Sonata Software: Wide Repertoire, Yet Dormant

Formed as a division of Indian Organic Chemicals (IOCL) in 1986, Sonata

Software was spun off as an independent software company in 1994. The company

went public with an issue of 25,22,000 equity shares of Rs. 10 each at a premium

of Rs. 80 per share in December 1998. The current face value is Rs. 1 per share

and the company trades at Rs. 14 per share.

Sonata Software started operations with four divisions namely software

products, software development, business solutions and consulting services. In

software products, the company was mainly into distribution and implementation

of packaged software and had tie-ups with Microsoft, SCO, Lotus, IBM, Computer

Associates and Oracle. The product division was hived off as a subsidiary in

June 2000 as Sonata Information Technology. Currently Sonata Software provides

IT consulting, development services in the area of Internet, ERP customization

conversion, migration, data warehousing and e-commerce. In the vertical areas,

Sonata’s focus is on financial services, banking, insurance, healthcare,

logistics & software product companies.

Sonata’s results for the past two quarters have been disappointing due to

the slowdown in the US and the subsequent terrorist attacks. This is evident

from only one client addition in the third quarter ended December 2001 as

against 11 clients added in the first half ended September 2001. Sonata reported

revenues of Rs. 16.85 crore and net profit of Rs. 1.56 crore in the quarter

ended December 2001, which were down by 27% and 75% over the immediate previous

quarter. Its consolidated revenues, including that of all its subsidiaries,

stood at Rs. 48.97crore whereas the net profit stood at Rs. 2.79 crore. These

were lower by 14% and 59% respectively over the immediate previous quarter.

Sonata trades at Rs 14 discounting the projected March 2001 EPS by 8 times

and March 2002 EPS by 14 times. Sonata’s performance was affected due to its

inability to acquire clients following the slowdown. In the current scenario, we

believe that marketing of services would be a major challenge for the mid-league

companies considering the pressures faced by even the IT majors such as Infosys

and Wipro. Margins and sales growth for such companies will remain under severe

pressure. Consequently, we do not see major improvement in the stock price of

Sonata. Under Performer.

Sushanto Mitra is the founder

of Technology Capital Partners

The views reflected here are of the author and not of this publication. No

liability is accepted for losses based on the information presented here