Ramco Systems Ltd Q1 FY2021 Concall Summary

Key Takeaways

• Profitability inflection, not just recovery: Q1 delivered the highest-ever EBITDA of \$6.47 M (33% margin) and a swing to net profit of \$1.85 M, driven by aggressive cost control and productivity gains from remote work.
• Bookings rebounded sharply: Order bookings surged 63% QoQ to \$21.37 M, recovering from a COVID-hit Q4, though management declined to predict whether this pace is sustainable.
• Logistics and Aviation are the growth engines: Logistics demand is a direct COVID beneficiary, while Aviation is gaining from competitor exits and early traction in the large US defense segment.
• HRP had an unusually weak quarter: The payroll business saw gross margins drop to ~40%, well below normal, as clients deferred decisions; management remains bullish on a long-term recovery.
• What to watch next quarter: Whether bookings can sustain above the \$30 M quarterly run-rate needed to reach the \$25 M revenue target, and if HRP demand materializes as lockdowns ease.

Profitability & Cost Transformation

• Structural cost reset: Management tightened operating expenses significantly at the first sign of COVID, saving ~\$0.40 M on marketing (zero physical event spend) and over \$1 M on travel costs in a single quarter.
• Remote-work productivity: With employees working from home, productivity improved significantly, contributing to the margin expansion alongside cost cuts.
• Flexible cost base: Senior management took up to 30% salary cuts as part of austerity measures, making the cost structure more variable against uncertain demand.
• Cash flow turned positive: The company recorded a cash surplus of ₹21.25 crs versus a deficit of ₹11.25 crs in Q4, with collections returning to roughly pre-COVID levels.
• IND-AS 116 impact: Adoption of the new lease accounting standard increased the P&L charge by \$0.45 M compared to the previous lease rental treatment, a non-cash headwind absorbed within the quarter.

Aggarwal: "We were able to reduce cost by approx 0.3 crore in Q1, because we thought the world is coming to an end and we tightened up on all fronts and as a result, you saw we could save up about 3 million dollars of cost in a single quarter from our operations."

Segment Performance & Demand Dynamics

• HRP structural drag: The February 2019 decision to remove non-payroll modules and partner with Workday and Oracle slowed deals from Southeast Asian countries, while the shift to per-employee-per-month pricing reduced upfront revenue recognition.
• HRP breakeven threshold: The HRP business is profitable when averaging \$7.5–8 M per quarter; Q1 was a very unusually quiet quarter well below that level.
• Cross-selling engine: Multiple instances of HRP and ERP sold together, Aviation and HR & Payroll together, and logistics companies taking ERP and payroll; a common sales team compensated on total order booking drives this.

Aggarwal: "When we say competition is not there, it's in that sense that nobody has a single product platform in which they can process."

Product & Implementation Velocity

• Implementation timelines collapsing: ERP implementations that took 12-18 months are now cut to ~9 months; payroll implementations reduced from 8-10 months to 8 weeks, with a target to go even lower.
• Logistics product maturation: The new logistics product introduced between 2016-2020 faced difficulties and delays in implementation; the company is now through that phase and implementing faster, with a UI refresh initiative also showing up in the product.
• AI/ML embedded, not bolted on: AI and machine learning capabilities are built into the product's genetics rather than added use-case by use-case, a differentiation management claims versus other ERP vendors.
• New product launches: RamcoGEEK, a futuristic product identifying employee location within premises for contact tracing, was launched alongside the Pandemic Control System, which received its first commercial order and has multiple global proof-of-concepts underway, including a large US semiconductor plant with over 10,000 employees.
• US and UK payroll expansion: US payroll launched with the company running its own payroll as the first reference; UK payroll to be introduced soon.

Aggarwal: "AI/ML is embedded in genetics, it's not something a use case by use case approach that other ERP vendors are doing."

Pipeline & Order Book

• Pipeline contracted but remains large: Overall pipeline stood at ~\$570 M at quarter-end, down from the peak of ~\$650 M at end-March 2020, as deals where decision-making was not possible in the next 9 months were moved out of the active CRM.
• Recovery concentrated: Pipeline recovery is visible specifically in logistics and aviation, the two segments where demand fundamentals have improved.
• Unexecuted order book: The \$164 M unexecuted order book consists primarily of implementation services, subscriptions, and AMCs; license revenue is consumed in the quarter of order, implementations span 12-18 months, and AMCs run a minimum of 5 years starting after go-live.
• Customer payment behavior shifting: Customers are increasingly preferring monthly instalments and spread-out payment modes, though the pipeline conversion rate remains significant.
• Volume-based pricing experiment: The company is experimenting with transaction-volume-based pricing with a customer in the Philippines, pricing based on millions of transactions rather than traditional per-employee or license models.

Aggarwal: "Most other vendors focus more on the end customer - for example to Coca Cola they will be able to offer logistics software, but we focus on 3PL logistics companies that service such shippers, thus making it an uncontested market."

Investment & Partnership Ecosystem

• R&D investment accelerating: Management plans a 10-20% increase in investments over the next few quarters to rapidly speed up product development, though capex will remain modest at ₹6-7 crores or lower given the already decent-size R&D team.
• Partner ecosystem deepening: Three of the Big Four are partners for the HR payroll business; a partnership with Oracle sells the payroll engine alongside Oracle's HRP product; US defense deals flow through partners registered with the US Navy and US Air Force.
• Implementation partner scaling: Ramco Industrial Technology Services Ltd (RITS) is the first implementation partner now doing large implementations in India and certain ASEAN countries, reducing reliance on in-house implementation capacity.
• LinkedIn recognition: Ramco was invited to the LinkedIn Customer Advisory Board for Live Events, driven by the success of its live webinar program in generating pipeline and brand visibility.

Guidance & Commitments

Key Metrics