Newgen Software Technologies Ltd
NSE:NEWGEN
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
637.9539
1 414.75
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Newgen Software Technologies Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Newgen Software Technologies Limited Q4 FY '22 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aniket Pande from ICICI Securities. Thank you, and over to you, sir.
Thank you, Inba. Good morning, everyone, and welcome to the Q4 FY '22 results of Newgen Software Technologies Limited. Connecting with me today from the management side is Mr. Diwakar Nigam, Chairman and Managing Director; Mr. Varadarajan, Whole Time Director; Mr. Virender Jeet, Chief Executive Officer; Mr. Arun Kumar Gupta, Chief Financial Officer; and Mrs. Deepti Mehra Chugh, Head, Investor Relations. I now hand over the call to Mrs. Deepti for further proceedings. Thank you, and over to you, Deepti.
Thank you, Aniket. Good morning, everyone. I am Deepti Mehra, Investor Relations, Newgen Software Technologies Limited, and I welcome you all for the Q4 FY '22 results of the company. I hope everyone is keeping safe.
Before we move on with 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 could materially vary from the forward-looking statements. Past performance may not be indicative of future performance. The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect or update any forward-looking statements made from time to time or on behalf of the company. For any further details, you may see the refer to the Investor Relations section of our website or connect to me.
I will now hand over to Mr. Nigam for the presentation of the results, which will be followed by a Q&A with Mr. Nigam and Mr. Jeet. Mr. Nigam?
Good morning, everyone, and thank you for joining us today for our Q4 results call. The year '21, '22 was special for us in many ways. We complete 30 years of our journey in fostering a culture of product innovation. When we started in 1992, our goal was to create a connected enterprise, requiring one word, one workplace then. Today, as we complete 30 years of our journey, we have achieved our goal and have become a trusted partner for our many customers' digital transformation needs. Today, we are serving over 530 customers across the globe with our products and platform. The next phase of our journey would be led by AI ML and for digital automation.
This financial year was a transition year bringing us back on our growth track. Overall, we achieved a 16% Y-o-Y growth in revenues during the year and closed the year at INR 779 crores. Worldwide, we see -- we saw signs of normalization for the first time post-pandemic. We are seeing organizations accelerating their digital transformation and automation initiatives. We believe that Newgen has the most comprehensive and deep product for accelerating digital in the enterprise. We are constantly working on making our customers successful through our digital automation platform, NewgenONE.
Focus on subscription revenue. We have been able to achieve a smooth transition from license to cloud and subscription revenues that are more long-term and multiyear in nature, along with accomplishing growth. Our cloud and subscription revenues have witnessed a robust growth of 23% Y-o-Y. We now have large cloud and subscription orders, bookings leading to more assured revenue in future.
We are seeing increasing adoption of subscription and cloud across geographies with large order in India, EMEA, APAC as well as Australia. We got our first few cloud orders from Australian market this year and will start getting revenues from coming on year -- next year onwards. The year witnessed several expansion deals with existing customers as well as addition of 53 new logos. Some of these logos are still in the process of being built currently. We are focusing more on large-size customers with higher mining capability. We see a trend of growing average order size and billings from our customers.
Of the 530-odd customers, 38 customers witnessed billing of over INR 5 crores in FY '22 compared to 26 customers in FY '21. Our overall annuity revenues were at INR 456 crores, witnessing a growth of 18% Y-o-Y. They now comprise 59% of overall revenues. Our international footprint is growing in terms of existing markets, EMEA and APAC continue to outshine during the year. In the U.S., revenues have been stable. Revenue last year included revenues related to PPP logos of around INR 25 crores, which is no more part of our capital loss.
Moving to update, our offering and opportunities. Our products in banking have performed well with lending and trade finance accelerators picking up, opening up opportunities for larger deal sizes. We believe we will be able to capitalize on the back of these accelerators in coming years. We continuously invest in research and development activities to further amplify our customers' digital transformation initiative and keep them ahead of their competition. This year, we have grown our patent portfolio across key content services technologies, we now have 23 patent grants in place. As we discussed last quarter, we also acquired Number Theory in January. This acquisition is expected to further strengthen our NewgenONE digital automation platform with AI, ML modeling and data analytics capabilities. We look forward to accelerating our journey in data science and AI ML domain with this acquisition.
Reinforcing our strong position in the industry, we continue to receive additional analyst recognition during the year from Gartner and Forrester. NewgenONE platform improves customer and employee experience, enables rapid application development and utilizes intelligent automation. It also enhances scalability, security, manageability and deployability. We don't just offer a comprehensive platform. We view all the deployment as a long-term relationship and an opportunity to help our customers with their digital transformation journey.
