ramco systems ltd share price Management discussions


Business Overview

Ramco Systems Limited is a fast-growing enterprise software company that provides innovative enterprise solutions. Our solutions help clientele across the world transform their processes and excel on all fronts. We offer the worlds most comprehensive and modern, cloud-ready applications and a technology footprint that addresses their complex IT and business requirements. Our solutions are built on an agile and adaptive architecture, embedded with innovation for faster business outcomes.

Over the years, we have garnered a reputable name by disrupting the market with our multi-tenant cloud and mobile-based enterprise software in the area of Global Payroll, ERP, Logistics and M&E MRO for Aviation with innovation and culture being at the core of our service delivery. Our key differentiator is our flexible and modern approach to develop products through revolutionary enterprise application assembly and delivery platform - Ramco VirtualWorks?.

Industry Trends and Developments

Digitization and technology solutions are helping change the way companies operate. Accordingly, there is a massive change in the operational ecosystem of organizations. Companies are increasing their spending to create an entirely new experience that integrates with the clients needs and helps them grow at an exponential rate.

Companies are now proactively identifying client demands and utilizing technologies that enable hyperpersonalization through real-time insights and data analytics driven learning systems in order to create an integrated digital experience. Adoption of uniform data models, process integration, and cloud migration give opportunities to transform data into insight that supports growth and transformation.

Organizations are increasingly leveraging technologies like Artificial Intelligence (AI), Machine Learning (ML), cloud computing, and Internet-of-Things (IoT) among others for:

-> Automating repetitive tasks -> Adapting to the new trends -> Mitigating challenges -> Reducing labour needs -> Greater flexibility

The importance of technology in our lives has become more significant after the Covid-19 pandemic. We observed a rising demand for digital technology solutions as digitalization played an instrumental role in keeping global societies functional in the time of lockdowns and quarantines. Organizations have realized the importance of digital readiness, which helps companies grow and adapt to the emerging trends.

Companies have revised their strategy and considered new methods of doing business. Their resilience coupled with agile digital solutions will provide them with the necessary competitive advantage. Digital infrastructure has replaced the physical workplace in a major way, enabling leaders to build a more productive and balanced workforce. While economic headwinds seem to be gathering for business in general, there are many regulatory incentives that may spur innovation and growth in 2023 and in the years ahead.

AI is gradually becoming a key strategic differentiator for enterprises. A report from PWC states that 94% of organizations now believe that AI will help create more opportunities and enterprises are now more aware than earlier that AI has become a ‘must-have for most companies.

(Source: https://www.pwc.in/assets/pdfs/data-and-analytics/ai- an-opportunity-amidst-a-crisis.pdf)

Driving Changes

Facilitating

Efficiency

Automation facilitating a smooth flow of operations

Flexibility

Ability to effectively scale systems

Controlled IT Costs

Eliminating over-buy and over-provision IT resources

Scalability

Increased productivity and creating value

Increased Capabilities

Quick response to business opportunities and challenges

As a matter of fact, cloud is also helping deliver top business requirements along with faster time to market. More users wish to adopt Infrastructure as a Service (IaaS), Software as a Service (SaaS), and Platform as a Service (PaaS).

Ramco Systems Limited facilitates transformation in organizations by being a next-gen enterprise software player disrupting the market with its multi-tenant cloud and mobile-based enterprise software in HR and Global Payroll, ERP and M&E MRO for Aviation.

Leveraging the advantages and experience gained from being a part of the USD 1 Bln Ramco Group, Ramco Systems Limited focuses on innovation and culture to differentiate itself in the marketplace.

Performance Review

Ramco Systems Limited is committed to empowering organizations to become more responsive, agile, collaborative, and insightful in what they do. Our solutions are architected to enable companies establish new business models, operate flexibly, respond proactively to market trends, create new business opportunities and accelerate growth.

FY 2022-23 has been an important year for Ramco Systems Limited. It has reinforced the strength of our core products, and the comprehensive and unique functionality that we have built across a product suite, including Global Payroll, Aviation and Defense sector as well as our core ERP suite.

