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Ladies and gentlemen, good day, and welcome to Newgen Software Technologies Limited 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, Lead Technology Analyst from ICICI Securities. Thank you, and over to you, sir.
Thank you, Peter. Good afternoon, everyone, and welcome to the Q1 FY '23 Results of Newgen Software Limited.
Connecting with me today from the management's side is Mr. Diwakar Nigam, Chairman and MD; Mr. Varadarajan, Whole-Time Director; Mr. Virender Jeet, CEO; Mr. Arun Kumar Gupta, CFO; and Ms. Deepti Mehra Chugh, Head, Investor Relations.
I now hand over the call to Ms. Deepti for further proceedings. Thank you, and over to you, Deepti.
Thank you, Aniket. Good afternoon, everyone. I'm Deepti Mehra, Investor Relations, Newgen Software, and I welcome you all to the Q1 FY '23 results of the company. 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 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 by or on behalf of the company. For further details, you may please 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 a Q&A. Thank you.
Thank you, Deepti. Good afternoon, everyone, and thank you for joining us today for our Q1 results call.
Starting FY '23 on a strong note, with revenue growing at 18% Y-o-Y. I would like to highlight once again that there is a seasonality in our business due to the license-based model historically. Q1 is a leaner quarter in comparison to the rest of the quarters. Thus, we do not look at the sequential performance in the business. Having said that, we are now increasingly seeing a growth in cloud, subscription side of business. It grew by 33%. The cloud and subscription revenues put together have now reached 38% of our total revenue. The shift is expected to lower the seasonality in the coming years and lead to more uniformly in revenues across the quarters. The annuity revenue for the quarter was INR 131 crores, witnessing a growth of 25% Y-o-Y. The annuity revenues comprise now 70% of our total revenues in Q1. In terms of geographic growth during the quarter was led by India and EMEA markets. Indian market had been subdued for sometimes now, and we are happy to see developments in this market. We have entered into key transformation projects with existing customers, including license agreements with an India-based oil major and a key life insurance player in India.
EMEA continues its growth trend since last year. The U.S. market has been lacking traction, and we are working across the various initiatives to combat the same. We had new logos win in Q1 '23, 6 totally, with 2 logos in Americas region. Moving to update on our offerings and opportunities. Just as the cloud eased the scalability and distribution access at an infrastructure level in the past decade, local platforms are now equipping organizations the ability to develop their businesses, applicate -- business applications faster through digital technologies and [ abstracted ] for ease and functional natures. The next phase of our product journey will be led by artificial intelligence and data sciences-led digital automation. Organizations are now looking to leverage data to take informed decisions. NewgenONE, along with Number Theory, has now become a unified platform for meeting all data sciences need of the customer.
We continue to work on our long-term platform and cloud road map. We have enhanced NewgenONE with cloud-native multi-persona Artificial Intelligence and data sciences platform. The platform is further enriched with intelligent document classification and extraction, integrated processes and RPA capabilities. Also, we have strengthened our DevOps for easy application requirements. We have recently commissioned Forrester Consulting to conduct a total economic impact study and examine the potential return on investment to the enterprise.
Enterprises employing our solution may realize Newgen solutions are giving very good ROI. We are happy to share that key findings in terms of the ROI and payback periods have been very encouraging.
On operational fronts, we are increasingly seeing the employees back to the workplace. In-person meetings, team collaborations and customer meetings are now increasing. Business travel is starting to normalize. We have started hosting participation in face-to-face events and doing in-person customer meetings. At the same time, we continue to offer the required flexibility to our employees. We have been investing in all the spheres of talent acquisition, retention, development and incentivization to mitigate the impact of elevated attrition cost across the industry. On the sales and marketing front, we are continuously working on building our direct sales channel, along with focused alliances with our partners, especially the system integrators to expand our markets. To the partnership with system integrators, we are driving joint sales, marketing activities and campaigns as well as joint solution development. During the quarter, we entered into a strategic alliance with companies, like India-based Coforge and Indonesia-based Anabatic Digital, as a part of our strategy to accelerate digital for the organizations across verticals. We are also exploring partnership with large consulting firms. Profits and margins. Q1 has historically been low profit quarter for us, given the nonlinear revenue across the quarter. Our profit after tax for the quarter was at INR 19 crores. We are increasingly witnessing normalization of the cost base. Employee costs have increased on account of salary increments and continued supply side challenges leading to additional costs. In addition, there has been normalization of travel expenses. We continue to invest in our global expansion, our product and our people. During the year, R&D expense comprising about 11% of the revenue, and sales and marketing expenses comprised 25% of the revenue, as usual.
