Sonata Software A Turnaround Story

I have recently invested in Sonata Software a very old IT company due to

  1. Change in management from Ghias of Futura Polyester to Rajan Raheja who earlier having minority stake in the company are now firmly in command with maximum stake.

  2. Rajan Rajeja group is cash rich v old group owning reputed cos like Exide,Prism Cement, Johnson Tiles ,Globus Store, Outlook magazine which had the guts to print Radia tapes for the first time any media group exposed the rot in the country touch an extent.

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  1. New CEO srikar reddy who has performed v well after taking over in 2012 just see the last few qtr results

  2. reasonable valuation with eps expected to be in 10-12 Rs in Fy 15 based on q1 result

  3. Div yield of 5-6 % atleast as co wil be announcing a special interim dividend on 8 September 2014

  4. New sales team of 125 recruited recently with quality names from Infosys,HUL and other reputed organisation amongst employee strength of 3200 people which has resulted in much improved performance

  5. ROCE of 31% with zero debt and 250 crores in cash lying on books

  6. huge opportunity size in IT vs mkt cap of only 1100 OD crores against a sales of 1500 Crores

  7. co policy of 50% payout will ensure a healthy div yield so treat the co as a FD with 8-9% int with little down side n huge upside due to capital appreciation

  8. excellent board of advisors with reputed names like Jnan Dash ex Oracle,mr Desu,Mr Wadhwa ex Cisco India chief for 15 years,mr p wilkinson Retail expert

  9. focus on travel,logistic ,retail n CPU vertical where competition intensity is less

  10. Hemendra Kothari has take a 10% stake in company .some other reputed names are also showing interest

  11. as it crossed the threshold of 1000 cr mkt cap lot of instl interest n analyst coverage will come in

All in all a classic turnaround which can give multibagger returns IMHO.

  1. even India business which is mainly a product distribution business generates a RONW of 36% as it seems a volume game with only 100 employees n little capital invested but generates a revenue of 1000 cr

  2. Recent focus has been on International IT services side which has resulted in max profit growth n recent turnaround

  3. Risks include Currency , some key people leaving, small size of the company n ongoing cases with IT n other govt departments.

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Vivek you have a very good understanding of stocks which you track…its quite commendable be it Avanti Feeds/Kaveri/Mayur/Aurobindo…I really appreciate your views…

wanted to ask you few things regarding Sonataa…if you are working in IT industry could you please tell us few things

a) How does Sonata differentiates in its businesses n revenue concentration when we compare it with other mid cap IT

b) Seriousness of ongoing cases of IT n other government departments…

c)Revenue concentration in key markets (India V/s Rest of world)

What impressed me is its Valuation multiples which really makes me go deep into it…

and what made me negative was its 3 Year CAGR SALES and Profit figures…

The stock had a phenomenal run up 321 % up in last 1 year…

I am quite bullish on Mindtree and I have missed the bus in Rs Software n Persistent…

Just feel if this company i.e Sonata is a turnaround story then we should dig deeper and try to find out all the details…

Definitely some of the factors pointed out by you makes you interested in resarching more…



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Sonata is a real turnaround story under new CEO n a progressive cash rich ethical business house the very first criteria I always look for. Let’s forget the past of Sonata where it used to be a laid back stodgy co under lethargic promoters Ghias.

Secondly look at the opportunity size which is huge for quality IT cos. IT is nothing but a play on demographic dividend of India where college education nsalary structure is a fraction of ROW . Now scale n experience in execution of complex projects exists mostly in India.

Look at valuation,PE ,div yield, zero debt ,ROCE Sonata is doing something right under new CEO , management n board of advisors. Let’s track this co more closely n stay invested .

The enclosed concall transcript wil answer lot of queries of wannabe investors .

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Thanks are due to prodigal Sagar Saxena n Sachin Gupta both classy stock pickers VP is lucky to have for prodding me on to Sonata.

This is the beauty of sharing .

From AR 2012–>

During the year, Mr B Ramaswamy, President and Managing Director resigned from the services of the Company on16th August, 2011. Mr Sanjay Viswanathan was inducted as anAdditional Director and designated as Managing Director & CeOwith effect from 17th August, 2011. Subsequently, at the meetingof the Board of Directors held on 14th February, 2012 citingpersonal reasons Mr Sanjay Viswanathan resigned. The Board of

Directors at the same meeting appointed Mr P Srikar Reddy whowas then the Deputy Managing Director & COO as the ManagingDirector & CeO with immediate effect, subject to approval of the shareholders

Why two resignations in a single year? Ramaswamy used to hold 27.85 lakhs shares and Raheja 57.05 lakhs. After this year, no mention of Ramaswamy and Raheja’s shares have gone up to 82 lakhs. Did Ramaswamy sold to Raheja? What happened? Srikar Reddy is old hand in Sonata, what different they r doing now?

Pradip Shah founder of CRISIL is the chairman of board.

