationship for now for a couple of years and we are seeing this all the specular effect companies are basically their own BFSI revenue growth in this market. But somehow, this has not scaled up for us. So what was stopping us in this SI channel, per se?

On the bank side, you're absolutely right, I think the exploration comes from 2 facts. One is if you have more referenceability and you have more penetration in that, more you are able to sell because the -- it's not a stable market, quite wide market. So you need local, especially in the mid-Tier banks, you need a lot of local referenceability, solution referenceability. So some acceleration will come as we become larger and larger in that market. And of course, beyond that, it's our own ability to execute on the sales and marketing side. On the SI side, there is more than the sensibility. It's about the brand. It's about the penetration into the GSI client base as well as mapping their accounts. So this is what has started yet. I think we have been very lucky to get very good win earlier in the early stage. We've got 6, 7, 8 wins. I think we are having roughly around on a year 60 to 70 cases which we are pursuing with the GSI globally. And there is just some amount of delays in terms of order cycles because some of the order cycles are more larger time frame than our regular cycle of 6 to 7 months. The contracting is taking much more time. But we hope that, that established itself. And once we get the initial run rate going, then we should be able to address the U.S. much better with -- as there are fewer 4 system integrators, you can cover this 2000 accounts very well for us. So we are hoping on the banking side, the -- our organic model should suffice with more exploration in sales and marketing. And on the GSI side, in term of brand building, and some amount of getting better recognition from more GSI and penetrating these large accounts will help.

Right. And sorry to -- I have one more follow-up on this. So when we said this 2,000, 3,000 identified bank, I think this is the subset of some 5,000-odd Community Bank, U.S. have. And my understanding suggests that the India central GSI do not have a very deep penetration when it comes to this Community Bank, they're now in the top 100 universe, correct me if I'm wrong on this part. So does that also mean somewhere we need to partner more domestic local service providers which can add to the momentum

Rahul, let me clarify. The strategy which is for the 1,000 entities on banking and credit unions is a direct sales strategy. We are not using the global system integrators for that as you are right, they have no interest in that business. The ticket [indiscernible] will not service them. Although that is a direct sales strategy, we have already successfully executed it, we got our first 30 brands out there that on our own for direct sales. The GSI is only focusing for Fortune 2000 clients. That's a very difficult...

Yes. Okay. Right. Sorry. So basically, you are referring to Fortune 2000 customers. I was more thinking from a 2,000 banks. Okay. So basically, because you said this is more like a horizontal approach for you, not limited to one particular vertical. So got it, thanks. Thanks for the clarification, and best of luck for the time ahead.

[Operator Instructions] The next question from the line of Ronak Vora from [ OHM ] Advisers.

Sir, how do you see the order pipeline for the Low-Code application space?

Yes. Yes, Ronak, thank you for your question. So Ronak, Low-Code is a huge interest area right now globally. And it's not, I think, -- it's not a kind of a business opportunity on its own, but the kind of approach or a strategy or a product capability which most of the digital initiatives are expecting from their vendors. So products and platforms, which have local -- strong local capabilities have a better chance of winning those digital initiatives. So the way we see this is a very, very global large market, but also there is a lot of competition in this market, with reason being, being very strong on the process-centric application and content-centric applications. And our Low-Code capabilities end up providing a very big differentiated value to the customers. On the funnel side, all our cases are local cases for us because this has been the strategy we have been selling. Of course, it's being sold through process-centric, process automation sometimes, sometimes intelligent business process management, sometimes division process automation. The Low-Code is a new technology by which you are driving. So we are -- all our pipeline will be based on products which are Low-Code products.

Okay. So in terms of capabilities, how do we differentiate ourselves from the other synergies throw some highlights in case if you give some case study for better understanding?

So I think that would be easy to visit our website, you will understand that we have a very compelling offering for digital solutions which are process-centric and content-centric. Anybody who wants to develop a digital process is this process-centric and content-centric, we are one of the best companies in the world to do because of the inherent capability of our platform. And that's where we are very strong and we are a bit differentiate. And then with certain verticals in banking, insurance, government, we have our history of servicing customers and the use cases makes us very compelling for customers in these segments. But a lot of information is available on our website, I would recommend that you can visit and see that.

Okay. And can you give a number of how much would currently GSI be contributing to our sales and where do you see GSI being a total part of our revenue in the next 3 to 5 years?

