With his steadfast focus on R&D, PR Venketrama Raja has played a pivotal role in steering the Ramco Group, which has interests ranging from cement to IT services, and winning recognition for its products and services.
PRV, as he is known in industry circles, established Ramco Systems with the goal of creating a world-class information technology company focused on enterprise applications and emerging technologies. For him, institution-building is far more important than playing the valuation game.
In a free-wheeling interaction with Moneycontrol at the Ramco Systems office in Chennai, the Group Chairman opened up on a range of topics. Edited excerpts:
Where is Ramco group at this moment in terms of growth and profitability?
Fortunately, the group is doing well at the moment. Profitability is good across all companies. All of them — from textile to cement — have financial plans in terms of expansion. In Ramco Industries, we are contemplating further investment to expand product lines. In Ramco Systems, though our cash flow is steady due to good orders, profitability from the P&L point of view is showing strain. That should get corrected in the next two-to-three quarters. Apart from being a highly IP (intellectual product)-centric product company, we find that our customers often demand more value from us in terms of services, solutions, consultancy and the like for their transformation. So, we are building the capacity to handle that. It will take some time for all that to show up in our financials.
You have two big companies in the group: Ramco Cements and Ramco Systems...
Not like that. We have Ramco Industries. It recorded revenue of around Rs 1,000 crore last year. We have Rajapalayam Mills. It may be a smaller company, but it is growing. It is our mother company.
Which is the flagship company for you?
All the companies are equally important for us. Ramco Cements is the most important from the market point of view and also from the valuation point of view.
What has constrained the growth of Ramco Systems? Is it the fact that it is a product company?
Products per se are not a constraint. These are powerful products. But the company has not grown to its potential. Probably the business model we pursued was the constraint. Products must be differentiated from the competition so that people come to us. We have reached that stage after many years in two to three verticals. We are working to make sure that these two-three verticals take off where we can show true differentiation. One of the verticals is space & defence. The other is HR payroll. Then we have this huge, multi-country HR payroll platform. We are putting more and more sophistication into automation, which will make them powerful offerings. We are also working on one or two new products in digital transformation, where we can offer unique solutions for which we have the capacity to scale.
If products aren’t an issue, what else has constrained Ramco Systems?
In 2012, we did a course-correction. We were much more engineering-oriented earlier. We course-corrected to make ourselves much more market-oriented. And, our revenue grew. We are now looking to move to the next level by removing constraints and solving the problems in our way.
Are you emotionally attached to Ramco Systems?
We are not losing cash now. We have zero debt as a company. We are managing it with our current cash flow. We have the capacity. We have developed a tremendous IP (intellectual property) portfolio. The IPs that we have created would take several years to recreate. So, you know the potential. So, what needs to be done to attain this potential? It is not about emotion. You want to do everything you can to work for that.
Are you still attached to the company?
Of course, yes. But it is not about getting emotionally attached. We know the potential. Therefore, you want to do everything to make it work.
The whole approach is how to strengthen the products with newer functionalities. We need to help our customers realise the full potential of our products. It is about helping customers realise their full potential. We are talking about a digital transformation where we are integrating the entire thing in a company on a single system. The whole idea is how do you control the company real-time. That means everything has to be digitised and integrated. These are all complex exercises.
I think we have reached a level where many of our products are unique. The mindset of the company for long had been that we had finished the product and made it good. Maybe that mindset was the constraint for growth. Now we have changed the mindset of the company. Now the customers are looking for something else. We have to provide our expertise and extend support continuously. There is something good about our system.
Now, we can simultaneously work on technology upgrades without worrying about business products. That allows us to adapt to new technology quickly. We are working on perfecting this technology framework ... years of perfecting it with thousands and thousands of little features that make everything work together. The technology upgrade has to make sure that it takes care of all the changes that are coming.
The proof of the pudding is in the eating. Have clients stuck with you over the long term?
We have not lost too many clients. In fact, many have been with us for over 20 years. And, we have also upgraded them to the new product version. Earlier, we said that we had a product that did not require us to be with you. What is happening now is different. We now say we have a product and also want to help our clients realise its full potential. We have management, consulting and support bandwidth to help them achieve that.
