Ramco system

Innovative solutions from Ramco for its Aircraft MRO offering:

The Chennai-based Ramco Systems, one of the leaders in technology solutions for Aircraft Maintenance, Repair and Overhaul, is in the advanced stages of developing and testing three solutions that are set to increase safety for aircraft passengers several fold. Predictive Analysis combined with IoT is the fulcrum around which these solutions are being built on…

SMB clients cannot invest in on-premise SAP/Oracle ERP because of the high costs involved in buying software, hardware, cost of implementation, employee training and ongoing maintenance of software, hardware etc. However these same companies (SAP/Oracle/Microsoft/salesforce.com/Workday etc) are coming up with cloud versions of their software called as software as a service (SAAS) with a subscription model without long term commitments.

Because of this subscription model, SAP/Oracle or other ERP/CRM providers like Microsoft (dynamics etc) and salesforce.com can now target even SMBs and its a blessing in disguise for SMBs as they dont need to invest lot of money upfront for software and hardware and can use same set of software thats being used by fortune 500 companies.

Cloud versions of their software comes with industry best practices (they also usually include country specific versions complying with local laws) with minimal customization/configuration options that can be done by business users/business analysts instead of having a huge IT teams. By moving software to cloud and making software as a service, these cloud software as a service providers can make more money than they usually make in the on premise model as they are now giving you software and hardware rather than only software in the on-premise model.

As richdreamz indicated that Ramco Systems is good in HR space, there is lot of competition in this space in the form of successfactors (SAP), Taleo (Oracle), Workday (built by the same team who built peoplesoft), Ceridian Dayforce(they are second to ADP in US payroll), Utilpro, Zenefits etc from US and other countries. Companies like SAP/Oracle are not able to compete with Workday because of their superior product. Given the high competition in HR space in US, I would be surprised to see even if Ramco Systems can get a single client in US or any developed nation for that matter.

Coming to the Jockey Virender Aggarwal, he doesnt seem to have lot of experience in product development. Product development is a different beast when compared to running outsourcing companies and most of his experience seems to in outsourcing companies and I havent heard of any product from the outsourcing companies he had worked for. The only Indian product I heard is finacle by Infosys.

Given the high valuations, high competition in the space and lack of promising past track record either with the company or the jockey, I would stay away.

I could be completely wrong in my analysis and please dont treat this as a buy/sell advise.

p.s: I have been working on HR cloud systems for the past 5 years and not invested in any of the companies I have indicated.


I fully concur. Dont want to invest in a Group which I heard to rig up their share prices.

well, I will be more charitable in evaluating Mr. Agharwal. There are not many successful product companies out of this country to compare. He has taken quite a few good strategic steps to bring it out of trouble. Product development, sales effort and debt has been addressed. When an ordinary/mediocre techie like NRN can become god like figure in this country , you can’t dismiss him just like that. The fact that they have survived last decade of consolidation and innovation in ERP space and ready for the next set of innovation makes me believe that it will survive. The question is will it make big for investors from hereon or will fizzle out after cloud adoption cycle.

Ramco’s accounting issues -

Interest expense / Finance cost – I need help on this one, as the footnotes (notes to account) for the consolidated numbers 2015 are not clear, or at least I have not understood them properly. Issue – Finance cost actually paid in cash outflows, per the cash flow statement (CF from Financing) shows INR 34.8 Cr paid, the P&L shows a finance cost of INR 12 crores. Total unsecured LT loan from bank (not total LT debt) is 218 cr. The approximate weighted average of the interest rate chart shown in footnote 4.2 (page 144) = 11.8%. So 11.8% of 218 cr is approx. 25 cr in finance cost, when this number is added to interest on short term debt and other LT debt obligations a total finance cost of 34 cr (which is what they actually paid) makes more sense. So why is a finance cost of 12 cr shown on the P&L? Also 12 cr of finance cost for a total LT debt (ignoring ST debt) of 218 cr works out to a 5.5% interest rate. This is below RBIs repo rate and is not possible. I need to find a way of reconciling all these numbers.