See, right now, our partners, which are including GSIs and small partners around between 16% to 18% of the revenue [indiscernible]. We expect that in the next 5 years, this should become 50% of our revenue. While we can grow aggressively on our own, but with GSI can almost reach 50% of the revenue, but that would also mean that we can drive higher growth rates to that.

The next question is from the line of [ Heenal Gada ] from ICICI Securities.

Am I audible now?

Yes.

Just one question in terms of the India business. We saw strong growth during the quarter. Are we expecting the same momentum looking forward as well? Was that a one-off this quarter?

Heenal , thanks for your question. What we've seen in India is right now the growth which is on account of a lot of penetration into interest out-selling the new solutions and new products. And we think that part of growth momentum will continue as existing accounts are giving us good business. But I think we're also expecting supplemented by some more new logo businesses we're going to get as the markets open in India. So far, the India, the government business, which was for us was one of the big drivers of the sale, has very, very -- it's completely slowed down. We think over the next 2 quarters, some part of that can restore that and push. So long-term, we are hopeful that India business can maintain a 20% momentum. But on short-term and near-term, we are not very bullish about India business, but a single-digit growth or a slightly lower double-digit growth is what we expect.

Okay. And just secondly, on margins as well because how much do you think can be our execute in this year given that like the situation is normalizing and some of the costs are expected to come back? What can we -- not like a perfect guidance, but just if you could give us a range on how much do you expect?

Yes. So what we have done is we have already said that we should -- the business should be able to deliver at a growth trajectory, we should be able to deliver roughly around 19% to 20% net margin and between 23% to 25% EBITDA margin. I think this year, we expect to be close to those numbers. And because on the -- because Q1, Q2 are smaller for us. But on Q2, we are already at close to that number. And Q3, Q4 should significantly expand that. So we should be close to that. But you are right, on the cost front, some of the costs of which are more employee-centric costs are going up for a whole of industry. We have also taken those costs so far. There could be 0.5 point or 1 point difference because of that, depending on how the market turns.

The next question is from the line of Nilesh Jethani from Envision Capital .

Congratulations on the great set of numbers. So first question was on the margin profile. Just wanted to understand what is the difference in the margin profile when we do sales via GSI and when we do our direct sales?

Thanks, Nilesh. So the margin profile is dependent on the line of product which we sell. Like for our licenses, whether we sell them subscription or licenses, these are generally figures, high gross margin, because there is no direct process stated with that. And on the service components, which are like our software implementation and software support, the margin profiles are like service company margin profiles. So 2 parts of our business, which is the license and subscription and ATS/AMC. These are high-gross margin business. The expectation in the GSI business is that since GSI would be doing predominantly most of the services on their own, we should be able to enhance the kind of business, which is a higher-margin business. So the high gross margin business will grow faster than the service business. So the margin profile should become there. But also it depends on how the deal structures will be valued and other things. But on -- so the GSI business should be higher gross margin business.

Got it. Got it, sir. So on this itself, so we expect GSI to contribute around 50% to our revenue. And you clearly mentioned that the strategy going forward would be focusing on the Fortune 2000 clients. So one clarification I wanted. So in the earlier con call, you had guided that per annum we are targeting around [indiscernible] and per customer billing is expected to be around $300,000. So probably 60 customers per annum in the next 5 years, we can add around 300 customers. So is the funnel enough to add 300 new customers for next 5 years? So in the Fortune 2000, you already have 30 in the BFSI sector and 40, 45 in the other.

I think we are -- you are right partly because as I said, we'll be 50% of our revenue, so I said over 5 years, we should be able to reach there. So on the Fortune 2000, we have organically some clients, but that don't sound because they are part of our traditional business. Now we are expecting that every year, last year we are at around 6. Our target for this year is to get between 12 to 15 new logos. And next year, it will grow like 30, 35 and then it will grow. Eventually, it can become -- in fourth this year, it can become 60 to 100 logos a year. So that's what journey we'll advocate. And you're right on the revenue realization, per annum revenue rates could be anywhere between $300,000 to $700,000 per account. That's how it gets built up.

