Sonata Software: IT services show a strong momentum

MUMBAI: Bengaluru based Sonata Software, a small cap IT services and products selling company, reported a strong sequential jump in IT services during the December 2013 quarter in line with some of its medium and large peers. However, the lumpy nature of the revenue from its products division impacted the overall performance of the company.

Revenue of IT services division that caters to clients in the US, Europe, and Asia rose by 7% sequentially to Rs 127.7 crore following a sustained momentum in the deal pipeline. Operating profit before depreciation (EBITDA) shot up significantly by 31% to Rs 25.8 crore reflecting a tight cost control. This helped the operating margin to rise to 20% from 16% in the previous quarter.

"We controlled overheads in terms of delivery costs and selling, general and administrative expenses. Also, as the topline increased, we were able to take advantage of sales efforts better," CFO N Venkatraman told ET.

The company's products division reported a sharp sequential fall of 14% in revenue at Rs 261.6 crore during the quarter. As a result, consolidated revenue fell by 9% to Rs 387.1 crore. Consolidate EBITDA, however, rose by 25% to Rs 32.6 crore given the sharp increase in the profit of the IT services division, which contributes over 75% of the total EBITDA.

The company has reported a sharp turnaround in IT services division in the current fiscal so far. During the first nine months, its revenue rose by 41% to Rs 349.6 crore. It exceeded the FY13 divisional revenue of Rs 335.4 crore.

"Our core verticals including retail, and travel are growing fast as we have started mining existing clients more effectively across new technologies including cloud and mobility," said Venkatraman.

The company has cash and equivalents of Rs 194 crore. It is considering options to deploy some of it to acquire skills to strengthen its core verticals through acquisitions.