Additionally finance cost as reported on the P&L last year (2014) was 11.5 cr (or 50 lakh less than current year) when LT borrowings were 182 cr vs current year’s 218 cr. So for a 36 crore increase in LT debt, finance cost went up by just 50 lakhs? I could be totally wrong here, and this in all likelihood maybe a timing issue. But I have not understood this, and need clarity. I’m usually not so nitpicky and gloss over this stuff shaking my head with a smile, but for a company with a net profit of 13 crore, and a cash vs reported interest payment differential of 22 cr this does become pretty significant as this could single handedly determine whether the company posts a net profit or a net loss on the P&L.

Trade Receivables – Of a total of 129 cr in receivables, per note 16 (page 148), 76 crores is more than 6 months due from the date they were to receive payment (The figure for 2014 is 25 cr that was more than 6 months due so a 3 fold increase YoY). In other words nearly 60% of their receivables are extremely overdue and are increasing at an alarming rate. Their provision for bad debt / uncollectable accounts (note 25, page 149) reflects a corresponding increase from 10.4 cr to 11.8 cr. I would think that if someone hasn’t paid you the 76 cr they owe and are more than 6 months (so could be 7 months overdue or a year or two, don’t know) behind on their payments from the date they were supposed to pay, the provisioning should be substantially higher as opposed to a 1.4 cr increase YoY in bad debt provisioning. So I have no idea what’s going on with their receivables, how much of it can actually be recovered, on what basis they are provisioning the logic of the same etc. If provisioning is increased it would directly hit the bottom line though and reduce net profits. This is totally up to management discretion, and I don’t have the details of these debtors, so going to leave it at that. In the interest of fairness and balance, another way of interpreting this number is that they are provisioning nearly 10% of their trade receivables which is very good and in line with conservative reporting. I will it leave it to the discretion of the reader to come up with his / her own interpretation.

Other Income – Note 17, page 148 details the cash on hand. Cash on hand (Bank balance) is shown as INR 10.5 crores. Interest income under the “other income” sub heading (Note 21, page 149 ) shows an interest on presumably this cash of just 36 lakhs. Or a 3% interest on the bank deposit. Same is the case in 2014 as well. Keep in mind the time period under discussion was prior to any rate cuts by the RBI. Again it is important to note that a BS is just a snapshot in time, so this very well could be a timing issue, but this needs further study to remove doubts.

Other – Page 150, footnote 25 shows that their power and fuel costs came down marginally and so did their rental expense (some part of this rent expense is a related party transaction with Ramco cement). For a company with a growing workforce, I would have expected the opposite. That being said there could be several reasons that could explain this, I don’t have all the facts as they aren’t disclosed. Contingent liabilities doubled from approx. 9.5 cr to approx. 19 cr. Page 151 on deferred taxes (copy paste from 2015 annual report) – “The parent company has net deferred tax assets as at March 31, 2015 and March 31, 2014. However, the parent company has not taken credit for such net deferred assets” Why haven’t they claimed this and reduced their tax bill? Actual cash taxes paid as shown on CFO is 60% of reported tax payable, 1.47 cr actually paid (Pg 139) vs tax liability on the P&L of 2.5 cr

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What is the reason for share price to move up in 2015 when the net profits are -ve and to subsequently fall down when profits are becoming +ve ? (from ratestar.in). Any major client withdrawal ?

From the looks of it, BV has been up because of shareholder funds.

pump and dump maybe…another thing to note is that the prices surged substantially even for small orders when it was in 700-1000 range.

Ramco Systems has been placed in a Niche Player Quadrant by Gartner for its HCM Suite and named Workday as the leader. Please find below URL.


Disclosure: Never Invested and not planning to buy Ramco Systems. Had invested in workday in the past.

Ramco System Fact Sheet Analysis

Here is the latest Fact-Sheet from Ramo Systems.

  • Unexecuted order book of 126 Million US$ at the end of the year. Order Booking Period is between 3-5 years.
  • Consistent Order Booking of around 25 Million US$ over last 5 quarters.
  • Aviation MRO Software deals coming thick and fast. Sealed multiple deals with Boeing subsidiaries, GE Aviation etc.
  • HCM with Global Payroll especially in Asia has considerable durable advantage, clocking around 30 Million US$ in bookings last year.
  • Logistics and Financials ERP seems to be driving good bookings (especially logistics), has been increasiing steadily (more than 14 Million US$) last quarter.
  • Overall APAC region is driving good business.
  • Company is a leader Aviation in HeliCopter segment and gaining siginificant customers in OEM market(US, CHINA, Europe). HCM with global payroll product driving significant MNC customers in Asia (GE, Panasonic, Heinkein, DB Schenker, Bollore, Scania, Schlumberger)