As an organization, we remain committed to our medium-term margin targets and working across initiatives to achieve the same. Our net cash generated from the operating activities was at INR 73 crores. Our net trade receivables were INR 226 crores at the end of June, which resulted in net DSO of 102 days. To conclude, we believe we have a resilient and growth-oriented business model in place for long term. Our cloud and subscription revenues have been growing at a fast pace, providing healthy visibility of long-term revenues. Our products have significant leverage across both sides of the market opportunity, revenue enhancement as well as cost optimization. We have been continuously investing and improving our strength in solving multiple business goals for organizations. This includes in transforming a business to maximize organization growth and market share and become future-ready, digitizing -- digitalizing the process for enhanced operational efficiency and cost optimization. Applying analytics and data sciences, we accumulated for process data, generating business intelligence, insight for enhanced decision-making, building new machine learning models and using these to improve a straight-through business process, reinventing business model.
That's it. We are now open to Q&A. Thank you.
[Operator Instructions]. Our first question is from the line of Akshat Agarwal with Jefferies.
Akshat here from Jefferies. A couple of questions from my side. Firstly, why is it that we're seeing a steady decline in new logo additions for the company over the past several quarters? It used to be about 20 new logos every quarter, it's currently come down to 6. That's one.
Secondly, we were expecting a step-up in growth in the U.S. market, particularly driven by our partnership with GSIs. What's happening there? And why is it that U.S. markets are not performing the way we expected them to perform? That's it from my side.
So thanks, Akshat, and good evening. First on the new logo front, we have historically been able to generate around 50 to 60 logos a year. And we have also moved away from some channel-based sales, which used to generate larger momentum of logos. They were smaller [ ticket ] items. In last 2, 3 years, we have deliberately shifted from that. And as we are progressing in the market, it's making more and more meaningful to us to get up to slightly larger deals, which fit in our profile of about 400,000 of annuity or more. This is one of the switches and one of the reasons, in fact, where we have also suffered in terms of moving away from such accounts, both in U.S. and in other markets as well. While having said that, our expectations even for this year is to do around 50 to 60 new logos. And some of these logos are very large, and they will give us multiyear revenue. Q1, we have missed some orders, which are slightly big or delayed or deferred. But on a yearly basis, we are still on track to do around number of 50 to 60 new logos. And we are hopeful that, that's going to happen. On the growth in U.S. market, I think we explained that last time also. There are a couple of factors. Last year -- for the last 6 quarters, ending up to last year March, we had a onetime PPP revenue, which was generally between INR 5 crores to INR 8 crores on every quarter, which was not sustainable and recoverable. The second part of this issue is also we have completely shifted from license sales. Some of the license deals, which we used to get from Caribbean and other countries, we've completely stopped and gone to subscription.
So there is a decline. But the other bigger factor is we have realized that in U.S., some tier of accounts, which we are pursuing as part our direct go-to-market strategy on banking, we don't see substantial yield coming then as part of repeat business. So slightly shifted that to a larger account. And we are hopeful in some period of time, we are able to build that business and go to a more meaningful tier of accounts because with getting even those 25 logos, we are not able to generate a substantial value in the business. So we are doing some of amount of pivot out there. On the GSI front, we have been telling continuously, I think the funnel is very positive, but the deal close are not at the same speed as we expected. We will close some deals with GSI this year also. I think last year also we closed 5, 6 deals. I think we are hoping that this year also we will be doing a better number than that, but not at the same speed.
Having said that, I think we have reached in U.S. a number which is at the most bottom of our number in terms of -- this number is based on almost the regular annuity business, which we generate from U.S. So any deals which we have got last quarter and this quarter should start adding revenue to the coming quarters. And we are hoping towards next 3 quarters, U.S. will show a growth momentum for us, because the base has been -- the current revenue is at a very base level. I hope that answers your question.
Our next question is from the line of Sachin Jain from Carnelian.
My question is largely on U.S. because that is one of the key regions for your larger strategy. So can you give more qualitative comment what is happening at GSIs front, though you have covered a bit on a previous question -- previous answer. But can you see more quality because I think the last 1.5 or 2 years, you are making efforts towards U.S. And we are not seeing meaningful traction yet. So can you give more qualitative inputs, how it's unfolding for you, one, from GSIs point of view and second, your direct sales point of view?
