Buy Ramco Systems; target of Rs 555: Dolat Capital Market

Dolat Capital Market's research report on Ramco Systems

RMCS reported strong results with Revenue growth of 11% QoQ at $22mn (DE at $20mn) as the strong bookings in Licence-based deals in ERP segment (up 18% QoQ) boosted revenue recognition in Q2. Company won new orders worth US$26.5mn in Q2FY21 up 24% on QoQ basis, coming back to its pre-Covid run rate. Unexecuted order book stood at US$164mn (2x revenue), providing good revenue visibility. Qualified pipeline stands at $211mn while ARR at $28mn (37% of rev). EBIDTA margins declined 355bps QoQ on account on increased sub-contracting in Q2 as well as unfavorable Fx swing of almost 1mn$. Adjusted for Fx EBIDTA margins improved by 170bps QoQ at 28.6%.

Outlook

Factoring in confident commentary across business segment, signing of marque partnership with Oracle/Workday, improved profitability and cash generation profile reinforces our positive stance on the business. We have built in revenue/EBIT CAGR of about 13%/62% over FY20-23E and retain our Buy rating on the stock with a DCF-based TP of Rs555 (implies 17x on FY23 earnings).

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