On the operational front, understanding the changing requirements of the workforce and the need to provide a safe work environment, we have chosen a hybrid work model. Business travel has begun now and we have started hosting and participating in face-to-face events. However, collective safety and productive working remains paramount for us. At the same time, we continue to offer the required flexibility to our employees. Last year, there have been elevated attrition, which has impacted demand fulfillment across industry. At Newgen, we are focusing on empowering our high-potential employees with industry benchmark remunerations. We are also coming out with ESOPs with wide coverage for enabling our employees to participate in the growth of the company through continued service.
On the sales and marketing front, we are continuously working on building our direct sales channel, along with a focused alliance with our partners, especially the integrators to expand our market footprint. We are driving joint sales and marketing activities and campaigns as well as joint solution development with our partner.
Profits and margins. We witnessed normalization of cost base compared to last year as well as increased remuneration to manage attrition. Still, we have been able to deliver healthy margins. Our EBITDA was stable at INR 195 crores and profit after tax was up by 30% Y-o-Y at INR 164 crores. We continue to invest heavily in our global expansion, our products and in our people. During the year, R&D expense comprised about 10% of revenue, and sales and marketing expense comprised 20% of revenues. Our balance sheet is strengthening with every quarter. Our cash, bank balance and investments put together amount to INR 462 crores, the net cash generated from operating activities was at INR 143 crores. Our net trade receivables were INR 279 crores at the end of March, which resulted in a net DSO of 131 days. In Q4, our revenues were at INR 232 crores with a growth of 16% Y-o-Y. We witnessed acceleration in business from customers and healthy operating market. EBITDA was stable at INR 67 crores and profit after tax was INR 57 crores.
Our key orders from new and existing customers during the quarter include entered transformation deal for a leading housing finance company and leading private sector bank in India during the quarter. Large project wins for a leading privately owned Philippines commercial bank, executing projects for a leading omnichannel and fintech company delivering digital financing solutions in Saudi Arabia, project for a federal government entity in UAE, managing the federal budget and regulation, regulating the financial law and financial institution.
As we move to FY '23, we believe digital acceleration to AI/ML-led automation is the need of the hour. We continue to work with our customers to transform them holistically rather than silos. We continue to build on our growth momentum. Our subscription-based model is showing healthy visibility of revenue. The year is expected to witness further cost normalization, along with long-term investments in R&D and enhanced sales and marketing. As we complete our 30-year enterprise journey and embark upon AI/ML-led digital automation of enterprises, I would like to thank our customers who have shown faith in us Industry analysts who have recognized our products and platforms, partners who have invested in us an employee who have supported us at every step of the way. We continue to look forward to your support in the future as well.
We are now open to Q&A.
[Operator Instructions] Our first question is from the line of Sarang Sanil from RW Investment Advisors.
Sir, so I have two questions. On the GSO side, what is the GSO percentage of revenue? Because the last time we had a conversation, it was about 16% to 18%. And going forward, it will approach towards 50%. And how is the GSO environment looking like in the coming year?
Okay. So, thank you for your question. So the percentage of revenue from partners, it was not a GSI because GSI was a little more recent initiative over was roughly around 17% to 18% previous year. I think this year, we moved roughly around 23%, if I'm right, but we can check the data. So it has grown. The overall funnel of GSI has also shown improvement. I think last year and we were sitting at around 40 cases. Now we are more like a 78 to 80 cases. The funnel has doubled. But the GSI cycles of closure are much longer. So the revenue accumulation will happen in coming quarters and years. So it's growing and we are still very far from the 50%, but it's moving in positive direction.
Okay. A follow-up on that, sir, how many deals did we win this year? Sir last year, I think we were last 8 deals out of 40.
I think the GSI deal this year has been spread across territories. And like last year, they were localized more towards U.S. I think we have got some deals in Australia. We've got some deals in APAC as well as Europe and also in U.S. I think I don't have the exact number, but that's really better than last year, and we can send you the exact number, if you wish.
Okay, sir. Sir, 1 more question on the employee cost side. So we saw it climb to 53% this year as a percentage of revenue from 49% last year. But we were expecting it to come down as the annuity revenue increases, right? So why can't we settle on this in the medium to long term?
If your question is about employee cost, see right now the way the demand is exploiting, there is pressure on the cost on the employees. And I think all organizations are facing it. Last year costs were not the normal cost because a lot of activities were not happening in the business. So reaching the employee costs further to go up even coming in this year by a few more percentages. But over a longer period of time, you are absolutely right, a lot of our growth has got very little to do with direct cost involvement. And as you're rightly saying, around 60% of our revenue has got to direct cost [indiscernible]. We should be able to expand the margins. But in the near term, right now, we are working on the new reality of normalizing costs across all channels. So there's going to be some more pressure on the employee cost side.
