THE INDEX: Low key

Sonata Software: Gradually moving downhill

RESULTS of Sonata Software were not different from what was expected. The company, like most of the other second rung software companies, has reported a modest growth of 30 per cent in its total income to Rs 226 crore for the year ended March 31, 2001. The figures of income and profit include the respective figures of its wholly owned subsidiary Sonata Information Technology Limited, which was spun off into a separate company with effect from July, 1 2001.

Sonata is both a product and a service company and derives revenue in the ratio of around 40:60 from these two areas. While most IT companies have seen a sharp fall in their revenues and operating profits, Sonata has been witnessing a steady decline. The total income in the last three financial years has risen by 50, 40 and 30 per cent respectively.

The recession, which has hit the US economy, will have a huge impact on the company’s fortunes since it derives more than 65 per cent of its export revenues from this market.

There will also be competition from larger firms, which will allocate their manpower to smaller businesses not done by them previously, thereby leading to a sharp reduction in operating margins.

A slide in profits is already visible with the operating profit growing only at 43 per cent to Rs 40 crore as compared to 64 per cent registered in the previous year. Net profit has also witnessed a sharp fall in growth and went up only 47 per cent to Rs 34 crore as compared to 140 per cent in the previous year.

A reduction in IT spending in most of the developed countries would definitely take its toll on the software companies in India and Sonata is no exception to it.

Otis Elevator (India)
The slow pace of construction activities may be the reason behind the lacklustre showing of Otis during the quarter to March 2001. All the same, the company has managed to hold on to its leadership position in the highly competitive Indian elevator market with a market share of 60 per cent plus.

Topline for the quarter slid down by 44.3 per cent to Rs 44.3 crore. The sales figure comparison may look misleading because of high work-in-progress(WIP) worth Rs 20 crore in the current quarter as compared to less than Rs 1 crore. This could indicate that higher value jobs were nearing completion, which may make sales spurt in the next quarter.

Cost cutting efforts saw the operating profit dip only 29.7 per cent to Rs 8 crore. Improvement in OPM from 14.3 per cent to 18.1 per cent bears testimony to the cost cutting initiatives. VRS is one such initiative from which the company could expect savings in the future.

Being a cash-rich company, the outgo on account of interest has been zero for quite some time. Minor increase in depreciation was negated by a slightly higher depreciation.

However, the average tax rate shot up to 32 per cent from 8 per cent, which has eaten away the profit along with the VRS amount of Rs 2.9 crore. Net profit after extraordinary items stood at Rs 2.3 crore, showing a sharp fall of more than 63 per cent. On a low equity base, that too largely made up of bonus issues, this profit translates into an annualised EPS of more than Rs 8.

The company is coming out with more innovative products to maintain its numero uno position. Its manufacturing plant at Bangalore offers cost-effective and high quality products in the premium segment. After the acquisition of the stake from Mahindra group promoters, the Otis Elevator Company, USA is keen on quicker transfer of cutting-edge technology to its Indian entity.

Otis is focussing on a strategy to build up service as an individual brand under the name of “Otis Care” and leverage existing strengths and expertise.

Prashant Kothari & Manish Joshi