Got it. Got it. So continuing on the same. So today, say, we have 550 customers and our top line is around 6,730 million, say FY '21. So our per customer billing is approximately $12 million to $12.5 million. So when we say we start with $300,000 revenue, by what year we can reach a substantial revenue of, say, INR 6 million or INR 12 million?

So I think you are talking INR 2 million, not dollars because...

Yes, Sorry. Rupees.

Yes. Okay. So see, the idea is we -- unfortunately, we don't see that way in the same model. The way we see is that between those Fortune 2000 accounts, if we get 300 accounts, each account has the potential to grow $2 million kind of an annuity, between $1 million to $2 million. These add roughly around $250 million of revenue per year to us. And then on our organic side, which we do a direct account sales and banking, insurance government, that should add another $200 million, $250 million over the next 5, 6 years. This is how we [indiscernible]. Does that answer your question?

Yes. Got it. Got it. And one last question. So we have been trying to enhance the revenue on the annuity side. But in Q2, again, growth on the sale of products was same upwards of 55%. Annuity business grew only by 17% on Y-o-Y. So again, the sale of products. So how should I read these numbers?

Yes. So I think we are in the transition. So we have not shifted from license to annuity. We are still focusing on our traditional license businesses in most of the parts, which is the market which have got a lot of business, in terms of new sales, have been demand, which have been on licensed with sales. I think the change has started. We are getting into a more aggressive pace of changing. I think from next quarter onwards, we are going to more aggressively pursue only annuity sales. And in some time, we have decided to stop the licensing. And that should increase the growth percentage of annuity much higher. Because right now, we don't see the same way. But you are right, by the year-end, we expect the annuity part to still grow at a much higher rate than the traditional growth rate. So right now, there may be some businesses between how the revenue is realized and [indiscernible] in other things. But at the year-end, historically, we have always maintained a 2%, 2% higher growth on our annuity side than our other business. And that momentum should continue.

Got it. And one last thing. So we work on the 3 platform that is ECM, other is the BPM and that is a Low-Code process automation. And third is the CCM that is customer communication. So today in Newgen's top line, what would be the significant contributor among these 3? And what is your aspirations for these 3 segments to grow? One understanding what I have currently said, probably the BPM would be having high margin versus the CCM and the ECM having a lower margin. Is the understanding correct?

No, not on the margin side, but most of our business use cases are going to BPM and do have an ECM as part of already. So our 60%, 70% of our cases will be a combination of ECM, BPM combined. So on margin side because they are both licensed products, it doesn't matter which has what like margin. On other hand, we have another 35%, 30% ECM alone and CCM is much smaller, they're at 10% as of now. So all have similar margin profiles or has similar and all of their own growth potentials. Like with GSIs, we are thinking that should substantiate the ECM sale much faster. And on the banking and our vertical director counsel, the BPM sale will continue to grow. And CCMs finding new markets in insurance and other use cases which we can push the CCM sales. They are all 3 different products. In most of the use cases, we are using under 1 we are using -- is the 1 or 2 platforms together. In some cases, all 3 platforms together.

The next question is from the line of Harshil Parekh from AlfAccurate Advisors Private Limited.

My question was on our license business. I just wanted to understand whether the margins in our license business and in the subscription business. So are these similar kind of earnings -- are they having similar kind of margin profile? Or is there any difference in them?

Thank you for the question. I think they're absolutely same. It's only the way you are able to transfer the license. Generally in license, it's more perpetual, followed then only in ATS. But on subscription, it is more renewed every year, so you get higher annuity every year. But inherently, both are right of license which is transferred to the customer to that process with that. So their margin profiles are exactly same. Only when you are selling them in cloud, you add slightly another 10%, 15% overhead as the cloud service cost when the pricing accommodates that.

Okay. So the realization would be higher if the margins are fairly similar?

Yes.

Okay. Okay. Sir, another question. you said today, travel cost. So historically, if we see we have almost 10% of our revenues as travel costs, right? So I just wanted to know what could be the travel cost going forward? I mean, it won't be reaching the 10% level. But indicatively, what would be the travel cost as a percentage of revenues?

You see right now in coming next 2 quarters, we don't see it going substantially to a number where we can talk percentages. It may remain a couple of percent. Next year, I think the market completely opens up, we can almost reach almost 50% of that earlier number. We can assume 5% to 6% as our travel cost. But it's very difficult to get it right now. We'll have to wait for 2 more quarters to see how it goes.