Our next question is from the line of Mihir Manohar from Carnelian Asset Management.
Congratulations on good execution. You mentioned about the cases. I mean, last year, there were roughly 40 cases of GSI and this time, close to around 70 to 80. I mean what is the size of these cases, any roughly size of inquiries, if we can understand that?
Yes. I think there -- see, right now, unless those cases come to very close in the later stage of the funnel, you don't determine the exact size because the -- and the behavior -- buying behavior is very different. But generally, from our typical deal in these accounts where the GSIs deals are being pursued are slightly larger in nature. So they are slightly bigger than our average deal size. So our expectation is that these accounts would have a potential to build from $500,000 of annuity to a kind of $1 million annuity over a period of time.
Okay. Got it. And my second question was on the conceptual side. And how should we understand your operating leverage? I mean, because when I see travel cost, that is -- in FY '19 and '20, that was roughly 9% to 10% of revenue and also the R&D cost, which is also close to 10% of revenue. How should we see your operating leverage with improving revenue? I mean, how should we understand that?
So I think the -- one way of looking at this business is predominantly, you will see a lot of revenue had a good. But a lot of our costs are in two areas: one is sales and marketing. We historically are spending roughly around 25% to 30% on our sales and [ marketing ]. We think as the business grows and as the business gathers more margins, we should be able to spend higher for the growth. Our R&D costs may not change drastically, right now, they are between 9% to 10%, they can go up by 1% or so in the near term, unless there's a huge opportunity, I don't think they will move. But on the sales and marketing, as the international travel is open, the marketing expenses and travel expenses will go up. So the sales and marketing costs can go all the way back up to 28% of that.
So the operating margin lever is typically that any growth in the business beyond a particular historical trend rate of 15%, 20%, significantly open the -- expand the margins for us. So for next year, the operating margin expansion will not be practical because on the base costs are very high. Even the base costs are running this year as well as there will be some additional costs this year. But we still should be able to deliver our -- the kind of PAT margins of between 18% to 19% and an EBITDA margin between 20% to 25%. That should be sustainable.
Sure. Got it. And just to extend here, I mean, from a conceptual angle, I mean, given the fact that we are a product company, I mean, should we have a hockey stick kind of effect on our margins with revenue sizes going up? This question is more with refers to the fact that we are a product company.
Product company always works heat the hockey stick is just around the corner. And I think the hockey stick has got nothing with margins. If you look at the gross margin level, we still operate around 70% gross margin. So which is as high as it gets. We can go up to 75%, but I don't think that's worth it. But I think we are looking at growth coming from the top line and the expansion of the business, and that's where we expect a hockey stick. We are investing in that growth in the next 3, 4 years, we are hopeful that we should be able to substantially change the numbers for the company.
Our next question is from the line of Sanjay Awatramani from Envision Capital.
Sir, can you give some guidance on FY '23 revenues and EBITDA margins and the attrition level which we have faced for FY '22 and for quarter 4?
Yes, Sanjay, thank you very much. First of all, we don't provide any guidances. I think we are still a small business, and we are still in an aggressive phase of growth. So it's very difficult for us to provide guidance. But as I said, this business generates significant gross margins, and it depends somewhat on our own investments in sales and marketing and other things to determine the net margin for the company.
So as I said earlier, we are expecting to keep on our net margins above 18% and our EBITDA margin is above 23%. But that entirely depends on the growth numbers we hit. On the attrition front, last so we have been substantially attrition. We almost touched an attrition percentages, which we have never seen in the history. We think that in Q3, Q4 of this year, it will get normalized. But we are -- right now, we don't have the absolute numbers in control. But I think as the situation is -- it is getting slightly stable than last quarter, there are signs this quarter that it has come back to slightly a lower level than what has been historically. But we are still running attrition levels above 30% is very, very high.
This was very helpful. So 30% you mentioned is for FY '22?
[Operator Instructions]
Yes, yes. So the attrition you mentioned of 30% for full year FY '22, right?
Yes. So it's much more than 30%. So it may be touching close to 40% for us. But for this year, we are planning to bring it down significantly.
[Operator Instructions] Our next question is from the line of Ankush Agrawal from Surge Capital.
Sir, firstly, I want to understand a little bit on our product offering, specifically the vertical solutions that you offer on the BFSI side. So I wanted to understand how is it that our offerings are different compared to a core banking software provider? So we have this peer called Intellect software, right, where they also offer a trade finance product. And if I look at our product offerings, we also have a trade finance product. So I just wanted to understand what is different between our products and this core banking products?