We witnessed an uptick in the business after several quarters, reflecting in our strong and broad-based bookings, momentum across the businesses we focus on. We stay invested in our product, people and partnerships, and a platform to ensure continued momentum and our booking, bringing about greater predictability in our business to ensure initialization of best practices, all for driving greater enthusiasm amongst the employees, and enhancing our customer experience.

During the years, we provided a comprehensive suite of IT solutions delivering a compelling digital experience and digital engagement for various industries across the globe. Our customers rely on our solutions to modernize their technology platforms, accelerate digitization, and avail superior customer services.

Given below are our key businesses and their performance highlights:

Payroll platform

Ramcos robust and unified payroll platform, powered with emerging technologies such as RPA, artificial intelligence, machine learning, and advanced analytics, allows companies to automate payroll processing, assists in payroll outsourcing, and provides self-service payroll management tools for employees.

Highlights

-> Helped organizations eliminate payroll glitches and introduced automation in processes -> Simplified employee-related processes for clients enabling them to embrace new ways of working -> Implemented a single standardized view of payroll across business for a client through modern technical innovations

-> Positioned as a ‘Technology Leader in Quadrant Knowledge Solutions SPARK Matrix: Multi-Country Payroll Platform 2022

-> Positioned as a ‘LEADER in Everest Groups MCP Solutions PEAK Matrix? Assessment 2022 - APAC -> Awarded Best Payroll Software Supplier of the Year 2022 by The Global Payroll Association -> Bagged the HR Vendors of the Year 2022 Award For Best Payroll Software and Best Payroll Outsourcing Partner

Aviation, Aerospace and Defense

Through this segment, we help our clientele experience innovation-rich Aviation maintenance software built to address the demands of the dynamic aviation industry. We also help them deploy an all-inclusive M&E/MRO software to address all their business and regulatory requirements. From BOTS to drones, and Machine Learning, we offer best-in-class aviation maintenance software to face the challenges head-on.

Highlights

-> Reported high levels of order booking owing to our investment to improvise deliverables in the segment -> Enabled Etihad Airways Engineering to enhance its digital MRO journey with Ramco Aviation Suite -> Partnered with Philippine Airlines, Inc. (PAL) to deploy Ramcos state-of-the-art Aviation Suite V5.9. The solution will replace standalone legacy systems thereby integrating, automating, and enhancing business performances across PAL and its affiliate PAL Express -> Signed a deal with Nova Systems, a global engineering services and technology solutions company for Aviation M&E MRO Suite

-> Partnered with Brunei Shell Petroleum Co. Sdn. Bhd. (BSP) to provide full suite Aviation, Aerospace and Defense Software that will fully integrate and automate aviation operations at BSP

-> Associated with Iraqi Airways, Iraqs national carrier and Middle Easts second-oldest airline company, for complete digitalization of all core business processes in the Company

Enterprise Software

Ramco ERP enables clients to get a 360-degree view of business by putting all the business functions on one single platform in the Cloud and automating and integrating them end-to-end. With this unified view of business, it is simple to drive innovation across the value chain, improve efficiency, and reduce costs and time to market.

Highlights

-> Adhered to the best practices and standards, making enterprise systems more efficient and futuristic -> Associated with Addison & Co. to provide a wide range of ERP solutions

-> Focused selectively on target industries to align product development, marketing and sales efforts -> Infused latest technologies and substantiated the product with latest features based on advanced AI/ML, Automation and mobility

-> Broadened our partner network to improve our reach in the regions of our focus

-> Improvised our online presence and aligned it to our focus areas and regions

Logistics

Ramco offers end-to-end Digital Platform made especially for Logistics Service Providers with complete cloud-based system to provide an integrated business solution for a seamless movement of goods, automating invoicing, forecasting revenue and preventing revenue leakage.

