About Company:
Headquartered in Chennai, Ramco Systems Limited (RSL) is a leading cloud-based technology company with global operations. It is engaged in providing Enterprise Resource Planning, Human Capital Management and Aviation Maintenance & Engineering (M&E) & Maintenance Repair & Overhaul (MRO) software to its customers across the globe. The company is a part of Ramco Group and has around 1800+ employees spread across 24 offices globally.
Let look at the business verticals to understand the company better:
- Ramco ERP:
This product line provides ERP (Enterprise Resource Planning) solutions by focusing on customer payment payroll, Sales performance dashboard, Calendars, and Logistics. It offers suite of ERP products to specific industry segments like asset-heavy industries including cement & Ready Mix Concrete, ports, heavy equipment rental, and people-centric businesses like staffing, and professional services companies like IT/ITES, management consulting firms, BPOs, legal, and accounting firms, facility management companies and contractual labor-intensive industries.
- Ramco HRP:
It works on digital transformation in the HR and Payroll (HRP) domain by building a suite of products spanning core HR, global payroll, time & attendance, and managed services. It offers a comprehensive payroll platform with robust integration and a flexible plug-and-play architecture. It enables organizations to comply with all statutory and regulatory requirements across 50+ countries besides driving harmonization of global payroll processes on a single platform.
Ramco Systems has been positioned as a LEADER in Everest Group’s Multi-country Payroll (MCP) Solutions PEAK Matrix® Assessment 2022 for APAC.
- Ramco Aviation:
The product is focused to address the unique business needs of civil and defense companies. It works on tech records, inventory management, work reporting, risk assessment-related mitigation, and fleet availability hub. Ramco has a strong footprint in the APAC region which benefits the growth in business. Aerospace IT solutions consolidated with the main players such as SAP, Ramco, Mxi technologies, Component control, Swiss Aviation software, Rusada, IFS and Oracle are few. Ramco has footprints in USA, Europe, APAC and Middle East markets, with strong efforts to strengthen the technological innovations and the geographical footprint in the region.
Geography Wise Revenue FY22
APAC remains to be the top most revenue generating region for the country followed by the USA. This is because of the company’s dominating position in the HCM and aviation segment. Further the company is looking forward to strengthening its niche in the APAC region.
Clients:
The company has 1000+ clients including some major companies such as Dabur, DLF, Swatch, Standard Chartered, Honeywell, etc across more than 35 countries.
Very high investments into R&D:
In the world of investing, it is often said that one should invest in the companies when the CAPEX cycle is about to be over to generate maximum returns. Ramco has been investing in its products over the past few years and now is the time when those investments will start with the improvement in the bottom line. One could also witness the same has been done in 2010-14 when the company was going through a CAPEX cycle and post which the company’s topline soared higher thus enabling the company to gain a good market share. R&D expenditure as a percentage of total revenue has been increasing: 26% in FY22 vs 13% in FY19.
Key Developments:
- Universal Fetch Engine (UFE) & Universal Personalization Engine (UPE): Quick data retrieval and enquiries were enabled through UFE, especially as APIs, which is a faster way to build and consume
- Zero UI: Promotes agility and enables real-time, at-source data capture
- Chatbots: Bot-driven conversational flows were extended for supplier self-service.
- API Stacks: generic fabric to scale up the application and enable multi-channel integration with the application be it via bots, e-mail, or mobile
New Launches:
In FY22, the company launched a self-explaining payslip, a smart, AI-based service that lets employees seek explanations of their compensation and payslip component, a move towards a Conversational UI approach through chatbots.
Subsidiaries:
The Co. incorporated a WOS in Japan – Ramco Software Japan on April 01, 2021. They also incorporated a Step Down subsidiary in the USA – Ramco Systems Defense and Security on November 01, 2021, as a WOS of the Company’s subsidiary Ramco Systems Corporation USA.
Recent Orders:
Order booking for FY22 stood at USD ~65 Mln v/s USD 109 million in FY21. Order book includes 13 ‘Mln.-Dollar-Plus’ deals Pipeline in the HRP area includes a partnership with Workday and Oracle. Under logistics segment co. secured an order from a significant supply chain solutions provider with business in Southern Africa and the Middle East. Co. also executed the In-Country Provider (ICP) model to provide a seamless experience to companies across the globe, with this co. expanded reach to 60+ countries on its own platform and 100+ countries through partner networks.
Focus:
In the payroll platform, their strategy is to expand reach, by partnering with in-country-providers in countries where they do not yet have statutory. Under the logistics platform, their aim is to expand presence in core markets – Australia & New Zealand and APAC, to establish a leadership position in 2-3 countries over FY 23-24. In addition, they are enhancing their product with container management capabilities – Container Yard Management capability.
How Ramco System gained a significant market share:
Massive applications (like ERP, Payroll, HCM, etc.) that used to be run from private data centers are now running on third party / hosted environments (based on cloud technology) and the client companies are just subscribing to the service.
The client companies thus don’t have to worry about maintaining the servers, data centers, security, patches, admins, and several other costs. Also, companies can subscribe to just what is needed and gradually upgrade the service as the company grows. So, a client company is basically getting rid of Millions of dollars of data center CAPEX. Instead it incurs OPEX on a continuous basis to get all the needed software services and this saves them a ton of money.
Ramco’s cloud products highlighted at the right time when all companies were willing to move towards using cloud services. Some ten years years ago companies were scared of using third party hosted services for ERP, CRM, HCM, Payroll, etc., citing security reasons. But, the industry has evolved big time and companies have shifted towards using cloud services.
