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Era of offering software services alone is over: Ramco Systems

This article is reproduced from The Hindu BusinessLine dated April 28, 2015

Virender Aggarwal, CEO, Ramco Systems Ltd, came on board the Chennai-based company in May 2012 and turned it into a profitable company, while also transforming Ramco into a software product company from a service provider.

“We are not into service any more. In the last couple of years, the emphasis has been on product development only. Things like people placement and body shopping have all gone. If somebody asks us for software service, we decline it,” he told BusinessLine in an interview.

Ramco, which provides products like Enterprise Resource Planning, Human Resources and aviation, reported a net profit of ₹12.7 crore on a revenue of ₹365 crore for the fiscal ending March 31, 2015, as against a net loss of ₹23 crore on a revenue of ₹263 crore in the previous year. Excerpts:

Ramco Systems Culture

Why this shift towards software products only?

Intellectual Property always pays. Whether the software is used by one customer or by 100 customers, the cost of software does not change.

However, the cost of product license sale gives us a 100 per cent margin. The era of offering software services alone is over. It is now platform-based and should solve customer problem as clients pay us based on per transaction or per employee per month.

Should your partner network be stronger to sell the products?

Nearly 70 per cent of sales still happen through the company’s own initiative and the remaining 30 per cent from partners.

We wanted it to be 50:50, but that did not happen. That’s a red mark in the report card as spending on sales and marketing increased.

We are taking action to change this ratio by better branding and awareness among potential partners. Last quarter alone, we acquired 45 customers.

Was there any new partner on board?

Top system integrators like Tech Mahindra, Infosys and WNS are bundling our product. Infosys BPO uses our platform to provide HR outsourcing services.

Now, certain partners are willing to build practice around our products similar to Oracle or SAP.

Were you happy with last year’s financial performance?

It was a good year but during the fourth quarter there was a bit of currency headwinds. But for it, our revenue would have grown by 6 per cent quarter-on-quarter instead of 4 per cent.

For us, revenue from the US was low; else it would have protected us from the currency headwinds. The US contributes 20 per cent of the revenue, but the rest of the countries were also hit by the currency headwinds.

Did you not anticipate this currency headwind?

No. Even if we had anticipated, we could not have done anything as currency fluctuation is very unpredictable.

We are too small a company to do things like hedging, which at times can go reverse as happened to some of the big IT companies. Then, we would have had a loss because of hedging.

Where did the growth come from?

The Human Capital Management product that deals with HR functionalities was the main area of growth.

It grew by 113 per cent for the whole year. We expect it to be a key driver this financial year. For us, HR contributes 19 per cent of the overall revenue while ERP is 42 per cent and aviation is 35 per cent. HR is small, but the growth is fastest. Last year, we booked one order a week, but in the March quarter it was two orders a week. It has really taken off.

How about the aviation product?

It did not do well as no large deals were announced. It was a muted growth but it’s a matter of clicking. We are sitting on some large deals, and if announced, they can change fortunes.

What’s the overall order pipeline?

We have $75 million active pipeline. Existing customers do much smaller amounts of booking and revenue.

We have not yet perfected the art of mining from the existing customers.

Could you talk about foraying into China?

We ignored China due to the language issue. Not any more, as our clients want us to be there.

We have two customers and we should acquire many more as there is a big demand. During a recent visit, an employee in the marketing team was shocked to see that the smallest airline has over 50 aircraft.

While the numbers are huge the problem is that they don’t want to buy a foreign product.

In our product, the end user interface and whatever the employee needs to see are in the local language, but the core HR user is still in English.

However, things like applying for leave, filing claims, pay slip or local statutory reporting are all in Chinese.

What’s your road map for 2015-16?

We are investing on the look and feel of the product to make it more intelligent and for mobility.

In our HR product alone, we have 410 people working on it, from 50 two years ago.

That’s the level of emphasis we are putting on HR as we see tremendous response for it. We feel, we have a unique differentiator in this, and we can beat the competition.