So Ankush, thank you for your question. And I would advise just to understand more detail, I think it may be better to visit our website to understand our value prop. But just to spend some time to answer your question. See, we are predominantly a horizontal product play company. We have products in the enterprise business, content management, business process management and customer communication management. We use these platforms to redefine products and challenge the existing solutions, which have been built for purpose or built for need.
So our next-generation products in commercial lending, retail lending or trade finance are built on a low-code platform with growing enough flexibility, have a lot of technology components so that they are more ready to change, more ready to adapt to digital businesses and customers use them as a next generation of these products. So they're -- functionally they do the same thing for other product bank, but have a very different architecture and a very different principle. And the underlying platform our customers expect to use that platform for not only just one use case in the company, but multiple use cases. So that's our business. But I would highly recommend that if you can go to our website and get more detail about the stuff.
Right. So just putting my understanding was here, what you were saying that our platform -- that is very clear that our platform is very general in nature, and a lot of use cases can be built over that. So what you are saying is the specific use cases can be used to create specific functionalities, which is similar to some of the products like these software products might be opening? Would that be the right understanding?
Exactly. So it's a next generation because enterprises are finding ways to change their products very fast, have very agile products. And there, they see the advantage of our platform, and that's why they choose the platform and build those products over that.
Got it. Secondly, sir, again, again on this operating leverage that typically a software product company should ideally see operating leverage playing out on the 3 side. First is on the gross margin front, wherein over time the [ ANZ ] revenues build up you ideally should see our operating leverage playing out? Secondly would be in the R&D, wherein similar level of R&D could be spread over a larger customer base and same thing on the sales and marketing front. But if I look at Newgen over the last 4, 5 years, our R&D costs have increased from, say, about 6%, 7% to now 10%. The sales and marketing have expanded from 17%, 18% to 20%. So I just wanted to get a sense, why is it that Newgen as a company is not seeing that operating levels play out on these cost side? The argument that the investing growth is makes sense, but that would mean that you don't get an operating leverage, but in our case we are seeing operating deleverage on this side. So some more thoughts on this?
Yes, Ankush, I think you're right. And I think one of the things, as you said rightly, at the core of the business, you see gross margin. So the gross margins, we are already at around 69%, 70% of the business. So the business has enough operating. But whether we spend 6%, 10% or 15% of R&D it depends on the opportunity we see across the horizon. Same is true with sales and marketing. As we are expanding into more in mature targets, we'll keep on. If you look at an international benchmark of companies and products, their spend on R&D is more like 17% to 22%. And then the sales and marketing expense are roughly around 45% to 48%. So we are far below the international benchmark. But as we are entering these territories, as we are getting into more mature markets, we need to enhance and increase our spend on these areas. So we'll continue doing that. But having said that, since the business has very high gross margin, we should be able to still deliver good net margins at the end of the day.
Right. So since our gross margin is already high at like 70%, 75% what you mentioned, and since we're looking to expand on our R&D and sales and marketing investments, so ideally, over the medium term, we should still be around the 20% EBITDA margin and 20% net margin. Would that be the right understand?
Yes. With our growth targets reaching, we should be between 18% to 19% of PAT margins and around 23% of EBITDA margins for the next...
This is the long-term range, right?
This is near term. Long term, I think we have not drawn that plan yet. It depends on how the company moves.
Right. Lastly, sir, just a feedback. Would it be possible that our end to start providing a functional P&L in terms of software delivery expenses so that we are able to get the gross margins the same for the R&D and sales and marketing? Is that would be provided that would be very good. Just a feedback on that.
Yes. See, right now, we are still a kind of a sub INR 1,000 crore kind of a company. We are at INR 780 crores. I think our second segment is the geo. That is where we are looking at geo margins and geo P&L. I think once we have a substantial size, then we can have a product P&L and other things. But right now, I think in near next 2, 3 years, we are not planning to go there.
Our next question is from the line of [ Homiar Irani from Kotak Mahindra ].
Yes. I have a -- basically, it's a concern. I was just browsing the Internet for my analysis purposes, and I came across the company by the name of Newgen Payments. It has a website called www.newgenpayments.com. Now if this is not a subsidiary of your company, then customers are going to mistake that company for your company, and this could be a trademark or corporate violation. What are you going to do about this?
First of all, you are the first one to bring it to my notice. We are not seeing Newgen Payments. Though we know there are some Newgen named companies across the globe, and they are in different business areas. And some may have a smaller overlap and we are having some kind of concerns with them we have raised those. But Newgen Payments, we have not heard. And...
Actually there's a website called www.newgenpayments.com, all one word. And it is based in New Delhi area only. And I have, in fact, spoken with the corporate office receptionist once I had called up and she had taken down the note. I raised this concern with her as well, and she said they will look into this but the thing is she has not brought this to your notice.