Highlights

-> Invested in a new leadership team that brings years of experience in Logistics, Warehousing, and Consulting to helm this business unit

-> Invested in an experienced sales and pre-sales team to strengthen our product proliferation in the market -> Enhanced our solution that is built ground up as an end-to-end integrated business solution for 3PLs and Express Parcel providers

-> Built standard product APIs to strengthen our integration capabilities which further enables seamless data flow across multiple third-party software with our solution

-> Implemented a highly user-friendly command center that provides a birds eye view of the entire warehouse operation which helps in making smart decisions and improving fulfillment rates

Industry Trends and Developments

Revenues by Geography

Our business team relentlessly built on the growth momentum to capitalize on the improvement in order booking and generating global revenue. 78% of revenues were driven by business in international markets.

Financial Performance

In accordance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Company is required to give details of significant changes (change of 25% or more as compared to the previous financial year) in sector-specific key financial ratios, as well as any changes in return on net worth. The following have been identified by the Company as key financial ratios, which are tracked only at the consolidated level.

Particulars

March 31, 2023 March 31, 2022
Interest Coverage Ratio (21.15) (12.53)
Current Ratio 1.38 1.91
Debt Equity Ratio 0.07 Nil
Operating Profit Margin (42.81)% (12.80)%
Net Profit Margin (42.02)% (13.81)%
Product Revenue to Total Revenue 42.42% 40.81%
Return on Net Worth (38.80)% (12.63)%
R&D Spend to Revenue 22.28% 13.75%
Days Sales Outstanding (DSO in nos.) 83 95

Detailed explanation for significant changes in sector-specific key financial ratios and changes in Return on Net Worth:

Operating Profit Margin (OPM):

The OPM for the year worked out to (42.81)% as against (12.80)% due to decrease in EBIT compared to the previous year.

Net Profit Margin (NPM):

The NPM for the year worked out to (42.02)% as against (13.81)% due to decrease in PAT compared to the previous year.

The decrease in the EBIT/PAT is analyzed below:

Particulars

Rs. Mln.

Decrease in Revenue

(388.79)

Decrease in Other Income

(37.66)

Increase in Purchase of Stock in Trade

(4.32)

Increase in Employee Cost Benefit

(456.83)

Increase in Depreciation and Amortisation Expense

(55.06)

Increase in Provision for Doubtful Debts

(65.14)

Increase in Other Expenses

(419.58)

Decrease in EBIT

(1,427.38)

Increase in Finance Costs

(45.42)

Lower Taxes

134.39

Decrease in Share of Profit of an Associate

(0.88)

Decrease in Non-Controlling Interests

4.48

Decrease in PAT Attributable to Members of the Company

(1,334.81)

Interest Coverage Ratio:

The finance costs have gone up to Rs. 99.61 Mln. during the current year from Rs.54.19 Mln. during the previous year.

(i) The interest on loans and finance charges have increased to Rs. 45.78 Mln. during the current year compared to Rs. 2.08 Mln. during the previous year, on account of increase in average borrowings.

(ii) The interest on lease liabilities have marginally gone up to Rs. 53.83 Mln. during the current year compared to Rs. 52.11 Mln. during the previous year.

At the same time, the earnings before interest and tax has significantly decreased from Rs. (678.88) Mln. in the previous year to Rs. (2,107.14) Mln. during the current year. The above had resulted in the change in interest coverage ratio from (12.53) for the previous year to (21.15) for the current year.

Debt Equity Ratio:

Out of the proceeds of Preferential Issue 2022, Rs. 675.00 Mln. of net borrowings were repaid during the year, leaving Rs. 380.00 Mln. as the outstanding borrowing as at the end of the current year, whereas there was no borrowing as at the end of the previous year. Hence the increase in the debt equity ratio from Nil to 0.07.

Current Ratio:

The Current Ratio has decreased by 27.75%, i.e., from 1.91 as at the end of the previous year to 1.38 as at the end of the current year. Significant increase in current liabilities by 45.87% driven by increase in unearned revenue and borrowings has led to the decline, inspite of increase in current assets by 5.25%.

Rs. in Mln.