Yes, Sachin. Thank you. And I'll try to further give you some color. See what's happened in the U.S. as you are rightly saying, we have 2 businesses. One is our direct sales business, which is typically going in to Tier 2 to Tier 3 banks in U.S. Out there what we have studied finally of [ winning rate ]. Of course, during the COVID period, those banks behaved very differently, and we didn't have a lot of banks.
But the other biggest challenge, we didn't see long-term potential in some of that account base because we were too small to give us repeat businesses. So the cost of sale over lifetime was not recoverable. So we have done a deliberate pivot of leaving a large part of that market and going to slightly larger accounts. So this is 1 part. And as part of that, we have set the U.S. team. We are working on that and that will happen over a period of time.
The second part on the GSI, as I told, I think we have done substantial work on the GSI ecosystem in terms of how we have strategic partnership with multiple [indiscernible] funnel going. We're approaching that market. But one of the challenges is our control on the deals has been very less out there in terms of the closure cycles, and we have seen that sometimes the deals will take [ 30 ] years for us to close, for the GSI because this deal is substantial. For us to solve that, we are looking at acceleration of the funnel. We're creating more funnel, and that's what we are focusing on. And we are hopeful that it may take slightly more time, but over the next quarters, you will see significant results coming out of that ecosystem.
So what's your aspiration, Jeet, as far as GSI is concerned? How many deals per -- it was 6 last year, if I understand correctly. What do you think, in your opinion, this year this number will be? A ballpark? I mean, I'm sure you also won't have a complete handle on it. But generally, what is an aspiration, what kind of traction in terms of possible deals you think from U.S. through GSI channel, you think...
Sachin, we're still expecting that [ 14 to 15 ] deals coming this year from this channel.
Sorry, can you repeat again?
Around 15 deals coming this year from this channel, 1-5.
Understood. And how do you see the environment because we keep hearing a lot on demand environment getting deteriorated in the U.S. particularly. So how you are reading from your business perspective environment over there?
So what has happened in last 2 quarters on the ground, the activity has started picking up. In fact, we are finding more and more interaction with customers in terms of events, physical events, roadshows are happening. So there's a lot of activity happening in some of these smaller accounts that started reopening for us.
But you are right, on the other side, the larger accounts, I think, we are talking a lot about what is going to happen around the quarters, 3 quarters. This is a challenge. And I don't know -- today, we don't see any concerns, but a lot of people see kind of [indiscernible]. I don't think it's affecting right now our business, but we'll keep on observing it around next 2 quarters to 3 quarters. I think that is [indiscernible] U.S. and Europe are more about it, but in the markets like Eastern EMEA, we see a very little impact on this.
Okay. And if suppose, for some reason, GSI and all does not -- like you see at Newgen level, 15% to 20% growth, as it has [ strictly ] been, would be continued?
Yes. We said that GSI is going to be an acceleration engine. On our own, we have sustenance of generating around 20% of our growth, and that will happen irrespective to what happens on the GSI side.
And this year also, you should see that, that will happen.
Yes. We are still planning to hit our target of around 20% growth.
Understood. Understood. And what is the reason for growth in India because India has shown a very substantial number, and if I compare to last quarter, last year. So is there anything to read in India's business?
Not much. I think it is organic. I think one of the things is that the accounts in India are quite sizable and they have continued to give us more business, and they are using our platform for more and more things. It has accumulated over multiple quarters. And if you see the -- it's not very different from what we did in Q4. But Q1 last year was an exception because of everything being shut. That's why you see a huge growth compared to that. But we think it's -- in India, most of this growth is sustainable. And you will see this more jerky revenue.
See, unlike in other times, we have a lot of license revenues, which determine the jerky part of the nature. This time, you won't see that at all. So most of the deals we have got in India this year are again either more continuous in terms of revenue and support or on subscription side.
Okay. And one last question. Post Number Theory integration, how initial feedback -- how now this platform is being perceived after integration with Number Theory offering with AI side? So some color on that.
See, we are very excited about it. So one of the biggest advantages we are having, our customers use cases, which had requirements of machine learning and data sciences, we are able to service them much better, and they're quite excited. So as part of our first [ handover ], we are integrating this product into our platforms and solutions. We've already integrated in certain lending solutions in our case, and we have started taking them to market. And we're very happy with the response. But over a period of time, we'll be going and integrating this platform into all other aspects of our products and services. And that's where we'll see much more value. It's a piece of technology, which we are very happy about, and we want to leverage it more and more across our products and customers.