I think we can separately [indiscernible].
Yes, we can take a look at it. And if it goes through legal and they have got their own time. Nobody is going to just close down their business just because I don't want them to use word Newgen. So Newgen a very generic word. I think people use it in different -- and also the way trademarks work. If they have a different business and a different purpose of the business, we should not [indiscernible]...
This is into payment. And it's an IT company.
Yes, yes.
That's why it's overlapping. You also have Newgen -- you have a payment product, right, on your website, which I've checked it out. And they also have some kind of a payment product on their website.
Sir, I think we haven't yet looked at it, so probably we will just have a look at the website, and then we'll have our team take a call.
Our next question is from the line of Dipen Sheth from Buoyant Capital.
So I have a question on your segment reporting, the consolidated reporting, which I think is on the 14th page of results PDF. So I can see that almost all the revenue growth for the year has actually come from one segment, which is the EMEA. I'm assuming that's Europe, Middle East and maybe Africa or something.
Middle East and Europe.
Okay, fine. So Middle East and Europe. Now is there a specific reason for this? And how come the margins also, this is the only segment in which the segment margins have risen over the year rather than fallen, which is surprising in view of your overall margin decline and your claim that manpower costs have led mostly to the fall in margins. So is there some specific color around the EMEA segment, which I'm missing?
No, you're absolutely right. See, we have -- as a business, we have been far better in EMEA this year. And I think there are 2 reasons for that. One is the market is looking very healthy, depending on, I think this market. We have significant business in Middle East and depending on oil prices and the environment is healthy. The market does show strong -- and historically, it has also been a strong market. This also -- this growth is also on the base of a very low growth last year, which was because of the kind of oil shock the market did not respond.
As the margin -- since most of our costs are attributed in India, generally, the top line growth will expand their margins significantly. So the growth of the territory is higher than the average growth of the company, their margins will continue to expand. And historically, Middle East and Africa has been a strong growth countries for us. Though other countries like APAC, India also this year have come back to the growth momentum. And U.S. last year, we had kind of onetime PPP revenue of more than INR 25 crores. So we have just maintained a kind of momentum on that and compensated for that. So our growth has been broad-based. But the margin, you're right, EMEA margins, because of the 40% kind of growth, the margins are looking much better than EMEA.
I don't want to sound stubborn here, but actually, our growth has not been broad-based last year. It's been led by the EMEA segment, but that's fine. I can understand that the other segments will pick up in a bit. Now within EMEA, you're saying the big thrust has come from the Middle East market, not so much from Europe. Is that correct?
Yes.
Okay. My second question, sir, is that I can see a rise in intangible assets on your balance sheet over FY '22 of a significant number compared to the last year's balance and the number is close to about INR 16 crores. Can you kind of share some information on what this might represent?
This represents the acquisition we have Number Theory as a company. We had towards last quarter, we had the acquisition of Number Theory in AI/ML platform. This is on account of that.
So I would have thought it would reflect in goodwill on consolidation, and not in intangible assets or maybe I should get us the same?
Yes, it is the same. So there's a small amount of goodwill also I recognized in the balance sheet -- yes, go ahead Arun.
Yes, basically, as per the valuation by the independent valuer, it is coming out that product valuation as the intangible as well as the goodwill also, slightly goodwill also is there around INR 2.5 crores INR 16 crores is the product valuation.
So both these bump ups are on account of the acquisition, which I think is perfectly okay.
Yes. Yes. Both are on account of acquisition only.
Okay. Will you be taking write-offs against these over a period of time?
Yes, it will be amortized in the next 5 years.
In the next 5 years, perfectly fine.
Thank you, Dipen.
Our next question is from the line of Nilesh Jethani from BOI Mutual Fund.
So my first question was on the margin only. Sir, today...
[Operator Instructions]
So today, our implementation share in the overall revenue is broadly 20% to 25%. And going ahead, we want to make the mix to GSI towards 50% from 23% currently. So I believe most of the low-margin implementation work would be done by the GSI partners. But still, we are guiding for a lower margin when a company would more look like a product company next 3 to 5 years versus implementation?
So Nilesh, you're absolutely right. I think when we are guiding for a kind of a lower, that is on account of what's happening today and what's going to happen over this year. So the implementation, we will still continue to do implementation for our core customers, which we have already acquired. While as the newer customers in mature markets, the GSI is going to be. So overall, gross margin positions will improve. And overall, the margins would expand. Then we have a responsibility also to invest for growth for the company, and we'll continue to invest for growth. And those investments will balance it. So you're right, the margin expansion should happen, through that as well. But for next year, we don't think that the implementation will move so much to GSI that it will change the overall dynamics of the margins.