Particulars

As at the end of the current year As at the end of the previous year

CURRENT ASSETS

Trade receivables

1,522.32 1,666.61

Other financial assets

521.98 748.65

Other current assets

1,310.39 1,404.90

Others

944.11 264.28

Total

4,298.80 4,084.44

CURRENT LIABILITIES

Borrowings

380.00 -

Trade payables

691.92 692.47

Lease liabilities

134.43 112.99

Others

1,912.20 1,332.44

Total

3,118.55 2,137.90

CURRENT RATIO

1.38 1.91

Return on Net Worth:

The net loss has increased from Rs.733.59 Mln. to Rs.2,068.40 Mln. (refer PAT analysis given above) while equity attributable to equity holders of the parent has also decreased from Rs. 5,806.18 Mln. to Rs.5,331.42 Mln., resulting in decrease in return on net worth from (12.63) % during the previous year to (38.80) % for the current year.

Challenges

A major challenge for tech companies that may persist over the year is how to weather a potential economic slowdown by trimming costs, increasing efficiency, while striving to grow revenues. Additionally, many companies are looking for ways to remain innovative and build a strong competitive position for the future. With heightened global challenges, companies will now be required to mitigate risks and build more resilient systems.

Leaders across all organizations will have to think strategically about their choices of partners, where theyre located, and how production takes place. Also, to sustain and grow, technology companies should focus their efforts to improving supply operations, modernizing infrastructure, and leveraging growth opportunities.

Outlook

With each passing day, we witnessed a continuous shift to the cloud and increased enterprise IT spending. Through our digital business initiatives, increased spending on enterprise applications, and infrastructure software, we managed to increase our order booking across all segments which favorably impacted other parameters, including revenue, margin, and employee motivation.

Our products are built using robust integrated technology platform and we constantly strive to bring in latest updates by incorporating the latest concepts and technologies.

It allows us to completely modernize our offerings, while emphasizing on how technology can enhance end-user experience.

In our payroll division, we have been striving to ensure a simplified user experience through multiple features like Chatbots, Cognitive Process Automation and a robust deployment model available on Cloud, On-Premises, & as Managed Services. Our experienced team of professionals are in a constant endeavor to simplify HR strategy by automating traditional payroll transactions and driving business benefits across functions. With our payroll management software, we enable companies to focus on their people and not spend time navigating around systems. Accordingly, we have been redefining employee experience through Ramco Global Cloud Payroll with Time & Attendance on ONE platform across the globe.

Through our Logistics ERP segment, we are able to digitalize third-party operations from Booking to Invoicing with an integrated logistics system designed for 3PLs. We provide a comprehensive digital platform that reduces the cost of operations, thereby improving efficiency, reducing revenue leakage, and enhancing visibility. Moreover, investments in the segment are being made to optimize order booking and enhance performance.

At Ramco, we constantly look forward to bringing in new capabilities and perspectives to the team. We have onboarded visionary leaders in the Ramco family who come with years of regional and domain experience.

Also, Oceania being a key growth market for us will get to witness a growth charter.

Risk Management

The Companys risk management system identifies and monitors the key risks and their impact on global operations. The Risk Management Committee reviews the risks, and their possible impacts, and the mitigation plan. Some of major risks, their impact and the mitigation plan include:

TYPE OF RISK

MITIGATION Strategy

CYBER RISK Owing to the nature of its offerings, there is a risk of disruption or damage to the Company from any incidence involving compromise of data resulting in financial loss, reputational damage or legal claims. The Company has implemented several cyber security controls to detect, prevent and remediate data breach threats. These often include compute, encryption, tiered storage, analytics, identity and access management, data protection, usage of VPN, event log management, notification, data management, and security policy enforcement services.
These controls are continuously monitored by an expert team for their effectiveness.

Changing Buyer Behavior

Technology is changing at a fast pace and it is moving from proprietary to opensource platforms. Such disruptive changes impact the industry dynamics and provide room to new demands and expectations of availing exceptional services. Through assessment of industry changes, the Company keeps a watch on existing customer preferences, customer responses, technological advancements and competitive products in the industry to drive the suitable changes to its business strategy.