Overall seems like the beginning of very good subscription business with considerable amount of bookings already visible. Also management is concentrating on the right things of increasing order booking, delivering innovative features to be ahead of compeition, management commentary on numbers. If they continue to deliver at the current rate of bookings, can be significant player and niche vendor

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Ramco System Fact Sheet Analysis for Sep Qtr 2017

[Here is] (http://www.ramco.com/investor-relations/Fact-Sheet-30-06-17.pdf) the latest Fact-Sheet from Ramo Systems.

Here is the management commentary on numbers

  • Un-Executed order book of 134 Million US $.
  • Consistent Order Booking of around 25 Million US$ over last 6 quarters. (ERP bookings have grown 2.5X compared to H2 last year)
  • Global Payroll (ASIA, ME, ANZ) significant driver of HCM business, would have snowball effect in coming years if company can maintain and grow the order booking momentum. (More than 10 orders worth more than 0.5M USD)
  • Logistics and Financial’s ERP are products with large addressable size, as long as company can differentiate the product through innovation and speed to market (RPA, End-to-End logistics, BlockChain etc) should be able to win handsome orders.
  • Able to address new orders without increase in technical headcount (employee cost has remained same) which is a very good sign (using automation). company able to manage their bottom line well.

P.S.: Upcoming Quarter should be very good based on the bookings from last year (same qtr) adding to subscription revenue.

Disclosure: Invested and planning to invest further below levels of 400.

Can you help me to understand how the company gets revenue from the customers?

As per my understanding, each customer will pay a fixed amount or variable amount (in case of payroll if employees number varies) every month or Quarter once Ramco’s software setup in their system.

As the company is increasing its customers, revenue should increase. But, it’s not been the case. Revenues are almost constant around 110cr from last many quarters.

Is it because the company is taking many years to setup their software and revenues from new customers yet to come? or their existing customers are too many and new customers are just a fraction of existing customers?

Disclosure: Not Invested

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After scrutinizing the fact sheet I have few more questions here

  • Company added 120 new customers in FY17 but, the total customers reduced to 751 in FY17 from 848 in FY16. That means 217 customers left the company?

  • Revenues from all the geographies are almost flat from last 3 years and APAC (Asia Pacific) is the only region Ramco has shown rapid growth. Can we assume that business in all other regions saturated or Ramco is only concentrating in Asia Pacific region?

  • Though the company adding new customer for Logistics why revenues are down in this segment?


Company has been concentrating on HCM with payroll, logistics and aviation mostly, closing down on other products. Also has been concentrating on larger deal size with higher margins or potential thereof ( out of 12 HCM customers 3 are fortune 500 this quarter, 10 deals are more than 0.5M USD). Hence the reason for customers reduction, revenue remaining constant.

Company has been able to sell product very well in APAC (hcm/payroll, logistics) , China and Americas(aviation), ANZ (hcm/payroll, logistics, ERP). The reason middle East being lack luster is attributed to #1 above as earlier when they were building the product they acquired lot of small customers (as they had good market presence there, less in ASIA then) with not so great margin but now that products are mature they are choosy and going after larger deal size. Hence the reduction in revenue from ME.

Coming to the revenue, in fact sheet you would see license and services revenue. For cloud deals upfront license cost is not billed at once but year on year basis, with most deals being for 5 years. That’s the reason the quarter in which company has more cloud deals license revenue is less and services revenue bit high (like in this quarter cloud deals were 47% only compared to 67% last quarter, hence services revenue was higher than 5M USD compared to 3M USD). Cloud revenue(mostly HCM/payroll) is spread over 5 years whereas on-premise deals (logistics/aviation) is mostly booked in the same year.

The management is projecting completion of 50% of the order book of 134M USD around 67M USD by next financial year which is equivalent to their last year revenue, which is good visibility of future revenue ( any additional deals they do will add more to their bottom line). Also based on the bookings of Dec and mar quarter last year, the upcoming quarter should be good as company had high percentage of cloud deals which would recur again.