Okay. Okay. Got it. So on the investment side, today, we are at, say, 12%, 12.5% on the R&D expense on the top line. So what we aspire this number to be?
So we are around 10% -- so as I said, I think this will not budge significantly in this year and next year, it will remain around the same thing. It can go to 11% or 9.5%. Beyond that, I think if we see great opportunities to further exploit it, I think we'll come back and inform everybody if there's an opportunity like that.
Okay. So where the other investments could be then?
Sales and marketing is a prominent one. I think we have -- I think before the pandemic, we are already at 28%. Now we have come back to around 20%, 23%. I think this will surely go back close to that percentage. And even as we grow in mature markets, this can even grow high.
Okay. And our active plans are always in the range of 550, 560 or level, that number has come down to 530. So anything we should read through this decline of 20 clients or it is the tailwind or rationalization which you guys are doing?
No. So I think if you look at, I think our account growth in all accounts are above INR 50 lakh is significant. I think our more than INR 5 crore accounts have grown from, I think, 27 to 34 -- yes, 38, so there is a growth all across. But there are 2 things which are happening. While during the pandemic, you had a lot of smaller customers, the ATS, AMC renewals have not happened. So we take active customers who give us business that year. So there is a churn in the lower end. The other thing is a lot of new businesses which we are acquiring this year don't have that new reflection because now we have shifted to the subscription model. So since they were previously licensed businesses, they would have been recognized and those -- so now they are more on subscription-based basis. So that between those 2, there is some account of -- number of customers contributing to revenue that year that's roughly around 530.
Okay. And on the overall very macro level, so the 3 business lines, which we are into. So broadly, most of the industry consultants are guiding about strong growth in the low code, no code venture. But I believe our share in that is slightly lower when I compare to the other segments?
See, the low-code, no-code push has been for the last 2, 3 years from analysts. But I think we have been historically a kind of a company we deal with no code, rapidly building applications. base called BPM workflow then we added more low-code capabilities. So this is a broad market. So low-code is a technology, which is now almost an expectation from all companies, and there's a lot of other companies who are doing in the low-code area. We expect to be a company strongly working on automating all business processes of an enterprise through an approach of low code. So our all installations, which are today, I think almost 70% of those end up using low code in one form or the other. So we are broadly in that business. But the overall industry category of low code, I think that estimation keeps on shifting and that category itself keeps on getting redefined.
Got it. So broadly, with the 3 line items that is low code, context and communication, what is the broad growth we expect on a blended basis next say, 3 to 5 years? And with the GSI thing catching up, is there a scope for incremental growth? And what can that number be?
So see, I think predicting numbers right now may not be possible, but we are expecting to accelerate our historical growth rates of 20% by having additional growth momentum coming from larger [ 42% ] clients from GSI. I think we have got some footprint in that, but it has not gathered momentum. So once that gets this momentum, we should be able to push our growth rate above 20%.
[Operator Instructions] The next question is from the line of V.P. Rajesh from Banyan Capital.
Most of my questions have been answered. Just one remaining question is that your subscription revenues...
[Operator Instructions]
Okay. So my question is that your subscription revenues have been around 31% this year of the total revenues. Where do you directionally see it going in the next 3 to 5 years?
Our estimates are that next 3 to 5 years, our subscription revenue should hit more than 60%, 65% of our overall gross revenues. Because this is the one head which keeps on growing at a higher pace than our growth rates and that we are seeing more and more for subscription and removing the license-based business organically. I think we should further explore it.
Okay. So could you also share your backlog at the end of the year given there is a subscription base we have?
I think right now, we are not in the position to share those backlog numbers, I think but give us few quarters in next 3 to 4 quarters, we should be able to give you numbers in terms of backlog orders as well as the ARR for the subscription record. I think we have much higher backlog this year compared to last year. But I think numbers are not in a position to right now that.
Understood. So would you say your backlog is -- the growth in backlog this year is higher than your revenue growth this year?
Yes, much, much higher than our revenue. Our overall order book is much, much higher than the revenue.
Our next question is from the line of Rahul Jain from Dolat Capital.
So kindly bear me for my voice, I'm actually having a cold. So I'm actually referring to the data that you have mentioned in terms of the market we play in where you have mentioned across category multibillion dollar opportunity that we have. What I'm trying to understand is how our positioning in some of this play has been evolving given that our size right now is much smaller given the opportunity set. So how we think where we are in terms of the capability mix and in terms of when we would try and take some meaningful piece of this market and where we are relatively better place over the other? So any color on that would be helpful.
