About the Company

Ramco Systems Limited operates as an enterprise software company in India, the Americas, Europe, APAC, the Middle East, and Africa. The company offers Ramco AviationSoftware, an enterprise-wide M&E/MRO software to address the needs of airlines, heli operators, MROs, and business aviation segments; Ramco VirtualWorks, a software meta-model that captures data required to generate and deliver solutions in various technology platforms; and Ramco DecisionWorks for analytics/reporting. It also provides Ramco ERP on Cloud, a suite of products that covers enterprise functions, such as manufacturing; financial, supply chain, human capital, customer relationship, enterprise asset, and project management; process control; analytics; advanced planning and optimization; and connectors. In addition, the company offers Ramco Human Capital Management, HR and talent management, and payroll software; and Ramco Logistics Software, cloud-based software that covers the needs of third-party logistics, freight forwarders, and parcel/courier service providers.

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 90 76 18.68% 101 -10.69% 354 320 10.63%
PBT 19 13 46.15% 30 -36.67% 81 61 32.8%
PAT 11 -14 178.57% 17 -35.29% 44 25 76.00%

Consolidated Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 153 136 12.50% 174 -12.07% 641 578 10.90%
PBT 15 2 650% 36 -58.33% 108 34 218%
PAT 7 -5 240% 18 -61.11% 57 11 418.18%

Detailed Results

  1. Consolidated revenues grew 12.5% YoY in Q4. Consolidated profits saw a phenomenal rise to Rs 7 Cr vs a loss of Rs 5 Cr last year.
  2. Similarly, FY21 revenues showed growth of only 10.9% YoY but profit growth of almost 4 times YoY.
  3. USD revenues were at $21 million for Q4 and $84.92 million for FY21.
  4. The company retired all borrowings to become debt free.
  5. The company booked orders of over $100 million in FY21.
  6. 22 ‘Million-Dollar-Plus’ deals signed in FY21; with average deal size moving beyond $1 million.
  7. EBITDA grew 58% YoY in FY21.
  8. The Ramco Global Payroll platform now has statutory compliance across 50+ countries and 12 other European and African countries on the roadmap.
  9. Sharper focus on 3PL service providers, couriers & express parcel, freight forwarders, and chemical logistics becomes the way forward for Ramco Logistics.

Investor Conference Call Highlights

  1. The biggest impact from covid in Asia was in the Philippines for Ramco.
  2. Revenues from North America grew 40% YoY in FY21 while bookings grew >100% YoY.
  3. Ramco signed the first order with an eVTOL company which is one of the largest drone makers in the world.
  4. For the traditional ERP and logistics business, Ramco has now started focusing basically on large customers and a few selective customers to completely revamp our fundamental user experience and technology according to the management.
  5. The order booking from Asia has dropped in H2 to $24-25 mn from an average booking of $45-50 mn previously.
  6. The management has stated that there will be a lumpiness in revenues going forward depending on the completion of various projects.
  7. The management has stated that the selling of the stock by the CEO was a personal decision and should not be any indication of him turning bearish on the company’s prospects.
  8. The aviation business has also seen >100% YoY growth in bookings and >30% Yoy growth in revenues. Around 30% of the aviation pipeline is now from US defense. There is also big scope in drones with eCommerce giants like Amazon working towards drone delivery.
  9. The company has already built connectors into Oracle and Workday for its ERP. It does not see many possibilities of any partnerships in this space currently.
  10. In the last 18 months, Ramco has signed on all the top 4 US fighters jet training companies. It is also pitching now for submarines and other defense products like tanks and warships.
  11. The current order book of $ 90 million should get realized in the next 3-3.5 years. Around $22-23 mn will be done in year 1 while $19 mn will be done in year 2.
  12. The company has gone to the top 15 countries where it gets the most business and has managed to reduce implementation times for these places to 8-10 weeks.
  13. The release of the ERP modules will start in 3-4 months and end-to-end release will take at least a year. Around 6 modules of Finance, inventory/procurement, AP, AR, GL, & fixed assets should be done by Sep according to the management.
  14. The company made a debt repayment of Rs 96 Cr in FY21.
  15. The company will be moving from the premise model to the cloud model for most of its products, but it will be doing the premise model for its defense contracts due to security and regulatory requirements.
  16. The management has stated that it is indeed capitalizing on R&D expenses as it is a continuous process for the company.
  17. The unexecuted order book is $182 million for Ramco across all segments. About half of that or $90-91 million is for HR and payroll business, the aviation business is about $49 million. The logistics business will be about $10 million. The rest is from ERP.
  18. All the order book should take around 4 years to execute completely.
  19. Ramco has partnered with Oracle and Workday for offering its payroll solutions to places where these 2 are not offering currently.
  20. Revenues from EU will start from FY23. The company is also going to start taking orders aggressively from multinationals in Japan now.
  21. 70% of the large civilian helicopter operators globally with over 50 helicopters each are maintained on Ramco.
  22. Logistics also grew >100% YoY in bookings in FY21. The company had to invest to refurbish the product as it was not ready initially for the volume of data it was getting from its large customers on shopping heavy days like Black Friday.
  23. The company has also built an ERP platform specially for the cement industry using insights from Ramco Cements and has also identified at least 70-80 global potential customers for this product.
  24. Of the $90 mn order for HR and payroll, 50% is SaaS and 50% is license-based.
  25. Once Ramco moves to a pure cloud model, all customers everywhere will run a single version. This should reduce maintenance and deployment costs.

