The Hindu Business Line : Ramco Systems: Invest

However, this offer may be suitable only for shareholders who are investing with a time-horizon in excess of two years. They will have to bear in mind the high risk associated with investing in this stock.

Facts from offer document: The company has changed its business strategy to focus on the enterprise solutions market using its new solution delivery capability — Ramco VirtualWorks — from this year onwards.

It has so far gained experience in developing both product-based solutions (in the form of Ramco Marshal and its long evolution since then) and custom solutions (driven primarily by needs of shorter delivery times and higher productivity).

Through the experience in both the solution markets, the company has developed its own solution assembly and delivery platform.

Using this, it plans to target non-served or underserved vertical markets such as financial services, manufacturing or healthcare, by the existing enterprise solutions. Besides this, it plans to target a few other related areas, too.

Investment risk: Though, at present, it has a few customers, the challenge for Ramco Systems will be to build up a referenceable set of customers in the lucrative markets of the US and Europe.

Securing a critical mass of customers may take at least one-and-half to two years to achieve.

The attractiveness of this market will also hinge on a resurgence in IT spending in 2004 and beyond. The competition from the enterprise product software companies such as Oracle and SAP will be intense.

Similarly, from the software services side, it will have to contend with competition from almost all the top-tier and medium-sized companies from India, with their own set of business integration and transformation offerings.

Facts: The financials of Ramco Systems hardly rest on a sound footing.

The company has incurred net losses in 2001-02 and 2002-03 on both a standalone and consolidated basis. This trend has continued in the first two quarters of 2003-04.

The company also has receivable dues of about Rs 60 crore from its four subsidiaries as of June 30, 2003. This payment to Ramco Systems hinges on the generation of adequate cash flows in these subsidiaries.

Investment risk: Wiping out the accumulated losses and moving into the black depends entirely on the commercial success of the solutions delivered on the Ramco VirtualWorks platform.

As this may take a fairly long time to happen, the valuation of the company may suffer during this period.

The stock rules at Rs 316. But it has firmed up in the last one and half months. If the financials do not improve, the sustainability of this market price may be in question.

Only 50 per cent of the offer price will be payable by shareholders on application.

The balance will be payable on one or more calls to be made by the Board at a later date within a year of allotment.

The rights offer opened on November 12 and closes on December 12.

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