[Operator Instructions]. Our next question is from the line of Girish Shetty from Banyan Tree Advisors.
Sir, my question was, you mentioned about the 6 logos, right? Sir, what is the average ticket size of the 6 logos acquired? That would be my first question. And I think...
I don't have the exact data, but these are all larger logos for us. I think maybe around 400,000, 500,000 would be an average ticket size. But we can provide you the data if you could reach us.
Sure, sure. And also, sir, I wanted to know about your sales force. So if I see a company like an Appian or ServiceNow, these -- if I see their sales and marketing spend, it is quite high. It comes to around 40% to 45%. Whereas for us, I believe, this is the range of 20%. So how does you get compare in terms of sales and marketing capabilities as compared to these companies, especially in the U.S.?
This is -- you're absolutely right. Some of the U.S. companies in the same area, similar domain and similar size are spending roughly around 40% on sales and marketing. We are able to do slightly, some amount of efficiency, because globally, a lot of at cost basis in sales also are India centered, in terms of all your inside sales, marketing as well as a lot of travel-based sales happens out of India. The other thing is also, we have been able to successfully generate substantial profits at $100 million size, which none of these companies, they end up up to $200 million, $300 million, they keep on burning up the $40 million, $50 million a year.
So we are lucky that we have built a business model, which is quite healthy, as a product company generating roughly around 20% of margins at $100 million. So with that kind of a model, that's how we would like to proceed. And in terms of -- we are not shying away for investing more in sales and marketing, but we have taken a conscious call that we have to maintain a balance between growth and profit, and we'll continue doing that.
Okay. And does it make it difficult to sell, as in when you go there versus [ Appian ], which has a local sales force selling the products to a local customer? Does that make a huge difference in conversion?
I don't think the cost of sale makes a difference because finally, it's about your strategy, your value prop to the customer, your ability to reach, those are the issues, which our sales and marketing is trying to work and overcome. I don't think the cost of sale. And in case if you find an opportunity to invest more in sales to make that success, we will go and invest in that. I don't think the overall budget of sales is how your modeled as a company, rather than what happens on the transaction.
Okay. No, I meant local, as in [ Appian ] having a local sales force versus...
In U.S., we also have a complete local sales force. This is all U.S. nationals or U.S. citizens who are operating as our sales force. We have a large, around 14, 15 people sales team out there, which is all local, and we have our sales costs are exactly same as any other guy out there. But in terms of we are able to optimize in terms of sales support, marketing, presales, where we have slightly less -- better operational control and minimize the cost out there.
Okay. Got it. And sir, last question is on attrition. You mentioned about around 35%, 40% last time. So can we have that number? Has it come down quarter, how is it? And what are your total number of employees right now? I believe it was 3,285 last quarter, right?
Yes. It's around same number. We're around 3,350, if I'm right. And attrition is slightly better than last quarter, but we've not seen a very significant shift in attritions yet. So -- but we are hoping the planned attrition for next quarter are showing the decline by around 5%, 6%. But I think it's too early. I think things are changing and -- but overall sense is that it will stabilize in the next 2 quarters, for sure.
Okay. And you maintained your margin guidance that you had given around 21%?
See, we are -- I'm saying the margin is the factor of our top line. Our top line guidance is to keep meeting over 20% growth. And in case of that, we should be able to be close to our margin guidelines.
[Operator Instructions]. Our next question is from the line of Saurabh Sadhwani from Sahasrar Capital.
I had 2 questions. Excuse me for the noise, I'm sorry for that. First is, is India business -- means is it -- is the business because of first quarter of Indian financial year, like this is getting renewed or the moment -- momentum will be sustained throughout the year, what do you think about it?
Saurabh, as I said, I think more and more the jerkiness in our business, the license is getting minimized. So whatever business happens is now more sustainable in terms of the base of that business has gone up. If you look at our subscription or our annuity business now is almost going to reach around 40 million at the end of the year. So the base business and 70% of our business is annuity business where you have complete control. So the base itself is changing and the jerkiness part is going away. So I'm assuming that India growth what we have achieved in Q1, we should be able to maintain such numbers and grow on those numbers. There is no jerky revenue in this.