Analyst’s View

Ramco is a fast-growing enterprise software player disrupting the market with its multi-tenanted cloud and mobile-based enterprise software in the area of HCM and Global Payroll, ERP, and M&E MRO for Aviation. Ramco Systems had a decent quarter with revenues rising 10.9% YoY with a profit of Rs 7 Cr vs a loss of Rs 5 Cr in Q4 last year. It had a good FY21 so far with a total order book of $182 million. The management has repeatedly emphasized the importance of the SaaS cloud model going forward for all its verticals. The management remains confident of the demand going forward despite admitting to the lumpiness of revenues at the same time.  It remains to be seen whether this earning momentum can carry on in the quarters to come and whether the company will be able to fulfill its promises of superior implementation times without any compromise on quality. Nevertheless, Ramco Systems is one stock to watch out for in the IT product space.


 

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 101 73 38.36% 85 18.82% 264 244 8.20%
PBT 30 11 172.73% 16 87.50% 62 49 26.53%
PAT 17 8 112.50% 8 112.50% 34 38 -10.53%

Consolidated Financials (In Crs)
Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 174 149 16.78% 165 5.45% 488 443 10.16%
PBT 36 11 227% 29 24.14% 93 32 190.63%
PAT 18 6 200% 17 5.88% 49 16 206.25%

Detailed Results

  1. Consolidated revenues grew 17% YoY in Q3. Consolidated profits saw a phenomenal rise of 2 times YoY.
  2. Similarly, 9M revenues showed growth of only 10% YoY but profit growth of 2.06 times YoY.
  3. The company had a consolidated forex gain of Rs 4.38 Cr in Q3 vs a loss of Rs 1.94 Cr in Q2.
  4. The company retired debt of Rs 38 Cr in Q3. Overall debt stood at Rs 11.75 Cr vs Rs 85 Cr last year.
  5. The company booked orders of $38.4 million in Q3 which was up 45% QoQ.
  6. Six ‘Million-Dollar-Plus’ deals signed; with average deal size moving beyond $1 million.
  7. Ramco Aviation added Iberia Maintenance and the world’s largest commercial fleet of tactical ex-military aircraft. This now makes four of the top U.S. ADAIR (Adversary Air Services) Operators as customers of Ramco.
  8. Ramco ERP announces a digital transformational program at DLF Limited.