Share Price Insight:
- With the current price of INR 252 as of October 28, 2022, Ramco Systems is hovering at the lower end of its 52-week range of INR 222.55 – INR 507.7
- The stock price has generated a CAGR of 18% over the period of last 3 years.
Financials:
Ramco Systems generates majority of its revenues from the HRP segment followed by the ERP and Aviation.
Where do we see the company going forward in terms of revenue:
Now as stated by the company in few of its concalls, that growth in the aviation business is difficult since it’s a very consolidated industry with limited players in the space, hence one could expect more or less stable revenue from the company as in case of software businesses which are difficult to replace.
The HCM business is their growth engine as they have mentioned in their concall. This can be evident by growth in the company’s business of payrolls. The company claims to have a multi-country payroll system with no competitors and has added many big clients in the last few years. They have added a big 4 as their client recently and are working towards making a grip in the US payroll market which is the biggest in the world. Looking at the fact sheet, the company has added around an average of 10-15 customers every quarter since the past few years.
In IT businesses after an inflection point in revenue, profit margins increase dramatically as very little incremental capital is required to generate more revenue. So, as of now the company is priced below book value, low market cap and low valuations. Coupled with growth, PE rerating and increasing margins, this can be a great investment.
Quarterly Results (Q1FY23):
The company reported net loss of INR 50.69 crore in Q1 FY23 compared with net loss of INR 8.93 crore in Q1 FY22. Revenue from operations slipped 14.62% to INR 119.92 crore in Q1 FY23 from INR 140.45 crore in the corresponding quarter previous year.
The company reported a pre-tax loss of INR 50.34 crore in the first quarter as against a pre-tax loss of INR 6.04 crore in Q1 FY22. Total expense jumped 15.04% to INR 171.29 crore in Q1 FY23 over Q1 FY22. For the quarter ended 30 June 2022, global consolidated income of Ramco Systems stood at $15.84 million (INR 120.9 crore). The net loss after tax for the quarter amounted to $6.64 million (INR 50.7 crore). The quarterly order booking stood at $21.77 million, highest in the last five quarters, the company stated.
Commenting on the results, P.R. Venketrama Raja, chairman of Ramco Systems, said,
“Our investments in the automation of implementation and deployment processes have started showing results in reliable and faster project deployments and are thereby improving our ability to provide enhanced customer experience. The current quarter witnessed improved order booking as a result of most markets opening up their borders, thereby enabling closer, in-person engagements with customers and prospects. This positive momentum is seen across business lines and geographies, in line with the investments we have made in the last few quarters.”
Why the company is in loss:
The company suffered a net loss of $6.64 million for the same quarter. This is $3 million more in loss from $3.55 million (quarter-on-quarter basis). Out of this loss $1 million is consequent to drop in the revenue from the previous quarter, $1 million is because of the increase in employee costs and $1 million due to exchange fluctuations. Increase in employee cost was due to the company facing the industry attrition challenges; consequent to that, to address the same, they had to make some salary corrections and also have to make retention payments and bonuses. Prior to this the losses were due to pandemic scenarios and increase in trade receivables (as could be noticed in the table below).
| Year | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| Trade Receivables | Rs 114 Cr | Rs 118 Cr | Rs 146 Cr | Rs 190 Cr | Rs 182 Cr | Rs 167 Cr |
Factors to consider:
- Any sharp downturn in the Global IT sector can impact RSLs financials adversely.
- Adverse currency movements may affect the bottom line of the company.
- Regulatory developments might hamper the sale of the company’s products.
- In lieu of chasing the short term numbers, the company might lose its long term plot.
Recent Highlights:
- The company booked $22 million bookings in deals. The June quarter was one of the good quarters and top booking quarter in the last five quarters. Consequently, upon opening up of Asian economy – around 30% of order booking close to $6 million had come from Asia Pacific.
- For the current quarter the company added – Two of the Fortune 100 and three of the Fortune 200 clients which includes two of the major pharma companies, one in staffing company and other two are in retail and CTG.
- Average deal size for the June quarter stood at around $1.2 million per deal which in the last two quarters had dropped below $500k; however consciously the company is concentrating on getting large deals.
- In Q3 and Q4 of FY22, the company invested in a defense subsidiary in the U.S. as part of their expansion plan for aviation and defense and on a few local hires in Europe and in the U.S., ex-army personnel. Through that investment activity, the company had two deals closed thro their defense subsidiary. One of them is a drone company, which is used for defense and the other one a contractor for the U.S. defense.
- Continue to strengthen footprint in the US; Successful implementation of Ramco ERP at a US-based leading facility management and commercial cleaning service provider, offering 360-degree view of its business operations
Industry Analysis:
The COVID-19 pandemic has brought new urgency to meeting digital transformation goals – and forced many organizations to accelerate the activities. According to NASSCOM, the software products market is estimated to clock USD 13.3 billion in annual revenue for FY22, after logging a CAGR of over 10% in the previous three financial years. During the same time period, the global market share of domestic software-as-a-service (SaaS) businesses doubled. Startups and new-age firms (with 100-1,000 employees) contributed to around 40-50% of the overall spending on software products. Besides, there is a growing demand mainly for replacement of legacy systems and cutting down on human interventions with SaaS solutions across finance, logistics, and HR through extensive use of AI & ML. Several global players as well as small and medium businesses are preferring Indian products for customisation or transaction-based pricing. It provides them the flexibility to buy and gradually scale solutions across geographies.