And how many of the new logos -- I mean all of the new logos are not -- are subscription based, right?
I think so. I think because most of them, I don't see any -- I think one of them in India is licensed, rest is -- most of them are subscription. Yes.
Okay. And second thing about the margin. I know you said in the previous con call that the margins are going to decline. But -- means will it be -- will it recover from here from -- for the rest of the year? And also what -- a little bit detail on why the margins have been impacted?
So I think, first, if you look at margin history of Q1 because of the seasonality of revenue, as Mr. Nigam said in the call, our historical, if you track 5-year Q1 margins, they have been either negative or in the percentage of 2%, 3%. And the highest growth before this was 6%, leaving the last year for Q1 because the cost base were unnatural at that moment of time. So because our costs are front loaded in terms of resources and other things, there's not very much variability you can create out there. So on the first quarter of any year in the last 5, 7 years, there's no margin.
In fact, our 10% margin this year is healthy compared to our first quarter. And as you look at our revenues keep on growing going on Q2, Q3, Q4, while the cost shift does not [indiscernible], the costs remain in the same. So you keep on unfolding margins in the next 4 quarters. So I'm very hopeful that our -- we will be able to maintain our growth momentum for the remaining quarters. And in case we are able to achieve that, the margins will automatically unfold. They can be 0.5% here or there, but it won't be very different from the guidance we provided.
Okay. And the cost will stay flattish? Or are they going to increase for employee expenses and the travel expenses?
Slightly more in Q2 and then declining in Q3, Q4. That has been the trajectory.
[Operator Instructions]. Our next question is from the line of Mihir Manohar from Asset Management.
Jeet, I had a question. I mean you mentioned that you are looking to close roughly 15 deals from GSI channel this particular year. I mean, just wanted to understand, how does the growth adaptability moving? I mean what gives you confidence that we are looking at this number versus close to 6 number of deals in this particular financial year? So what gives you confidence for that number? That was the first question.
And second question was understanding the operating leverage. I mean the GSI coming into -- more revenue coming in from GSI, how would the operating leverage and how's the margin profitability change for our company? So wanted to understand that from a structural angle.
So first of all, the confidence comes from the funnel and the opportunities and cases, which you're already running in the field. So this -- we have roughly around 79 cases, which we are pursuing right now with GSIs in different areas. And we are very hopeful that between Q2, Q3, Q4, even if we are closing 3, 4 cases, we will reach that number. So that's one. So it is clearly coming from the funnel, the confidence is coming from that. Of course, there's an uncertainty on closure. But still having said that, referring that uncertainty, we still think that 15 deals are doable. On the operating leverage, I think broadly, since service delivery part of these deals, more often the GSI does. So we have only -- what comes to us is more higher gross margin revenue, either in subscription or in licenses. So operating leverages do expand through GSI deals. But unless the GSI revenue on its own becomes substantial, it may not change the overall picture. So I think we'll have to wait for the GSI revenue to become 20%, 30%, 40% of the business. Then you will see we should be able to move from 65% gross margin to around 70% gross margin. Does that answer your question?
Yes. Sure, sure, sure. And just on the deals side, I mean, the 15 deals that you're looking, what is the average size of the deals that we should consider? I mean, I understand it is difficult to pinpoint on a number, but just from an understanding angle.
Yes, around 400,000 would be on an average because there will be 250,000 and there will be $1 million deal, but I think around 400,000 would be an average deal size.
So 400,000 annually.
It is my guesstimate, so -- but I can send you more data. You can ask Deepti to get data.
[Operator Instructions]. Our next question is from the line of V.P. Rajesh from Banyan Capital Advisors.
I joined the call late, so I'm not sure if this question has been asked. But there is a lot of news about some of the large banks in the U.S. pulling back on their IT spends. So I was just curious in that context, even the U.S. is a big market for us and especially banking segment in that. What we are hearing and what is the view that we have in terms of any kind of slowdown from the [indiscernible] from some of these banks in the U.S.?
See, Rajesh, one thing we have seen our solutions have a need for growth as well as for cost optimization. So we have seen cases, even in extreme cases of contraction or pull back of trend we have seen, our kind of solutions being deployed to optimize cost, optimize back ends to reduce manpower. So we put their use cases to get created in all kind of economies.
