Ramco Systems Ltd Q2 FY2022 Concall Summary

Key Takeaways

• Asia collapse drove a flat, loss-making quarter: Order bookings from Asia plunged from a consistent \$14.5–15 million to just \$1.8 million as COVID kept high-touch markets locked down, while adverse FX widened the net loss.
• Diversification prevented a worse outcome: European and US operations partially offset the Asia shortfall; without that geographic spread, the impact would have been much greater.
• A deliberate shift to managed services is reshaping revenue mix: The conscious pivot to global payroll managed services means order growth shows up in BPO revenue, not in the subscription/AMC recurring line, creating a disconnect investors need to track.
• Bad-debt cleanup and deal-quality filters are tightening: Provisions rose as smaller customers struggled to absorb the product; management will now reject orders under \$1 million and require customer commitment, a cleanup expected to take four to five quarters.
• What to watch next quarter: Whether Asia reopens enough to begin recovering toward the \$14 million booking baseline, the dollar impact of the new Oracle and Workday alliances, and any stabilization in standalone profitability trajectory.

Asia Market Collapse

• Order booking evaporated: Asia bookings dropped from a consistent \$14.5–15 million per quarter to just \$1.8 million, driven purely by COVID lockdowns across Malaysia, Singapore, Hong Kong, Philippines, and Greater China. These are high-touch markets requiring physical presence, and every one remained closed internally and externally.
• Recovery bet is on reopening, not restructuring: Management expects Asia to bounce back to \$14 million or above, citing the Australia and New Zealand pattern where results appeared as soon as markets opened. The collapse is framed as entirely COVID-driven, not competitive or product-related.
• Pipeline grew over 20% of the average maintained, with continuous improvement seen post-September, suggesting latent demand is building while markets remain shut.

COO: "Asia used to take heavy closure which is in the range of around \$14.5 million to \$15 million, we would book consistently from Asia, which has today dropped down to current quarter and even in previous Q2 to \$1.8 million. So that is significant stress on the order booking from this and it is not something to do with the business perspective or our area, but it is purely because of the almost entire market in this countries where we operate Malaysia, Singapore, Hong Kong, Philippines, Greater China, every market is closed internally as well as for other area and these are heavy touch markets."

Revenue Mix Shift: Managed Services vs. Recurring

• Payroll growth is hiding in BPO, not SaaS: The conscious strategic shift toward global payroll managed services means payroll cloud order growth is reflected in BPO services revenue, not in the subscription/AMC recurring revenue line. Recurring revenue mainly comprises AMC on platform licenses for ERP and logistics, not payroll SaaS.
• License lumpiness will persist: Heavy license deals, particularly in aviation, cannot be predicted by quarter. Spikes will continue and then taper down over time, and SaaS model revenue is still only 35% of the total, so lumpiness remains a structural feature.
• In-country payroll capability expanded: The company has invested over the last two quarters to acquire the ability to service 100 countries on the platform, positioning for the managed services push.

Product Line Readiness & Growth Timelines

• Aviation product is ready, growth expected soon: The product is ready and management believes it can start growing by at least the last quarter of the current year or the quarter after that. Large customers have long decision cycles, and one aviation deal was lost or deferred this quarter.
• HR and Payroll positioned for significant growth: Management is very bullish on the HRP business and expects it to profile into significant growth, with hyper-automation potentially accelerating the trajectory further.
• Logistics product acceleration is 5–6 months away: The product will be ready for accelerated growth by probably Q1 of the next financial year. A separate management team for the logistics division is being formed and will be discussed in the coming quarter.
• ERP needs more background work: The ERP product is steady but requires a modern UI transformation, and more foundational work is needed before the change can be delivered.
• AI delivery tool compresses implementation timelines: The newly released AI-enabled delivery tool successfully took two customers live in five weeks instead of the typical five to six months. The tool will be deployed into more countries within the platform.

Management: "Few products line we are there and one or two product lines we would take at least another quarter to get there. Now it is a question of execution by the team."

Alliances & Pipeline

• Oracle and Workday alliances are starting to convert: Pipeline has seen a 30–40% increase post-certification. Management expects to give a real impact in dollar terms on the order book position from these alliances in the next two quarters. Workday certification was recently achieved for one country, with certification for other countries underway.
• Defense subsidiary opens a new funnel: A sanitized, isolated defense subsidiary is being set up under the existing US subsidiary, with a board including American citizens, to handle contracts requiring security clearance. This is expected to cut order cycle times by 2–3 months and allow participation in orders previously inaccessible. A very good pipeline is already seen.
• Two important orders postponed by several quarters: These were to close in the quarter but were pushed out, adding to the booking pressure. Management declined to give details on one aviation and one HR deal that were lost or deferred, citing deal sensitivity and NDAs.
• Diversification investment continues: Further investment in both the US and Europe will continue, with people now on the ground in Spain and an increased US presence.

Management: "The defense subsidiary will be a subsidiary of our existing US subsidiary and that will be completely isolated for some security reasons and so on. All the implementations will have to be done by US citizen or other citizens of that country whichever is country we are going to, so that is what we are setting up."

Bad Debts, Deal Discipline & Profitability

• Provisioning reflects a cleanup of smaller customers: Some smaller customers taken on to build order books had difficulties implementing the product, and some closed during the pandemic. Management considers it prudent to take provisions now.
• New deal filters are tightening: The company has stopped taking orders from companies it is not confident can absorb the product, will not take orders under \$1 million, and now requires commitment from customers. The bad debt provision is expected to come down after the next four to five quarters as deal sizes grow and the company moves away from smaller deals.
• Standalone profitability timeline has slipped: Management initially expected to wipe out accumulated losses in 1.5 to 2 years; that has now been revised to another 2 to 2.5 years. No specific quarter was given for when standalone results would turn positive.
• Strategy effects will take two quarters to stabilize: The clock cycle of the business is slower than new-age businesses, and the effects of the current strategy changes are starting to show but will take a little more time to become visible in the pace of results.

Management: "we are also making sure that we do not take orders which we are not confident that the customer can actually absorb what we are giving, we are not taking those orders and we are also saying that we will not take orders unless it is a bigger company / anything less than a million dollars we will not take and we want commitment from them"

Guidance & Commitments

Key Metrics