Investor Conference Call Highlights

  1. Revenue per employee had crossed $4,000 per employee per month for the first time.
  2. Q3 had the highest ever booking of about $38 million, primarily on account of one large aviation deal in Europe.
  3. About half the booking this year for Ramco is from the USA Aviation business was from the Defence sector. About 30% of the global aviation pipeline is now defense.
  4. Ramco entered into two new segments this year – unmanned aerial vehicles (Drones and Aerial taxis) and Space launch vehicles.
  5. The company added 3 deals of >$4 million, 2 deals of >$5 million, and 1 deal >$10 million in Q3.
  6. Ramco is now contracted to 200 fighter jets to date.
  7. The 4 out of 5 ADAIR companies is still 1-2% of the defense market.
  8. The management expects the HR and payroll sector to rise faster than before for Ramco as discretionary spending is coming back.
  9. The logistics business has doubled in booking in Q3. The company is anticipating many more deals from the ERP space in India due to dissatisfaction in many Indian companies with the pricing offered by the Big 4 ERP providers in the country.
  10. HR product line implementation takes around 6 months but the company is aiming to bring this down to 2-3 months.
  11. Recurring revenue has grown at a CAGR of 27% in the last 5 years.
  12. The company aims to convert the HR and payroll business into a pure SaaS model. It is also aiming to grow the logistics business in the recurring revenue path with all new accounts calculated on per parcel or per transaction or consignment basis.
  13. Ramco is aiming to minimize the time taken in implementation and going live as the management believes that the faster you go live, the customers’ experiences are more intense and better, which gives more repetitive orders. Similarly delivering before industry time is the aim for other segments of logistics and aviation.
  14. The tax charge for Ramco is high as it cannot account for MAT credit for using foreign withholding tax to discharge MAT liability. Around 47-48% of tax charge goes to the deferred tax provision.
  15. The EBITDA margin has risen to above 30% in FY21 from 15-20% in FY20. This is because of higher top-line growth and lowering expenses according to the management. Although some expenses like travel will be coming back, they will not be at the same level as before due to the rise of remote implementation. The management is confident of maintaining EBITDA margin between 25-30% in the long run.
  16. The company is aiming to add Europe to its payroll product destinations and is also looking at providing more specialization and greater depth and value proposition. It is also looking to make a new user interface that promises to do the same.
  17. The management has admitted that lumpiness of revenue shall remain and that $10 million deals may not repeat every quarter. But it is confident of the strong momentum sustaining going forward.
  18. In overall, Ramco is aiming to reduce 20-25% of the timeline for ERP and Aviation and 50% of the timeline for Logistics and HR, and payroll products.
  19. The wage bill has risen QoQ mainly due to restoration of the salary cuts taken earlier in FY21 and the addition of 185 new employees.
  20. Although the sentiment remains positive, the management is cautious due to anticipation of lockdowns in South East Asia.
  21. The management has stated that it is aiming for an annual booking rate of $30+ million to get closer to the goal of $100 million annual revenues.
  22. The company offers 3 SaaS models which are a pure multitenant model with interface sharing, a shared database model like the one that SalesForce offers, and a private instance for customers with sensitive payroll data. It supports both Azure and AWS and Oracle Cloud as well.
  23. Most of the implementation is done by Ramco itself. In some cases, the Big 4 doe the implementation in some projects outside of India. For the Defence customers in USA, the implementation is done by Ramco’s defense partners in the USA due to requirements for security and second generation Americans only to access data.

Analyst’s View

Ramco is a fast-growing enterprise software player disrupting the market with its multi-tenanted cloud and mobile-based enterprise software in the area of HCM and Global Payroll, ERP, and M&E MRO for Aviation. Ramco Systems had a phenomenal quarter with large deal wins including one of >$10 million. It has also added another big USA customer and now accounts for 4 out of 5 ADAIR companies in USA. The management has repeatedly emphasized the importance of the SaaS model going forward for all of its verticals. The management remains confident of the demand going forward despite admitting to the lumpiness of revenues at the same time.  It remains to be seen whether this earning momentum can carry on in the quarters to come and whether the company will be able to fulfill its promises of superior implementation times without any compromise on quality. The price has shot up a lot in a short time making the current valuation look very expensive at the moment. Nevertheless, Ramco Systems is one stock to watch out for in the IT product space.


Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 85 85 0.00% 78 8.97% 163 171 -4.68%
PBT 16 20 -20.00% 16 0.00% 32 38 -15.79%
PAT 8 15 -46.67% 9 -11.11% 17 30 -43.33%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 165 151 9.27% 149 10.74% 314 293 7.17%
PBT 29 14 107.14% 28 3.57% 57 20 185.00%
PAT 17 7 142.86% 14 21.43% 31 10 210.00%

Detailed Results

  1. Consolidated revenues grew 9% YoY in Q2. Consolidated profits saw a phenomenal rise of 1.42 times YoY.
  2. Similarly, H1 revenues showed growth of only 7% YoY but profit growth of 2.1 times YoY.
  3. The company had a consolidated forex loss of 1.94 Cr in Q2.
  4. The company retired borrowings of Rs 25.2 Cr. Debt as of 30th Sep 2020 was at Rs 49.75 Cr.
  5. Cash & cash equivalents for the company was at Rs 16.4 Cr as of 30th Sep 2020.
  6. Q2 witnessed the highest ever EBITDA figures.