Having said that, to me, my penetration in large banks, U.S. is very minimal. So actually, we don't have too much of an insight into the ecosystem, what's happening in very, very large banks. They're still working on Tier 2 and Tier 3 banks. And in that, we are seeing right now, the [indiscernible] has started again. In fact, they've been sleeping for the last 2-3 years. Having said that, everybody is saying that there is going to be something horrible happening around the corner after 2 quarters or 3 quarters. Right now, we have no idea about that. On the ground, our clients have not started showing any signs of that yet.
[Operator Instructions]. Our next question is from the line of Ankush Agarwal from Surge Capital.
Firstly, what kind of increase in the cost base have we budgeted for this year, FY '23?
So overall, our cost may increase in around 18%, 19%.
18%, 19%, right. And sir, in the long term, let's say, 4, 5 years, what kind of sustainable growth in the cost should we expect? Will it be closer around 20%? Or will it go back to the 15-odd percent, which was historically there? The reason asking for this question is because this year, obviously, we are coming off a low base from last year, so the number could be higher, but in the long run, what would be the run rate for that?
It's very difficult to predict the future. But if I look at our historical data, we have been able to grow at 20% of growth with much lower cost to growth, around 13% to 15% has been the cost within those years. Taking this year as an exception, because it's starting from a low base, no travel cost, we think in the future, with every 10% of revenue growth, we can easily manage between 7% to 6% of cost.
Okay. So secondly, would you like to comment anything on what explains the sharp degrowth in license fee? Is this one-off for the quarter or it's largely structural, wherein more and more subscription deals are coming up, so it should be something that would stay?
I think 2 things. One is deliberate. We are pushing back on license sales, and we are taking the hit on that in terms of our top line because of that. But the second is also, you've seen that we have missed on new logo acquisition this quarter. We've got some orders, which have got deferred, or we missed them by [ boundaries ] of the quarter. And that's been the primary reason. But having said that, our license revenues may not grow at the speed that the overall company is growing. In fact, there may be a decline. But the right major for us to track is the subscription revenue, which we are growing at around 32%.
Okay. Right. So internally, we are now more focusing on subscription deals and not license, that is what you are talking right?
Right.
Right. Virender, lastly, in one of the recent interviews, you kind of commented that your goal is to grow to a business of $500 million in the next 5 years. Can you shed some light on that because internally in the con call you have been guiding for some 20%, 25% growth, but the $500 million target is at least double that? So why?
So I think we are a software product company, which is operating in a market size, which is roughly around $60 billion with businesses operating in India, Middle East, APAC, and now we are shifting to more mature markets. So the addressable market and opportunity size is very large. Of course, it depends on the execution. We have a trajectory of growing at a particular percentage. Our initiatives of GSI, our initiatives of entering more mature markets should accelerate our historical growth rates. So that's the plan. So once any of these start clicking and giving us more sustainable revenue, we should be able to accelerate this growth rate much beyond 20%. And that's what our business plans are drawn for and our investments are made for.
Right. Right. But earlier, I believe you have been making the comment that GSI would be adding probably 4%, 5% extra on top of what we do organically. So is there any change in that now, GSI probably will add much more than what we had earlier expected?
It should add, but I think it will start with -- when I say 4%, 5%, I'm saying that if I can meet my 15, 20 logo target this year, that should add 4%, 5%. And next year, it can become much bigger than that, and it can become compounding. But the whole GSI stream is going to target of accounts, which we generally have not been other accounts. We have not been targeting those accounts. So it increases our market, that we should be able to increase our growth from it.
Right. And internally, we don't have any kind of constraints in terms of how much business we want to maintain internally and versus GSI, like you are okay with even GSI growing like 50% of [indiscernible].
We are completely going with GSI becomes 70% of the business. We have no problem in that, but it takes time. So that's a desirable state.
[Operator Instructions]. Our next question is from the line of Karan Doshi from Edelweiss Financial Services.
So my question is on the deal that we have signed with Coforge and Anabatic Digital. Can you give us some color in terms of what kind of client additions or deal wins you can expect from signing this deal with such GSIs? Also, have we got foot in the door with one of the clients at Coforge? Or are we still ramping up? Can you add some color on that, please?