Yes. See, the question is these broad categories of market where we have -- our products address have been defined by different analysts in the industry, and they keep on sizing them. Our position on the product portfolio side is quite strong because if you look at the analysts reading through their reports, they will see that we are doing very well.
One of our challenges, we started from our India and move to the areas around India. Our presence in mature markets is significantly low compared to other players in that. And that's where we are focusing, building the mature market sales ecosystem. Even the GSI initiative as part of that, we are pushing that. We think that over the time in enterprise content management, we have a very, very strong player. If you look at -- we are among the top 3 or 4 players and very good alternate for GSI to go and replace the older content management thing. So that's one area we are looking at significantly. But on the low code or the automation space, that's another very strong area we are trying to build, and it's going to be built organically over a period of time.
What is going to be significant is going to be the success which we can drive to GSI and the sale we can drive in mature markets. They will change the position substantially. You are right. Overall, if you look at the overall addressable market, we are a small fraction of that. But I don't think that, that traction will change unless we make a big dent in markets like U.S. and Europe. And that's what our investments in sales and marketing and other things are all about.
And the question is also in the context of what we've been articulating has been very, very similar for last couple of years. leadership or the product positioning or banking has been quite strong in the last couple of years, and we've been trying to crack this code of the GSI channel also from last couple of years. So I can say that, of course, we have grown in this period, but story has been very, very same. So what are those meaningful initiative that has been playing around, which can possibly help us build this thing? Is there anything that will put out there?
Yes, you are right. So we do have grown. I think it has not changed substantially the numbers for the company from the perspective of penetrating the mature market. But I think we cannot undermine the success we have already had in terms of we have now almost 30% of our revenue coming from U.S., which is the breakthrough for any Indian product company in enterprise space.
Now climbing from here to next step, predominantly, we have got multiple strategies in place, which is predominantly centered around our sales and marketing. There are, of course, production is going on with the augmentation of AI/ML, we are strengthening our capabilities, but our focus is going to be on the sales and marketing. And unless we are able to track the results, I don't think our initiatives will make a lot of sense to discuss out there. I think we are hopeful in the next 2, 3 years, we should be able to show a significant change in those.
Our next question is from the line of Saurabh Sadhwani from Sahasrar Capital.
Congratulations for a profitable year. So my question is about -- can you please detail about the other expenses? They have risen on your income statement. And so I was wondering why have they risen, means and what it is contributing to?
Just give me a second to check up the order. I'm trying to locate where are other expenses, okay, here they are.
Yes.
As for SG&A expenses have gone slightly up, I think, on account of 2 things. I think some amount of investments in sales and marketing towards the later part of next year. Last year, we did slightly more as the market opened up. Also, some amount of office opening up has started back. So some office expenses are just opened up. And travel has gone slightly up. I think those now compared to what [Technical Difficulty] last quarter, we had some travel on events and some business travel. I think I across these 3 things, it has gone back there.
Yes, yes. So travel is resuming, right?
Sorry? Yes, it has resumed. I think last quarter, we had some travel. I think this quarter, we have significant travel on sales and marketing trend on events and other stuff. I think we expect this year to be kind of a good traveling year, which will lead to better sales for us.
Okay. And about the U.S.A. business, there has been a sharp decrease in the profit before taxes in the U.S. business. What is happening there?
So yes, if you look at last year, U.S., we had a onetime business which was Paycheck Parity Program. That was roughly around INR 25 crores of business. So that was a onetime business which we did last year. And this year, I think that has not been there and the rest -- most of the growth, which has gone is to compensate that. But the base prices have gone up across people and other things. So that there is some impact on the margin. I think the margin position is just the reflection of the top line not growing significantly out there.
Okay. Okay. And just one last question. About the Number Theory acquisition, are you planning a new product with the Number Theory AI/ML capabilities? Or are you planning to integrate into the current NewgenONE?
So this is -- what we have got is a platform, which is in sync with our philosophy of low code. It's a platform to do AI/ML modeling on a low code approach. We are going in the platform to augment our current solutions, which is vertical solutions in banking and other areas and also use the same technology to augment our horizontal products. So this is going to be a kind of a stat which will get -- it will extend functionality in our existing products and also provide customers an additional horizontal product in AI/ML space.
Okay. Yes, I think just 1 more thing. Look, about Gartner search [indiscernible] when I go in search, on Gartner about low-code application platforms and enterprise low code application platforms, Newgen is placed a little lower in the search results. And I think it's because of by default Gartner places products which have more number of reviews at the top. So will improving the rankings on Gartner some way help the business?