Investor Conference Call Highlights

  1. The company signed 5 million dollars plus deals in Q2.
  2. Quarterly order bookings stood at $26.53 million, which was up 24% QoQ.
  3. EBITDA margin in Q2 was at 31%.
  4. The company entered the USA in Q2. It also made its entry into Europe with Cyprus and Turkey being launched this quarter.
  5. The company also entered Macau and is looking to add 8 new countries in Europe and 6 new countries in Africa in the next 12 months.
  6. The global market potential for RAMCO is currently at $20 billion and growing steadily.
  7. The management states that the company’s USP is its consolidated global platform to process payroll. This helps in a) one single vendor giving payroll compliances for these countries b) uniformity in quality and the reporting and c) getting down to the last level of transaction in the payroll world.
  8. 37% of revenues come from recurring customers.
  9. The company added 5 large multinationals in Q2 which are One of the global Agri major company with more than 10,000 employees, one of the top-10 global dairy company with 5,000 employees, one of the top five logistics major with 15 countries, one of the large Fortune 500 & healthcare major and one of the large leading beverage and food majors in the Australia region.
  10. The company is getting global acceptance with global IT majors like Oracle & Workday partnering up with Ramco.
  11. The company has an unexecuted order book of about $164 million at the moment.
  12. 65% of the order wins were more than US$1 million in Q2.
  13. The company doesn’t expect travel expenses to come back to the pre-covid level as it is more efficient for the company and client to have virtual meetings.
  14. The DSO for the company remains high as the payment cycle for small customers is large. The management states that this will come down once larger clients get signed on.
  15. The company has signed on 2 of the world’s largest aircraft OEMs as customers. Due to the increased compliance in this, the company is seeing inroads into the US defense sector.
  16. The company has multiple pricing models for the HRP segment.
  17. The main crux behind the payroll business is how fast can you get things running and how do you charge the setup fees. Typically, the company should be able to go live in 3 months.
  18. The company is indeed seeing a shift towards the PEPM (per employee per month) model from the traditional license model.
  19. The partnership with Oracle & Workday involves them providing prospects to the company and Ramco paying these partners a referral fee. Ramco also has connectors built to their applications.
  20. In the PEPM model, costs are automatically accounted for with revenue while development costs are amortized over 10 years. There are no deferred costs involved.
  21. The company maintains a wage bill at below 50% of revenues and prefers to hire local nationals in low-cost countries or for strategic clients like US defense sector customers.
  22. Q1 is the quietest quarter for Ramco typically. The rest of the year is evenly distributed.
  23. The company is bidding for contracts worth $500 million currently and is in an advanced stage in about $200-211 million. The unexecuted order book of $165 million will be executed in the next 2-4 years.
  24. 60% of deals chased by Ramco are for HR & payroll.
  25. The company booked a deal from a group of four ports and two logistics companies in Malaysia for $5 million for enterprise asset management (EAM). This deal is completely by Ramco end-to-end and also includes logistics & HR components.
  26. The increase in SG&A expenses in Q2 was mainly on account of special incentives offered by Ramco to stave off a business contraction in H1.
  27. These incentives have gone away from 1st
  28. The HRP business unit is deploying in AI/ML in payroll processing and rolling out Anomaly engine. It is also implementing a Self-explaining payslip and the reasoning engine, which automatically gives a reason why errors normally occur.

Analyst’s View

Ramco is a fast-growing enterprise software player disrupting the market with its multi-tenanted cloud and mobile-based enterprise software in the area of HCM and Global Payroll, ERP, and M&E MRO for Aviation. Ramco Systems focuses on Innovation and Culture to differentiate itself in the marketplace. On the Innovation front, Ramco has been focusing on moving towards Cognitive and Robotic ERP.  Some of the recent positive developments such as sustained cost control, increased acceptance of remote implementation/sales, and partnership with Oracle & Workday for its Payroll business has led to better than expected numbers for the company. It remains to be seen whether this earning momentum can carry on in the quarters to come. The price has shot up a lot in a short period of time making the current valuation look very expensive at the moment. Nevertheless, Ramco Systems is one stock to watch out for in the IT product space.

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