So Karan, what is -- both Coforge and Anabatic, we have got early successes. We already have deals together. And I think Anabatic is in Indonesia, if am right. It's a very, very large local system integrator and have got huge penetration in the market. And our deal and signing and making -- raising the partnership level to a level where we are having joint go-to-market plan is helping. Similarly in Coforge, from a tactical deal, we have also signed an agreement to pursue markets in Europe, U.S. and other areas and go after carriers and set of joint targets. These are business plans. I think they don't have right now direct correlation in terms of how much revenue we can get. But we are hopeful that once we work on these plans over the next 2, 3 quarters, we should be able to build a substantial business with both these partners.
So my next question was just an extension of this. How do these -- if you could explain how do these deals come into play in terms how did we get a deal with Coforge? And similarly, how can we then penetrate into, let's say, other similar system integrators? Do we first sign a deal with the GSI and then move on with the fuller clients? Or do we have a client interaction first and then talk the GSI and...
Both ways. I think what happens, but historically, the India-based ecosystem of GSI is there, we already had client interaction. So we had common clients. We had common partnerships. We had joint cases, historically. And once there is more momentum and the people see that we can carry the same solution to different markets, that's where the partnership becomes strengthened. That's how we work with other GSIs as well.
So we have moved away in some of those cases from the tactical client partnerships to having more joint go-to-market with these GSIs, and that's what's happening. It is -- we have a history being in Indian market and working with these guys for 9, 10 years. They have seen our products. They've seen our platform. They have seen the capability and what we deliver as [indiscernible] for client. And together, we are very hopeful we can take the same thing to global customers and make them successful.
[Operator Instructions]. Our next question is from the line of V.P. Rajesh from Banyan Capital Advisors.
So one question was that, how is your sales funnel looking now vis-a-vis, let's say, 3 months or 6 months ago? Has it been consistently going up? Or are you seeing some kind of pull back in that?
See, from last 6 months, I think, things have started opening up and becoming better on the sales activity front, also on the results front in terms of we have started converting from more flattish quarters to more growth quarters. So we see all across -- especially markets like India and Middle East are doing considerably well. U.S., we are trying pivot, and we are trying to change some of our strategy of how we are going. And other new markets, like Australia, we'll start getting the early wins. So overall, we are seeing, for us, the market activity becoming better over the last 6 months.
I see. And then as you're talking about the gross margins expanding because you will do more businesses with GSI partners. So is it because that you will not -- you will stop doing integration internally, and that's why the margins will expand? Or is there some other variable?
Yes. So as part of our sales, there is an element of service delivery. Today, since we are selling our own systems, we're doing also the implementation, which is a service delivery part of it. So any service delivery has got much lower gross margins than the overall license because generally license and subscription are at a very high gross margin. So as the service delivery is taken by the partner or the GSIs, more and more our revenue composition becomes of higher gross margin in terms of more license and subscription. Thus improving our overall gross margin. We may continue to do service from some tactical clients or some strategic clients, but overall, more and more services are passed on to that GSI and higher gross margin revenue get passed on to Newgen.
So in this quarter, what percentage of revenue came from services side for us?
Good question. So -- just give me one second, I think we had -- so on purely services side, we are at 180 -- roughly around 60%, 62% of the revenue came from services.
Okay. And that is associated with the license revenue you sold this quarter and perhaps...
They are associate with the sale of our license.
I'm sorry, could you repeat that, sir?
Yes. All our services are associated with sales of licenses either for implementing the software or having the long-term support -- additional support contracts with the customers.
Right. So if you take out the support part, that's what I was interested in that with the new license, how -- because the implementation is one time.
The implementation part is roughly around 14% -- 21%.
21%, okay. All right. And in terms of your -- in the business, you said you're pushing back on the license deal. So did you lose any deals because the clients who really wanted to have a license deal and you were not willing to give in, or how that dynamic is working out?
See, we are not having such a luxury that we will completely leave deals, but what we are saying that deals which are of a smaller size, something in the range of 100,000 to 200,000 as license, we have no interest in selling them because the annuity component we generate becomes considerably small and it becomes 30,000, 40,000. So in the long term, we lose interest in that account. So for larger license deals, we still are ready to accommodate and say yes, but for smaller license deals, we are pushing very hard. So in fact, that also means sometimes leaving it on the table.
Okay. And in terms of our market share, if you can comment on that both in our core geographies of India and some of the newer markets as to where we stack up among the other providers?