In defence, we are completely in the international markets since our products are linked to the cycle of logistics management and maintenance systems.
At any point did you have doubts about Ramco Systems?
There was never a doubt. There was a sense of despair, however, as to why it was not moving forward.
Are things comfortable now?
Yes. Still, it has to grow. We have to show the market that it is growing. Indeed, we are re-setting all that has been done. We had a challenging few quarters. Luckily, the cash flow is okay.
Is funding a constraint?
Basically, it is the approach and the talent. If it works, funds will never be a constraint. It is focus and management talent that matter. We need execution talent.
Is it that companies in the South are a lot more conservative?
The mindset of a South Indian company is to make everything perfect. If something is not, you drop everything and focus on perfecting it. That mindset needs to change. How do you contain problems and grow at the same time?
What is your philosophy?
You must build institutions that create value for customers. The platform is there. How do you execute it flawlessly for customers? That is what we are all working on. With one single coherent offering, you should be able to run your company in real time.
What do you want the Ramco Systems to become?
It should become a global powerhouse, offering great value and solutions to customers.
Which is the dominant vertical for you?
We have different groups. We have enterprise solutions. We have a global HR payroll. Each is big in its own way.
Do you have manpower bandwidth?
The industry is going through challenging times. A lot of start-ups are coming in. A lot of churn is also happening as a result. Our team is doing very well. We are also adding people.
Is the compensation structure at a product company the same as in a service firm?
It is similar. Talent is talent anyway.
Let’s talk about cement for a bit. How is Ramco Cements doing?
It is doing well. There are a lot of challenges, however. Cost is a serious issue. How do you control the cost and do better than the competition? If you do better, your profit will be better.
Do you think the industry needs a kind of co-operative competition to survive?
In reality, there can never be co-operation in the cement industry. Everybody faces a similar situation. Ultimately, you should not lose money. The behavioural pattern will always be similar. The economics are different for different companies. Overall, you may see it as some kind of co-operation. But it is the situation that dictates the behaviour.
Any student of economics will say that when demand is down, prices will come down. Here, we don’t see prices dropping...
Demand is not down. Demand is good. Every company cannot sell to its full capacity in the location it is in. And, there is this brand pull. Some companies don’t have a better brand pull.
How is brand important for cement, which is a bulk commodity?
Brand is very important. Top brands fetch Rs 30-40 more a bag than others. It makes a big difference to profitability. Brands like us ... we make different cement for different applications. We make 12 different cements for different applications. We also make other products. Not cement but more like additives. That way you create a brand and that makes some difference.
How do you manage your coal needs?
Like everybody else, we are also buying from the market. Domestic coal is prioritised for power plants. We import.
What is your plan for Ramco Cement?
We have introduced new product lines. So, we have to expand capacity. The problem is that the costs have gone up everywhere.
Between Ramco Cements and Ramco Systems, which is tougher to manage?
Both are equally tough.
What about Rajapalayam Mills?
We make value-added products. We work with large customers. We are more of a custom-made yarn producer. We are now little more than a commodity producer. Since we work with large customers, we have also moved into forward integration to make custom-made fabric for clients. We are making some investments. Also, we are moving into some processing work. That way, we can meet the full needs of our customers. We are going in for high-end yarn and fabrics. Cotton prices have shot up considerably. How do we carry on despite this? That is the challenge.
There is cross-holding of shares between companies in the Ramco group…
Historically, it has been so. We are okay with that.
Have your children joined the business?
My son is already in. He is a whole-time director in one of our companies, Ramco Systems. He has also started a start-up, which is doing very well. My daughter is a kuchipudi artiste. She also teaches kuchipudi.
The Ramco brand, what should it mean for the common man?
Ideally, I want the Ramco group to be perceived as something that customers can trust.
The Ramco brand, as you see in cement, is a respected and trusted brand that delivers quality. There is also some warmth about the brand. In the context of Ramco Systems, the brand is seen to provide very high value to customers. Also, the brand is viewed by customers as the one that transforms their operations.
You also run a Vedic school...We do it as part of our foundation. We run a Vedic patasala. It is a very robust centre. Many students study there. Many have passed out.