Surely, it helps. But the way you can improve it is organically by having better business in mature markets because most of the inbound queries for products come in mature markets. So it should happen as the revenue of the U.S. market improves. We are also working parallel with Gartner on many fronts to see how they can contribute and help us build, how they can put a better position on their quadrants. It's an ongoing process. But job which will help us is the growth in the U.S. region will really help us there.
Our next question is from the line of Mihir Manohar from Carnelian Asset Management.
I wanted to understand that you mentioned about INR 35 crores kind of an impact -- onetime impact in the U.S. business last year. So I mean, this is on the revenue side, right? And we'll be at the INR 35 crores last year on the revenue, or on PBT?
So this is -- it's the INR 25 crores, not INR 35 crores, INR 25 crores of revenue, which we got out of Paycheck Parity Program last year, which was a onetime revenue coming from such accounts. So this year, since that revenue was not there, the base was lower by 25%. So whatever growth has gone, has gone into compensating that. Does that clarify?
Yes, sure. Sure. That clarifies. And also, you mentioned, I mean, with GSI, we will be able to do 20% plus kind of a growth. I mean I wanted to understand that, let's assume, GSI traction doesn't build up to the extent that we are anticipating. What is the kind of organic growth that we are looking in for the next 2 years?
See, our historical growth rate, we have been able to push at 20%. And GSI is one of the plans. We have our own plans of expanding and going directly to our customers in meeting. So we are -- in one or the other way, we are planning to expand this 20% growth rate, which has been a historical growth rate for us. And now whether we can touch 25% or 35% depends on how successful we are in executing our plan.
Okay. Got it, yes, sure. And I had just 2 more follow-ups. I mean, 1 thing also. I think also a travel and conveyance expenses. That particular line item was at INR 60 crores, INR 65 crores in FY '19 and '20, and which is close to 9% to 10% of revenue. I mean I don't see such a high number for other IT companies or even product companies for that matter. I mean what all line items are there here? And what kind of savings can we have learnings from the COVID period? I mean 9% to 10% of our revenue looks to be quite big number in that context.
You're absolutely right. I think, first of all, our travel -- predominant large part of travel is sales and marketing related because a lot of organization is about servicing Middle East, APAC, India, even part of Europe and U.S. is happening out of India. So the same is based out from here. And the second part is going back to 10% or 11% of revenue, I don't think that's practical. So a lot of optimization in some part of travel is going to be more permanent. I think the optimization is about POCs, demos, studies can be done very remotely. But some amount of travel in terms of even business travel, case to files, closure meetings will keep on happening. So we expect travel costs to go up here, but I don't think we expect in next 2, 3 years them to ever touch 10%.
Sure. So what percentage of revenue should be read for FY '23 and '24?
Just give me one second, I will let you know. It should be around 3% to 4% of revenue.
3% to 4% of revenue, yes, got it. So basically this also includes the hosting -- I mean the event hosting cost and all. Is that the case?
No, no, no that's the market expense, that's a very separate expense. This is just travel. Travel for business.
Understood. Sure. And lastly, I mean, so you are having cash on books of INR 460 crores, and we are having DP ratio, dividend payout ratio of 20%. I mean what are the lines of using of this INR 460 crores kind of cash, I mean, it looks quite a substantial number in that context?
Yes. So we have been 1 -- I think over the years, we have been increasing the payout. Now it's 45%, not 20% this year. The other thing is also our whole idea of purpose in deploying this cash for growth. And we are looking at both inorganic and organic ways to use that. And the next, we think this -- the cash -- current cash on books can be deployed better for business over next years. And in next -- maybe next 1 year or 2 years, if we have further excess cash, then we can look at increasing the dividend payout.
Sure. So '23, '24, I mean we should build in the same number?
I think next year, I think that the Board will decide at the end of the year, I will not be able to comment on that. But I think we will be looking at the reserves to be deployed for growth of business and looking at also increasing the payout for our investors.
Our next question is from the line of Sanjay Awatramani from Envision Capital.
So my question was that the previous participant asked that you have some plans for using this INR 450 crores. And in the opening remarks, you mentioned that we'll be moving ahead with some acquisitions. So can you highlight, I mean, what is the amount of expense we are focusing on acquisitions and which are the geographies we will focus more on?
Sorry, I've never said acquisitions, I said that inorganic, and inorganic can be done in many ways. And I think once we have any firm plans of acquisition, we'll come back to you. But right now, you're right, I think both we are looking at using this cash to accelerate growth, and we are finding ways. We have not drawn out any firm plans or we have got out any firm company to acquire so that I can't give any exact number in major of the cash. So once we have those plans, I think we'll surely come back and share with you.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you so much, everyone, for participating in the call. For any further questions, you can connect with me or go to our website. Thank you. Have a good day.
Thank you, members of the management. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.