Overall company is concentrating on right things of increasing order book size, booking large deals, spending on marketing (coming from pre-sales in technology, can bet that is very important) and innovation to differentiate the products (RPA, chat bots, block chain, automation). Vision seems to be akin to successful valley tech companies to build culture of innovation, definitely different from the head counting services business in India.

Just curious to know what went wrong with them? They always seem to make the right noise but 2 year old startups seem to do better in their ‘hyped up’ market. Do you still track this stock?

Nothing much is wrong, there is shift from lumpsum license revenue to SaaS pay-as-you-go revenue. As can be seen in Dec 19 fact sheet, license revenue is going down but Subscription revenue is going up.

The management also highlighted this during previous conf call and also reason for the delays.

Overall there were lapses by the company in execution in the past. The current valuation seems unreasonably depressed. Their Global Payroll with HCM is indeed a unique solution across Asia-Pacific, MEA and is on the right track showing y-o-y growth, increasing subscription revenue.

It seems to be trading around 1x of their HCM revenue, which is a high growth subscription revenue business (~41% CAGR for last 5 years). Just a matter of time before promoter (Ramco Group) wakes up and unlocks the potential either by separating Payroll business, listing overseas etc.

Disclosure: Invested and doubled down during the current downturn.


I got interested in this company after Vijay kedia bought some stake. So,I decided to do study the company.

This is part of Ramco group of companies. It has a stable Aviation and ERP business. They themselves have accepted that growth in aviation business is difficult for them. So, I expect more or less stable revenue form them as in case of software businesses which are difficult to replace.

Their HCM business is their growth engine as they have mentioned in their concall. This can be evident by growth in their business of payrolls. They claim to have a multi country payroll system with no competitors and have added many big clients in last few years. They have added a big 4 as their client recently and are working towards entering US payroll market which is the biggest in the world. Revenues are diversified but APAC region provides (excluding India which is 21%) around 41% of revenue… They have an unexecuted order book of 166 Million USD which gives revenue visibility for a few years. And looking at fact sheet, they add around an average of 10-15 customers every quarter since past few years (I have no idea how many customers they lose every quarter).

So, the bull case thesis according to me is that 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 company is priced below book value, low market cap and low valuations. Couple that with growth, PE rerating and increasing margins, this can be a great investment. But there is a massive red flag according to me.

Trade receivables are constantly increasing which is usually not the case in a software/IT company. If one looks at other expenses figure in the annual report of previous 5 years, bad debts and provision for bad debts comes to be 12, 18, 45, 22 and 26 Cr respectively. They have lost more than 100 Cr in last 5 years alone and these write-offs are a regular occurrence. Also, it spent 41 Cr on travelling and conveyance expenses last year which seems high for an IT company making revenue of around 550 Cr. For the past 5 years, it has been making around 15-20 Cr in net profits. Free cash flow has also been terrible but as they are constantly expanding, I don’t have much complaints regarding that. But with constant bad debt write offs, either they are repeatedly taking many subpar clients or there is some corporate mis-governance (I might be completely wrong here but can’t wrap my head around it). Aviation companies similar to it such as Accelya don’t have much write offs or trade receivables. So, this is a big deterrent for me.

On the positive side, the management won a few awards at payroll conferences and directors don’t take much salary which is commendable. Although their top executives are earning good amounts, which is normal for attracting top talent in a 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.

The management themselves stated in concall that their company in massively undervalued but they have only bought share worth around 70 lakh since February which although not small but certainly not big enough for the promoter group. It can be a great investment considering growth prospects, stable business and depressed valuations but some issues need to be addressed by the management to the shareholders.

Disclosure: Not invested. But interested to learn more. Will be happy for some feedback or mistakes pointed out in my thesis.


Anybody still tracking the company?
Order books look strong, but is it only dependent on 1-2 recently developed softwares!!

I continue to hold, plan to add more if there is an opportunity. Very much comfortable with the valuation. SaaS part of business seems to be doin well (services revenue in fact sheet), despite asia being mute. New License revenue is almost non-existent (2.5 M$), so this should be the bottom in terms of earnings. They have been cash flow positive and debt free in the current scenario. If they sell well, building on Workday/Oracle integration, that should work well. Hope they can put, Covid and Mute Asia behind them in upcoming quarters.


They have a legacy of bad debts and will continue to show loss due to write offs for next two qtrs.Cant believe a software co executing orders without ensuring risk management.