Rajesh, there is no official study for that. And in the global market share, I think we are very, very small. We don't even own 1% of the global market share because the market is predominantly U.S. and Europe. We have got a substantial kind of a leadership position in India and Middle East for sure because almost all marquee customers, banks, insurances, we have acquired them. I think most of [indiscernible]. But there is a 10-year old study done by IDC, in which we were the #1 and IBM was #2, but that's a very old study. So nobody has done a study after that today. So I think we are still #1 in India, we are still #1 in EMEA region. But in other regions, we don't have a substantial market share.
Given the size of the market share, IM Gartner or the other analyst firms talking about who are the leaders, who are the challengers, et cetera, et cetera?
They don't do it in submarket. They do it at a global level, the percentage of revenue across vendors. And the big guys are the IBM and Microsoft and Pegas of the world. But on a regional level, they don't have market share for who's -- because they can't do that regional size estimate.
[Operator Instructions]. Our next question is from Keval Shah from Jeetay Investments.
Sir, just one question that since you mentioned that we're keeping up with our growth target, should one assume that a couple of deals that have gone, have got postponed are likely to get closed or would have got closed in the quarter 2 and our H1 deal wins would look considerably stronger than compared to last year?
I wouldn't go as far as predicting that. But what I'm saying is that irrespective of the number of deal wins, the way we are building business more on less jerky, that means less license based, with more subscription [ NLP ], we have a continuous growth momentum. And even the deals which we have added in last year Q4 and Q1, will start contributing revenue in Q2 for this year. And will surely add many more deals in Q2. But many more deals we add in Q2 will play a part, but may not play a substantial part of revenue of that quarter.
No, no, absolutely. I understand that the revenue is a function of the order book that has been there for last year or whatever time that it would be. But I'm just talking about orders in specific, not really their contribution to the revenue. But just independently talking about the order book, do you think the order flow for second quarter and so on should be stronger compared to...
Certainly better than Q1, yes.
Our last question is from the line of Vivek [ Khera ] from SBI Mutual Funds.
I'm not sure if I got -- I was not on the call throughout the time, so sorry if I am asking this again. But I think you also spoke about 15 new deals from GSI that you were targeting this year. Firstly, I wanted to check how many of them have happened in this quarter? And what gives you the confidence that we'll be able to do 15 this year? That is part 1. And part 2, on GSI, would the construct of deals be more dependent -- depending on how they actually structured in. For example, we are trying to move away from license, but would that be very similar for through GSIs as well? Would they be also looking for license based kind of overall deal that might to accrue to you?
And yes, I both the questions -- so first, I think on the deals expectation from GSI is completely based on funnel. We are already operating kind of a 79 case funnel, with some of those cases are advanced stages and some will add also during the year. And we are hopeful that we should be able to do better than what we did last year in terms of deal wins, especially since we are opening few more markets like Australia, APAC, where also deals are coming from GSI now. So I'm very hopeful looking at that funnel, we should be able to do much better than what the current situation is.
On the question of deal construct, I think selling subscription is quite normal even to GSIs and because this is what the model with every other vendor sells. So we don't see -- but in cases of some large cases, if it's a license deal and it has been structured in [ RFP ] like that. And so we are quite open to go and pursue that as a license deal with the GSI. As long as we are able to get a substantial revenue in terms of multi-year revenue from the client, we are okay with that.
So today, the deal construct of GSI is not very different in terms of when our part is -- our licenses are introduced. It's does not matter. There are 2 kinds of deals construct, one is a fair part of a very large RFP, where we are getting positioned, then the RFP construct kind of model they are buying in, then we go and support that. But in case we are creating a single opportunity around our solutions, then we are normally going with the subscription, most of time. I hope that answers your question.
No. That's helpful. The other thing I wanted to check is this entire association with Coforge looks very interesting. Is there a difference between how you actually -- I mean probably mid-size or small size GSI versus a large size GSI, would there be probably better connect with the management and potentially a better push for more medium-term [indiscernible]?
Yes. So the question is with most of the GSIs, they have extremely good relationships with their headquarters are in India, and they have a good relationship with them. But I think finally, [indiscernible] hunger in the market and the opportunities we are able to create in the market and play them. We are hoping with Coforge with some successes India and in other markets. They are quite interested right now. We are quite interesting, and we are hopeful that we should be able to build an interesting funnel. But I think it's too early. Let's give it a few quarters, and then we see how it unfolds.
Ladies and gentlemen, this concludes our question-and-answer session. I would now like to hand the conference over to Ms. Deepti Mehra for closing comments.
Thank you, everyone, for attending the call. For any further queries, you can connect with me or go to our website. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.