Should Ramco Systems be in your portfolio? A research summary of the stock

“Q3 was a quarter of reassurance for Ramco. We witnessed significant momentum across geographies on the back of customer wins across Aviation, Banking, Healthcare, and Technology, reposing faith in our ability to deliver differentiated value.”

– P.R. Venketrama Raja, Chairman, Ramco Systems

Stock Data:

Ticker	RAMCOSYS
Exchange	NSE and BSE
Industry	IT – Software

Price Performance:

Last 5 days	-4.93%
YTD	-20.38%
Last 1 year	-25.67%

Company description:

Ramco Systems Limited is a leading cloud-based technology company having its headquarter in Chennai. The company 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. Ramco Systems is a part of Ramco Group and has around 1800+ employees spread across 24 offices globally.  

Business Verticals:

The company operates under three verticals namely:

1. Ramco ERP:

In this segment, the company offers suite of ERP products to specific sectors 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. The ERP solutions include payroll management, sales performance dashboards and logistics management.

2. Ramco HRP:

In this domain, the company 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.

Here, the company 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.

3. Ramco Aviation:

Ramco Aviation 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.

Clientele:

The company caters to 1000+ clients including some major companies such as Dabur, DLF, Swatch, Standard Chartered, Honeywell, etc across more than 35 countries.   

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. The company 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. 

Financials and Geography split:

What is good:

1. The company is very much Research and Development oriented:

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.

2. The HRP segment witnessed breakthrough partnership with Global leaders:

Ramco Systems signed partnership with two largest HCM providers viz. Oracle and Workday, to interface with these leaders to provide its multi-country payroll to the latter’s MNC client base. The move helped the company boost the pipeline of the business significantly and this may improve its win ratios materially given the hyper growth these vendors are clocking in cloud-based HCM. Company has clocked 20% revenue CAGR over FY15-20 in this segment which we expect to continue over FY23-25E. Recently the company added big 4 as its clients which again proves the revenue visibility of the company.  

3. The company has a commendable management team:

The management won a few awards at payroll conferences and directors don’t take much salary which is quite appreciable. Although their top executives are earning good amounts, which is normal for attracting top talent in an IT firm. Their language in concall was also impressive, where they seemed honest about their previous mistakes and lessons learnt, which is rare in case of Indian companies.

Factors to consider:

1. Any sharp downturn in the Global IT sector can impact Ramco System’s financials adversely. 
2. Adverse currency movements may affect the bottom line of the company. 
3. Regulatory developments might hamper the sale of the company’s products.
4. In lieu of chasing the short term numbers, the company might lose its long term plot.
5. The company’s trade receivables are constantly increasing.

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 customization or transaction-based pricing. It provides them the flexibility to buy and gradually scale solutions across geographies.