RAMCO Industries - On the move.
Ramco Systems
ramco.com
Ramco Industries -- Romping ahead with enterprise resource planning
Sunita Nagpal : 10/23/99 (FE)
The Ramco Industries' scrip is hitting a new high daily on the National Stock Exchange. On Thursday, the scrip touched a new high of Rs 2950 and seems all set to cross the Rs 3000-mark. The reason for the buying rush in the counter is the hiving off of Ramco's software outfit, Ramco Systems, as a seperate company. The shareholders of Ramco Industries will be alloted one share of Ramco Systems for every one share held. The hive off will be effective from December 1999. Ramco Industries makes asbestos building materials. The software arm, Ramco Systems, is a product-based IT company.
Ramco Systems is well-known for its enterprise resource planning (ERP) software that was launched and endorsed by Microsoft chairman Bill Gates in 1997. The ERP product, originally called Ramco Marshall and now re-chirstened Ramco e.Applications, is considered to be India's only truly world-class software product. The product has a market share of more than US $ 18 billion. The response for the company's product has been well received in India and abroad. The company has also developed skills in customized solutions. Given the potential for ERP products the world over and Ramco's ability to create its own product, the future looks bright despite stiff competition from global players like SAP, BaaN, etc.
Adding new features to its product, Ramco Systems is now totally geared to marketing its product in a big way. Ramco has already been successful in obtaining orders from certain prestigious clients. Ramco's ERP product today has 150 customers, including multinationals, PSUs, leading corporates and Fortune 500 companies like Hyundai, Intel, Migros and NEC.
Ramco has invested Rs 100 crore and 2,200 man-years for the development of the product. In the international ERP market, the cost per man year is not less than $70,000. At this rate, e.Applications can be valued at about $154 million or over Rs 669 crore. Globally, product-based software companies attract high valuations.
On the financial front, till fiscal 1999, Ramco Systems was incurring losses. During 1998-99, its losses amounted to Rs 2.5 crore. The company's overseas subsidiaries, too, were deep in the red. The company has susbsidairies in the US, Switzerland, Malaysia and Singapore. In the fourth-quarter of fiscal 1999, Ramco Systems earned a profit. The software division's sales grew from Rs 39.47 crore to Rs 70.85 crore, a growth of more than 80 per cent. Ramco Systems is expected to turn the corner in the current fiscal. It is expected to report a net profit of Rs 15 crore. The company is expected to continue growing at more than 75-80 per cent in the next three years. In 1998-99, Ramco Systems' sales were about Rs 71 crore. The figure is expected to grow to about Rs 100 crore this year.
On the expected earnings of Rs 35 in fiscal 2000, the scrip should trade at around Rs 2000-2100 (assuming the company commands a PE of 60 times). An accurate valuation will have to wait until December when the hive-off is completed. Ramco Systems will then be listed as a separate company. Some analysts say Ramco's intellectual property, technological competence and human resources - all intangibles - should be valued at close to Rs 1,000 crore.
Post de-merger, the Ramco Systems will find it easier to reward and retain its employees. The company is expected to offer employee stock option to its employees. The market is also expecting some news from Ramco Systems on the collaboration front - technical or marketing. If that materlises the stock can be propelled into the bull-orbit. In the future, the company plans to focus on e-commerce and rapid application development, thereby marking its entry into the services business and a radical shift from its current product-based business model. According to analysts, the company enjoys an advantage in rapid application development because it is in the forefront of a revolution in software development - component-based architecture. A customised application is developed merely by assembling components. This reduces the cost of time taken to develop software and gives the user the flexibility to change anything he wants. These two added revenue streams from high-end e-commerce and customised non-product basedsoftware development projects will help Ramco Systems subsidise software development costs and let it have the best of both worlds: software services and products.
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About Ramco Systems
Ramco Systems started commercial operations in 1993 and now has over 500 customer installations across USA, Europe and Asia. Major customers include Intel, NEC, Hyundai, Sunkist Growers, Columbia helicopters, Hoosier Energy and Bemis Curwood, among others.
Ramco Systems employs over 1100 software professionals and business analysts operating out of a 120,000 square feet technology center in India, and international offices across the USA, Europe and Asia. It is part of the 7000 employee strong, 60 year old Ramco Group - one of India's strongest and most respected business groups. |