Manpower

It is pertinent to note that human talent is the most important asset of the Company. The changing industry dynamics and demand for experienced employees has put pressure on retention of employees. Attrition creates shortage of critical skills, constrains delivering capacity and increases retention and replacement costs. The Company tries to maintain a cordial relation with all the employees and also endeavors to create a professionally rewarding and enriching work environment. Our performance management and training systems help employee development and engagement. We undertake various initiatives to retain talent while also promoting new talent. The Company also invests in various employee well-being initiatives to maintain a good work-life balance.
Currency Volatility A major portion of the Companys revenue is generated in foreign currencies, while majority of the Companys expenses are incurred in Indian Rupees. As such, exchange rate fluctuations can significantly impact the Companys revenues, operating results, cash flows and total assets which are reported in Indian Rupees. The Company hedges the trade receivables in major currencies (USD, EUR, SGD, GBP and AUD) with the objective to minimize the volatility impact in realized exchange gain or loss.
Competition The Company faces competition from established global, as well as regional and local IT products and service providers. The Company also faces competition from new-age players who offer niche solutions The Company offers a comprehensive suite of offerings across all its segments and innovative technologies such as cloud, Artificial Intelligence (AI) and Machine Learning (ML) enable the Company to upgrade its product offering to make them more competitive under the digital space. The Company invests in upgrading its suite of products on a continual basis to address the changing and growing technological needs of the market.
Economic and Political Conditions The Company faces various economic and political challenges in the jurisdictions it operates in. These include changes in the political environment, GDP growth, inflation, and major changes in economic policies & taxation, mobility constraints, etc. All these can affect business growth and pose a risk to the Company. The Company strives to proactively avoid situations with political or other risks. The Company carefully assesses the local situation to minimize impact of such risks on its growth strategies as well as safety of its employees. The Company has a global team of functional experts which focusses on monitoring the mobility Regulations in various countries.

Multi-Cultural

Workforce

The Companys customer base is spread over 35+ countries. It therefore becomes essential to manage a multi-cultural workforce and deal with business dynamics across these countries. Exposure to local conditions including maintenance of work environment and adhering to local laws are the key factors which may impact the performance of the Company in each of such jurisdictions. The Companys geographic spread offers it a natural hedge against economic slowdown affecting a region. The Company, through its local offices along with expert support of global advisors, aims to ensure compliance with the Laws of the land.

Regulatory

Compliances

The Company is a listed entity in India and has business presence across various countries. It also employs talent on-site for various project requirements. The Company complies with all the local Laws Regulations where it operates. Ever- changing Laws and increasing exposure under various statutes, local labor, tax, and immigration Laws, among others, are some of the regulations that add complexity to operating. Regular monitoring of the local applicable statutes, and advisory support from the local professional consultants are some of the measures that the Company undertakes to ensure that it remains compliant in all jurisdictions. The Companys compliance team rigorously studies Laws, Rules and Regulations to ensure thorough compliance.

The Board has constituted a Risk Management Committee. A detailed note on the attendance, composition of the Committee along with other details are provided in the Corporate Governance Report Section of this Annual Report.

Internal Control Systems

The Company has an internal control system, commensurate with the size and nature of its operations, which have been designed to provide reasonable assurance of recording the transactions of its operations in all material aspects and providing reliable financial and operational information, complying with applicable Laws and safeguarding the assets of the Company.

The Company constantly reviews its processes and the systems to address the changing regulatory and business environments. The Company uses its own enterprise resource planning system for recording of accounting data and for management information purposes. The Company had aligned the internal financial control system with the requirement of Companies Act, 2013 ("the Act").

The Company has an external audit firm for carrying out the internal audit, based on a plan finalized in consultation with the statutory auditors and approved by the Audit Committee. The Internal Auditors directly report to the Audit Committee. The internal audit reports are submitted / presented in the Audit Committee and discussed. The Audit Committee also obtains the views of the internal and statutory auditors to ascertain the adequacy of internal control systems. The statutory auditors have issued a report on the internal control over financial reporting (as defined in Section 143 of the Act). The Company had assessed the effectiveness of the internal control over financial reporting (in accordance with Regulation 17(8) of SEBI LODR) as of March 31,2023. Based on its evaluation (in accordance with Section 177 of the Act and Regulation 18 of SEBI LODR), our Audit Committee has concluded that, as of March 31, 2023, our internal financial controls were adequate and operating effectively.