Ramco Systems Q1 FY26: Can rising recurring revenue protect margins in a competitive SaaS market?

Ramco Systems Limited (BSE: 532370, NSE: RAMCOSYS) entered the first quarter of FY26 with recurring revenue accounting for more than half of its total income, providing a degree of stability at a time when margins are under watch. The enterprise software provider reported recurring revenue of USD 11.08 million (₹94.3 crore) for the quarter ended June 30, 2025, including backlog billing, compared to total consolidated income of USD 19.36 million (₹164.8 crore).

This revenue composition reflects a strategy that prioritises predictable, subscription-based income streams over one-off licence sales — an approach increasingly favoured in the global SaaS market as a hedge against demand fluctuations and pricing pressure.

How does recurring revenue influence Ramco Systems’ Q1 FY26 performance?

Ramco’s recurring revenue base stems from multi-year SaaS contracts, managed services, and support agreements across its payroll, ERP, and aviation MRO segments. By locking in these longer-term contracts, the company gains visibility on cash flows and can smooth revenue recognition across quarters.

In Q1 FY26, this recurring component proved significant in offsetting the sequential drop in EBITDA from USD 5.21 million in Q4 FY25 to USD 3.83 million. While the decline was largely due to one-off provision reversals in the prior quarter, the steady annuity base helped cushion the impact on operating performance.

How does Ramco’s recurring revenue mix compare with SaaS sector norms?

Globally, healthy SaaS companies typically generate 60–80% of their revenue from recurring sources, a benchmark that mid-cap players in India often struggle to reach due to reliance on project-based deals. Ramco’s recurring revenue share for Q1 FY26 stands at approximately 57%, placing it near the lower end of that optimal range but still above many domestic ERP and payroll peers.

This is particularly relevant for investors, as a higher proportion of recurring income can lead to better valuation multiples in the market, given the predictability and lower volatility of such earnings.

What client segments are driving recurring revenue growth?

The recurring revenue engine was fuelled by several major multi-country payroll transformation contracts. A multinational technology firm engaged Ramco to manage payroll for over 1,500 employees in Australia and New Zealand, while a global online food delivery platform signed on for payroll consolidation across eight Asian countries covering 4,200+ employees.

In aviation, a leading MRO services provider adopted Ramco Aviation Software for operations and materials management, which includes ongoing licence and support fees. Logistics is another contributor, with a large Asia-Pacific fleet operator choosing Ramco for its enterprise asset management and fleet systems — again structured as long-term engagements.

The company also went live with Ramco Payce at Air Niugini, Papua New Guinea’s national airline, enabling payroll transformation for more than 2,000 employees across four countries — a deployment that will now generate recurring service income.

Why is recurring revenue seen as a margin stabiliser in the SaaS industry?

In the SaaS business model, recurring revenue creates a baseline of gross margin that can cover a significant portion of fixed operating costs. This allows companies to scale more efficiently and absorb temporary cost spikes or revenue delays without severe earnings volatility.

For Ramco, the USD 11.08 million recurring revenue figure in Q1 FY26 effectively underwrote more than half of the quarter’s total income. This gives the company operational breathing room to invest in sales, R&D, and delivery capacity without relying solely on unpredictable project inflows.

What are the risks to sustaining or expanding the recurring revenue share?

While recurring revenue is inherently more stable, it is not immune to client churn, contract renegotiations, or competitive displacement. In high-pressure sectors like payroll outsourcing, large multinationals often run competitive tenders at renewal, which can result in price compression.

Another risk lies in implementation delays for large deals, which can push back the start of recurring billing. This makes on-time delivery and client satisfaction critical to converting the USD 168.55 million unexecuted order book into steady subscription income.

What is the outlook for Ramco Systems’ recurring revenue in FY26?

The company’s order pipeline suggests that recurring revenue could trend higher in the coming quarters. Multi-year aviation MRO contracts and regional payroll rollouts in Asia-Pacific are expected to contribute incrementally as they move from implementation to steady-state billing.

Management has also indicated a focus on operational efficiency and scaling product capabilities, which may enhance client retention and cross-selling opportunities — two levers that can grow the recurring base without significant new client acquisition costs.

Why Ramco Systems’ growing recurring revenue base could shape investor returns in FY26

For long-term investors, Ramco Systems’ Q1 FY26 results reinforce the strategic importance of recurring income in balancing growth with financial stability. While the current 57% share leaves room for improvement toward global SaaS norms, the trajectory is positive and supported by a healthy backlog.

Short-term traders may not price in this stability immediately, focusing instead on margin movements and headline deal wins. However, for medium- to long-term holders, a rising recurring revenue mix can provide a measure of downside protection in volatile market conditions.