Sonata Software posted a 14.8 percent rise in its third quarter consolidated net profit at Rs 35.7 crore against Rs 31.1 crore on a sequential basis. The company’s total income was up 15.2 percent at Rs 467 crore versus Rs 405.5 crore and EBITDA rose 10.5 percent to Rs 45 crore against Rs 41 crore. The operating margin however was down at 9.7 percent versus 10.1 percent.
Discussing the details, N Venkatraman, CFO, Sonata Software, said margins in the services business have risen to 25 percent while that of products business increased to 4 percent from 2 percent.
Venkatraman says the key reason for improvement in margins is better pricing. He sees some gains from forex fluctuations going ahead and believes to maintain margins in the range of 20-24 percent. Acquisitions are beginning to show a positive impact, he adds.
Below is the transcript of N Venkatraman's interview with Sumaira Abidi & Sonia Shenoy on CNBC-TV18.Sumaira: While the bottom line looks good, operationally you all have done margins of under 10 percent. Now in Q2 over 5 quarters previously you all had managed to scale up your margins to above that 10 percent mark any reason why we have seen the dip this quarter and how easy and how soon can you scale it back to those highs?A: Our margins are a combination of two businesses, it would not be right to see it has a consolidated margin. There are two elements to our business one is the services business where are margins on the EBITDA side are about 25 percent. The second business is the products business is where we have done EBITDA margins of about 4 percent. Now on the 25 percent international services we are top of the pack and we continue to maintain those over last three or four quarters, it is improved substantially from the start of the year or start of last year where we were at about 14 percent. As far as the product business is concerned the EBITDA was some where around two percent. It is slowly over the last 8-9 quarters has inched to about 4 percent and so it would be right to say that margins have improved as a percentage to sail over the last multiple quarters.
Sonia: This 25 percent margins on services business looks very good is this something that you can sustain through the course of FY16?A: Through what we have been saying in the past is, we need to invest a lot more in this business in terms of pre sales and capability building. We are undertaking quite a bit of those investments during the current year. We have done some bit of it last year as well. The sustainable margins as I have being saying in the past as well as in the range of something between 22-24 percent. There has been a couple of percentage points benefit to us in terms of forex this quarter we have got about a gain of Rs 2.50 crore given the way we have covered our forex for the next one year yes we expect some bit of upsides in terms of foreign currency fluctuations. That said we are saying something between 22-24 is something that we would like to sustain on an operating basis. Sumaira: What are the kinds of pricing trends you all have seen in Q3 and going forward what do you hope to see in the rest of FY15 and FY16?A: One key reason for our improvement in margins has been the improvement in pricing. We were sub 20 earlier about 8-9 quarters back. Today we are in the middle 20’s between 20-30 so that is where we have moved to and this has been because of a consistent focus on the services that we have been providing. We are focused service providers in the areas of e-commerce, social mobility and DRP. So that is been an upside to us in terms of rate. So we would like to retain the current rates on an offshore at about between USD 20-30. We are not seeing any substantial change to that in the next 4 quarters.
Sonia: You recently acquired stake in some companies that is US based Rezopia and Xyka as well. Did these two acquisitions have any contribution in this quarter and can you give us the estimate of what the contribution could be in the quarters to come?A: From business perspective the two companies that we have acquired or the significant stake that we have acquired has really added to our capabilities I should say. These are companies which are involved in the travel vertical. They have a travel platform which can be used by companies to go online so it fitbit very well in to the focus vertical of travel that we have.They had a run rate of 1.8-2 million when we took this equity stake in the company so that part of the revenue was there in the last quarter as well and some bit of that is there in this quarter. It is not made a significant change or rather it is not been material to our numbers. From a business perspective it is beginning to show impact because we are able to take this platform and this solution to all of the other travel customers that we have. Sumaira: You have added only one new customer in this quarter. Can you give us a sense of what is the kind of order size this new client could bring and would things look more optimistic in 2015?A: We are relatively optimistic already to start with. Customer addition is not something that we would like to plan and have everything happen in a particular quarter or divide it equally between quarters. What happens is the contract negotiation takes a certain element of time and then it gets signed off at some point in time. This quarter we had one sign off. We do not disclose the size but to start it is a marquee name and it is something we would like to build on going forward the customer that we have acquired during the quarter.
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