Background: Technology is a big sector with various smaller sub-themes in it. Apart from the usual product and services themes there are a lot of stories that are building up as our great country moves towards computerization and unification of the diverse set of Government services – both at the state and the Center. The company I am talking about has a unique advantage of being a turnaround company and just in the right space and time backed by an honest technocratic management.
Company: Ram Info Ltd, is a micro cap with around 24cr market capitalization. The company was listed in the heydays of dot com boom and soon faded away. It went further down in abyss by lack of direction by a lackluster management and crumbling balance sheet. Then finally three years back the company was revived when the present promoter took complete control (by way of capital reduction scheme ) of the company and had a management rejig, where an ex-Mckinsey executive joined to steer the company out of this abyss. Its important to understand who this promoter entity RRAS Technologies is. This company is basically an investment vehicle (metaphorically speaking) of a group of Indian expats who are extremely bullish on the large opportunity that lies in automating the government systems and processes. To get a headstart they started looking for a good acquisition target and they zeroed on Ram Info as it was struggling (or promoters were wanting out) but one, with a record of serving various state governments. The change in management has done the trick. The company backed by seasoned professionals and senior management brought in the professionalism in approaching software development and changed its focus from being pure services to IP based, turnkey solutions for the governments which meant long term contracts with higher margins. This has resulted in development of strong product profile with greater applicability across different verticals such as eGovernance (Financial Inclusion Services, Citizen Services, Utilities, Ports Housing etc), Financial services particularly payments and now IoT. Earlier Ram Info was only confined to being a regional eGovernance player with limited project oriented offering which clearly had extremely limited prospects. Under the new management, apart from adding different form of engagements (becoming IP based – turnkey solutions) they have expanded to different states and have been bagging contracts consistently from there. They have expanded from being just an AP and Telangana player to states like Rajasthan, UP and Gujarat, from where they have bagged quite a few contracts. Last year they had Signed MoU with Gujarat Government and I hope the projects would now start kicking in. Since last year, the company has been trying to get into IoT based services for Governments (Either for smart city projects or otherwise) and finally they were able to bag a project on this front, where they got an order for smart street lighting project. This is good as it now serves as a reference point for other potential projects and the opportunity in smart street lighting itself is extremely huge. Lastly, to meet any challenge, their ability to forge partnerships with entities to win projects is credible, especially considering their very small size.
Valuations: The stock is currently trading at a trailing PE of around 18 times with market cap to sales at just 0.7 which is a large discount to its peers. The reserves have turned around from being negative to now at a very comfortable positive range with interest coverage ratio of 5. The promoter holding is at 33% with a lot of individual shareholders with large shareholding, indicating presence of strong hands. The revenues have grown around 9 times from less than 3cr to over 26cr and profits more than 40 times from a mere 3 lacs to 128 lacs in last five years. Furthermore, return on equity has grown from single digit to more than 20% during this period and I strongly believe, now, that most of their investments are done, with scale, the improvement in RoCE should be significant. The company has an orderbook of approximately 279cr (till end of 3QFY18) and is expected to complete in next five years giving huge revenue visibility of more than 10 times the current FY turnover.
Technical: After bottoming out the stock is now making higher highs and higher lows on long term monthly and quarterly charts. Furthermore, there is a crossover of medium term MA over Long term MA. The volumes patterns have shown accumulation and now, it seems that it might be ready to start another uptrend. The stock goes up on big volumes but corrects on very minuscule volumes indicating systematic accumulation by stronger hands. The stock is currently placed at the lower end of the range and therefore, provides very good risk-to-reward ratio. Also, its important to note that the stock has withstood all the broader market carnage and is still available at exactly the same levels as it was when the carnage had actually started, clearly signifying the technical strength.
I believe this book has got not only new covers but rather has changed its complete story line. I believe in these last couple of years the new base is built and the story is now ready to take-off and therefore, deserves a very close attention. One should also look at the recently uploaded investors presentation. For a micro-cap this company has a fairly responsive investors relation and therefore, one should take full advantage of it to clarify any doubts.
One resource I particularly found helpful in analyzing this company is this Care Ratings Document.
God Bless !!!
Disclaimer: It is safe to assume that I may have some vested interests in the stock. Also, the above stock story is my personal view in individual capacity. For rest, please look at the About page.