Okay. Okay. Understood, sir. And sir, my last question is on the employee cost. So if you think historically, you have around 48% to 49% of your revenues as employee cost. So now since we are increasing our contribution on the annuity businesses, so do we see the employee cost as a percentage of revenues going downwards?

As our percentage of business which is higher gross margin which is in terms of license and subscription growth as an overall part of the revenue, the employee cost as a percentage of our revenue should come down. It's a normal expectation.

The next question is from the line of Kunal Shah from Carnelian Capital. .

I have more to understand on the global system integration program. So I mean we started the [indiscernible] which you can say it the last 2 years, right? So if you could help understand, right now we're working with like 2, 3 system integrators. How can we scale up working with more system integrators? What plans do we have? And I mean what difference do we offer to this system integrators for them to start a business with us in the first stage and then to scale it up from there? I mean, how should we look at it, sir? You could help a little bit more on that particular part.

Yes. Kunal, I think it's a journey. First of all, most of the product companies are there in a particular side. Their products are calling sale by global system integrator and it's a worldwide phenomena. For us, it has taken a considerable time to reach around roughly around $100 million revenue global recognition from our leading analysis. I think that was already here. What has happened over the last 6, 7 years, there are a lot of success stories with them in the emerging part of the market. We have a lot of success stories within [indiscernible] HPL, in India, Middle East, APAC. And now that they have realized the position [indiscernible] analysis and seen our product perform, they have got the faith and the credibility on the product that they are ready to take it to their customers. What has taken time, and that's where we are right now. On the other hand, we have established ourselves as a different sales channel, which is complete GSI-based sales channel. We have a lot of work is happening on mapping up GSI globally, mapping up the special accounts across multiple GSIs, it's not only one, but also working lot in the GSI enablement side. Because at the end of the day, GSI has been very comfortable in selling those products there. They know how to implement it, how to service it. So a lot of investment is happening on the enablement side as well as the GSI. So why we take us to the market is we are -- we are in the [indiscernible] space. We are one of the few top 4, 5 companies who are consistently doing in the Gartners and Forresters over last 10, 15 years. So we are one of the top 4. [indiscernible] product to a global person people in customers, we don't have [indiscernible] how that recognition is there. Second is they have a very high degree of reliability that we use, they can make the client success. So we have seen the success stories. And third, I mentioned that we have one of the most compelling stories in the industry when it comes to content-centric process automation, using Low-Code. We are the #1 in the world, and that would be GSIs are realizing slowly. It will take time to establish the brand in the market, build the credibility, have more GSIs interested in us and [indiscernible] largest funnel, so that's what we are working on right now. Does that answer your question, Kunal?

Yes, to a larger extent process. Follow-up on this particular part, sir. What basically I'm trying to understand is, sir, any system integrators would for also working with probably would be working with somebody, right? So there is like, are we a little -- do we have cost competitive advantage for [indiscernible] to us? Or I mean, how should we look at that particular aspect as basically more what I'm trying to understand, sir.

You're right, absolutely. I think they have all the partners. So all the major and the partnerships. The 2 things which we should bring to table. As you said, first of all, but more than the cost, the high degree of reliability to make a project successful. Because our licenses should be 500,000 say or a million. In the GSI account on that is based on 20 million, to 2 million for them, the stakes are much higher. So they always want a partner with high degree of reliability. Is that what we have built. And the second is also on the cost advantage. Since we have very greatly integrated products to [indiscernible] BPM combined, which we call the NewgenONE. It provides a really compelling value cost in terms of total cost of [indiscernible]. Our speed to implement is much better. Our systems are much integrated. And GSIs have realized that for certain areas, content-centric process automation, we are the best business.

Okay. Okay. So we would be basically taking the market share away from the increasing players, if I understand that correctly.

Partly and partly the market itself will grow. The Low-Code is a huge market space [indiscernible] ECM is still a part growing area, CCM is our very fast-growing areas in the market. So market is expanding and also we are entering and tracking the market in areas where the other operators [indiscernible].

Ladies and gentlemen, that was the last question. I now hand the conference over to Ms. Deepti Mehra Chugh for closing comments.

Thank you so much. For any other queries, you can connect to me or visit our website. Thank you.

Thank you. Ladies and gentlemen, on behalf of Newgen Software Technologies Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.