Ramco Systems Ltd Q1 FY2023 Concall Summary

Key Takeaways

• Revenue fell sharply, driven by two structural forces: Revenue dropped to \$15.7 million from a \$19.7 million average, with roughly \$2.5 million from past low bookings and \$1.5–2 million from a deliberate shift away from deferred payment models toward annuity and direct license.
• Bookings rebounded to \$20–21 million, signaling a potential inflection: The quarter’s order intake reversed a prolonged weak streak, with deal quality improving (average size recovered to \$1.2 million) and five million-dollar deals closed, including two from the new U.S. defense subsidiary.
• Net loss widened to \$6.64 million on three roughly equal \$1 million hits: The revenue drop, employee cost increases (salary corrections, retention bonuses, ESOPs for the top 20%), and a swing from a \$0.5 million forex gain to a \$0.5 million loss each contributed.
• The model shift is painful now but designed to tighten the cash-to-revenue gap: Moving to annuity and subscription models reduces upfront revenue recognition but brings cash collection closer to revenue, a trade-off management expects to improve recurring revenue quality over two to three quarters.
• What to watch next quarter: Whether the \$20–21 million booking rate sustains and converts into a revenue recovery, the pace of bad debt provisioning (guided at \$2 million per quarter), and any concrete timeline for breakeven, which management declined to commit to this year.

Revenue Decline: The Two-Part Breakdown

• Past booking drought hit services revenue by ~\$2.5 million: Consistently low order intake in prior quarters flowed through to the top line, reflecting a lagged effect now being felt.
• Structural model shift subtracted another \$1.5–2 million: The company is consciously moving away from deferred payment models (where revenue is recognized upfront) to pure license, subscription, or annuity models, compressing near-term revenue recognition even if underlying activity is unchanged.
• Recurring revenue held flat or grew slightly: BPO revenue rose ~20%, and the shift is designed to build a higher-quality recurring base over time, with cash collection moving closer to revenue recognition and unbilled receivables improving.
• The counterfactual is uncertain: Management acknowledged it cannot say whether the \$1.5–2 million would have materialized under the old model, since those deals were not negotiated on deferred terms; the figure is a statistical estimate, not a lost order.

COO: "We are moving cash collection and revenue very closer, so that there is no gap in-between and our unbilled revenue portion would start improving."

Order Book Recovery & Deal Quality

• Booking rebounded to \$20–21 million, the highest in recent quarters: The figure reverses a prolonged weak booking trend and was driven partly by markets opening in Asia Pacific, which contributed 30% of orders.
• Deal quality improved markedly: Average deal size recovered to \$1.2 million from below \$500k in the prior two quarters, and the quarter produced five million-dollar deals versus 13 in all of last year, including Fortune 100 and 200 logos.
• U.S. defense subsidiary delivered its first two deals: Investments in the subsidiary and local hires (ex-army personnel) yielded contracts with a drone company and a U.S. defense contractor, opening a new vertical.
• AAD business added an eVTOL civilian order: The electric vertical takeoff and landing market is expected to begin scaling in a year or so, once commercial supply reaches large consumption. The segment also remains active in helicopter and MRO.
• Pipeline of large deals is maturing: Management sees the order book trajectory as returning to normalcy, with the unexecuted order book standing at ~\$177 million to be consumed over 15 to 20 quarters.

Chairman: "The good news is, all these measures are to make sure that bookings are back on the rising trend and this quarter booking is close to \$20 million to \$21 million."

Cost Structure & the Path to Breakeven

• Three equal forces drove the net loss from \$3.55 million to \$6.64 million: The revenue drop, employee cost increases (salary corrections, retention payments, bonuses, and ESOPs for the top 20% to combat attrition), and a forex swing from a \$0.5 million gain to a \$0.5 million loss each contributed roughly \$1 million.
• Headcount built to 2,200+ is sufficient to reach \$23–24 million revenue: Capacity was expanded during COVID to speed implementations and improve customer satisfaction; only salary increases are expected going forward unless order booking rises dramatically.
• Onsite delivery costs should ease: After major project completions, India-based resources will work from India again, reducing the elevated onsite workforce costs incurred during COVID.
• Investment cycle is nearing its peak: By end of this year, most aviation product investments will be complete; HR and payroll investments will continue incrementally; ERP logistics may need another year of some investment but not at significant levels. Focus is shifting to automation in execution (testing, implementation).
• Bad debt provisions guided at \$2 million per quarter: The provision reflects inability to recover from dissatisfied customers rather than bankruptcy; management expects this rate to continue for the next three quarters and believes it will be adequate, though it cannot fully foresee year-end requirements.
• Temporary debt of ₹46 crores incurred this quarter: Operating, investment, and financing cash flows could not be matched as they were last quarter; management aims to retire this debt with increased booking and major go-lives enabling invoicing in the next two quarters, with no plans for equity or debt raising.

COO: "So structurally I do not think we will be increasing many more people unless there is a dramatic increase in order booking. At this stage this is more than enough to reach the \$25 million revenue."

Partnership-Led Growth: Oracle & Workday

• Connectors built for seamless payroll integration across multiple countries: Ramco now offers certified connectors for Oracle and Workday, enabling joint customers to use Ramco’s payroll engine inside those platforms. Over 70% of the quarter’s \$12 million HRP booking came from core HR via these partners.
• Workday certification covers 6+ countries with 6 more in progress: The incremental effort per country falls after the first, making the rollout a continuous, compounding process.
• Oracle investment is at the OEM level for a global connector: The partnership is deeper than a standard integration, positioning Ramco as an embedded payroll option inside Oracle’s ecosystem.
• No revenue-sharing; all profit retained by Ramco: The partnerships are purely certified connectors for joint customers, with no profit-sharing or revenue-sharing agreements, so margin capture is full.
• Europe expansion underway alongside partner strategy: Ramco already operates in six European countries and is building another six step by step, using learnings from Asia and working with in-country service providers; the platform can ultimately add 60 more countries for managed services.

Management: "we command premium compared to our competitors in this all across and we are uniquely positioned because we are one of the very few who can claim to have 60 country payroll on single platform"

Segment Dynamics & Growth Drivers

• AAD and HRP are in exploitation stage and will drive growth first: These two segments are advanced and ready to scale, while logistics and ERP will join in roughly a year’s time once investments mature. The company is focused exclusively on these three segments.
• AAD spans a broad aviation footprint: The business covers MRO, engineering, helicopter, fixed wing, eVTOL, and drones, with customers spread globally. The eVTOL market is expected to begin scaling in a year or so.
• Logistics serves LSPs across the supply chain stack: The offering covers TMS, WMS, finance, rating, billings, and visibility for 3PL and 4PL providers.
• Payroll is processing 0.28 crore pay slips per month: Up from 0.25 crore, reflecting steady volume growth in the core HR and payroll engine.
• Asia Pacific momentum expected to continue: The region contributed 30% of orders this quarter, and the pipeline is moving accordingly, signaling a geographic reopening.

Guidance & Commitments

Key Metrics