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Sonata : Unimpressive performance - Views on News from Equitymaster
 
 
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  • Apr 18, 2001

    Sonata : Unimpressive performance

    Sonata Software Limited (SSL) hived off its Indian operations to its wholly owned subsidiary Sonata Information Technologies Limited (SITL). SITL came into existence from the 1st of July 2001. The SSL figures for FY01 are not comparable to FY00 figures, as the figures for FY00 pertain to both international and Indian operations.

      SSL Combined  
    (Rs m) FY00 FY01 Change
    Sales 1,743 2,259 29.6%
    Other Income 18 37 101.2%
    Expenditure 1,473 1,895 28.7%
    Operating Profit (EBDIT) 271 363 34.2%
    Operating Profit Margin (%) 15.5% 16.1%  
    Interest 4 3 -27.6%
    Depreciation 33 37 12.0%
    Profit before Tax 252 361 43.0%
    Tax 18 16 -14.3%
    Profit after Tax/(Loss) 234 345 47.4%
    Net profit margin (%) 13.4% 15.3%  

    For comparison of combined business of both the companies the figures of FY00 for SSL have been compared with the combined figures of SSL and SITL for FY01. SITL has recorded a Quarter on Quarter (QoQ) growth of 3.6% in topline and 27% in net profits. However, SSL has again for the second consequtive quarter recorded a sequential drop in sales by 13%. The net profit figure too has slipped by about 1%.

    SSL has managed to improve operating margins significantly in 4QFY01 compared to 3QFY01. However, due to lower margins of SITL the operating margins for the combined entity is a dismal 16% for the quarter. The margins for SITL are low due to purchase of traded items, which amount to 88% of the revenues in the 4QFY01

    (Rs m) 3QFY01 4QFY01 Change
    Sales 635.8 611.1 -3.9%
    Other Income 9.9 5.6 -43.2%
    Expenditure 545.0 514.3 -5.6%
    Operating Profit (EBDIT) 90.8 96.8 6.5%
    Operating Profit Margin (%) 14.3% 15.8%  
    Interest 0.4 1.5 276.9%
    Depreciation 9.2 8.7 -5.2%
    Profit before Tax 91.1 92.2 1.1%
    Tax 4.2 4.8 14.3%
    Profit after Tax/(Loss) 86.9 87.4 0.5%
    Net profit margin (%) 13.7% 14.3%  
    Diluted number of shares 160.0 160.0  
    Diluted Earnings per share* 2.2 2.2 0.5%
    *(annualised)
    Combined numbers for SSL and SITL

    For FY01 the company has clocked a 36% growth in international sales. The domestic sales have grown by 24%. The combined growth in topline is 30%. In the international business the company has managed to improve operating margins significantly. However, the operating margins for SITL are quite low compared to industry standards.

    The staff costs for SITL are 4% of revenues while the other operating expenses amount to 10% of the revenues. The expense that is causing the operating margins to be low is the purchase of traded items. On the other hand SSL has staff costs at 18% of revenues and other operating expenses at 43% of revenues.

      SSL   SITL Combined
    (Rs m) FY00 FY01 Change 4QFY01 4QFY01
    Sales 1,744 1,254 -28.1% 1,005 2,259
    Other Income 18 35 93.2% 1 37
    Expenditure 1,473 911 -38.1% 985 1,895
    Operating Margin(EBDIT) 271 343 26.4% 20 363
    Operating Margin (%) 15.6% 27.4%   2.0% 16.1%
    Interest 4 1 -78.0% 2 3
    Depreciation 33 35 7.1% 2 37
    Profit before Tax 253 342 35.5% 18 361
    Tax 18 9 -50.1% 7 16
    Profit after Tax/(Loss) 235 333 42.1% 12 345
    Net profit margin (%) 13.5% 26.6%   1.2% 15.3%
    Diluted number of shares 100 100   60 100
    Diluted Earnings per share* 2.3 3.3 42.1% 1 14
    *(annualised)          
    P/E (X)   2      

    According to the company the slow down in US economy has impacted the IT budgets of its customers, though to varying degrees. To effectively cope the situation, the company plans to focus on health care sector in the US as well as increasing it's focus and investment in marketing in Europe.

    At the current market price of Rs 25, the stock is trading at a P/E multiple of 2 time its FY01 earnings.

     

     

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