Sonata to step up investments to support growth amidst currency fluctuations

The stock of Sonata Software, a Bangalore based small tier information technology company, has fallen by 22% to Rs 140.8 from its peak of Rs 188 reached on 8 April 2015. The drop is sharper than the 6% fall in the S&P BSE Information Technology index.

The stock’s poor performance reflects the adverse impact of the currency fluctuations on the company’s financial performance during the March 2015 quarter. The company’s MD and CEO P Srikar Reddy told ET that barring the currency headwind, the company has increased investments to stay on course to post a consistent long term growth.

The company offers product engineering and enterprise services to international clients and technology infrastructure related products and services to the Indian customers. The international division contributes 90% to the total revenue.

After posting over two and half times return between June 2014 and April 2015, the stock lost some of the gains after the company reported a fall in sales and profits for the March 2015 quarter. Consolidated revenue fell by 16% to Rs 392.7 crore compared with the previous quarter while net profit dropped by 2% to Rs 34.8 crore. A slowdown in the domestic products and services business and the unfavourable currency movements impacted the performance.

“We incurred forex loss of Rs 4 crore in the March 2015 quarter due to loss on receivables from the European business,” Reddy told ET. He pointed out that the dollar denominated revenue increased by 3.6% sequentially during the quarter.

The company’s employee utilisation remained at 85% for the third straight quarter, reflecting the need to invest more in people and processes. “We have identified investments in areas including sales, technology delivery and solutions development.” Said Reddy. He expects to spend over Rs 13 crore in these areas during FY16 compared with Rs 9 crore during FY15.

Though the company does not give any performance guidance, Reddy said that macro demand picture looks stable at the moment and the company is in a position to report healthy growth this fiscal.