Expanded services footprint within Top 10 accounts

Won 21 new customers including Fortune 100

customers in focus verticals

Added a new Development Center in US

Partnered MEEZA for serving Middle East and North

Africa (MENA) region

Added a new office in Australia

Adjudged aCloud partner of the Year 2014a

by Microsoft

Advisory board, comprising of global thought

leaders, formed to stay abreast on technology

trends, market opportunities and industry

specific solution

Launched a Mobile App for INTACH, for

Bangalore’s Heritage Sites


Key Financials ( crores) ` FY14 FY13* FY12*

Net Sales 1,566 1,311 1,069

EBITDA 110 57 35

PAT 78 30 11

Net Worth 374 342 375

Debt 6 17 41

Debtors 208 141 113

Cash 245 157 120

Per Share Ratio,

EPS 7.4 2.9 1.0

DPS 3.7 1.7 0.7

BVPS 35.6 32.5 35.6

Margin Ratios (%)

EBITDA Margin 7.0 4.3 3.3

Net Profit Margin 5.0 2.3 1.0

RoE 21.8 8.4 2.8

RoCE 21.8 9.3 4.0


  • FY 12 & 13 re-casted numbers are for continuing operations excluding results of TUI In

Sonata Software acquires California based travel SAAS company Rezopia Inc along with Xyka Software, the primary service provider to Rezopia’s platform. Xyka’s 75 member team will join Sonata and it is a company I was associated with, at the beginning of my career.

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Many thanks for posting. Could you please highlight on opportunity size ,promoters, business profitability and execution track record of Xyka and Rezopia? Since you are from the same field what’s your take on Sonata and it’s future potential?

Any inputs from your end will be really welcome as this is what differentiates VP.


Link: Link:

Read the concall transcript and the deal links given above, i think there can be a good story in the making. I m trying to meet some contacts who can throw more light on this. One word of advice, i think we should not go by the revenues, basically P/Sales ratio as revenues are bumped off because of products business. They buy some products, do some configuration and sell them, nothing great about it. Its like buying cane and making sugar in a very crude form, so MCap/Sales metric shouldn’t be used here.

Will keep on checking and updating, thnx

Key concall takeaways:

  1. The management sounded upbeat & answered the questions professionally…no big-bang promises.The tone was on the conservative side.
  2. 20% EBITDA margins are the floor & the company would like to protect those margins in any case.
  3. A lot of investments were made in the past 3-4 years over marketing team,alliance partners,basket of offerings,geographies & capabilities.All these are paying off now.
  4. The focus on the Domestic biz. front will be to reduce DSO to 40 days,improve RoCE & EBITDA margins.
  5. There is higher attrition in the later years,management is trying its best to retain talent & reduce attrition rates.
  6. The company has 20-30 loyal customers,having long standing realtions with them.
  7. Internally,the company keeps track of how much value it has added for the client.This is done by a metric,monthly(no clarity on the process of ‘valuing’)
  8. They have entered Retail recently,& expect good traction.They also have expertise in a few niche areas and are looking to attain global leadership in them,in the coming years.
  9. The company will look to grow inorganically & organically.They are on the lookout for an acquisition that is value-acrretive.
  10. Alliances with Microsoft,SAP are strengthening.
  11. SMAC is a new focus area & the co. is investing more in that space.Digital commerce,mid level analystics are key areas,targetted.
  12. Big orders in ‘Digital’ are flowing in.
  13. Client wins are becoming swifter.The co. has also weeded out some loss making accounts & wishes to continue this momentum.
  14. The QoQ growth is sustainable.Q1 margins were aided by better utilisation rates & better billing rates.
  15. 85% of revenues come from accounts that are more than 5 year old.
  16. Utilsation rate is 83% for Q1.Before Forex,the EBITDA margins would have been 23%.
  17. In Q1,1 Million Dollar client was added.
  18. Australia is a market that the company is keen on.

All in all,the growth outlook for the company looks promising.With a high dividend yield(inspite of the run-up),one has a decent margin of safety around 90-95 levels.Seems like an MPS type of story,with better growth rates.Another thing to note is,that very few IT cos. of Sonata’s size,are able to manage such high margins.This speaks volumes about the capabilities of the company & the verticals it operates in.

Disc.: Invested.



To start with, apologies for the delay in responding. I was trying to find some contacts who could fill in with details. As it is with small IT companies, everybody I know seems to have left the company for greener pastures.

While Xyka was involved in developing websites for 3rd parties including travel related ones during my times, it got into working on its own product for the travel industry long after I left the company. The company (both Xyka and Rezopia) is managed by Indian origin technocrats settled in California with most of the 75 employees based in Bangalore. The management are hands-on, technically strong, first generation entrepreneurs. And the one thing that I can vouch for is that I found the development team extremely hard working and technically brilliant. Something that I found to be a little lesser on both counts in one of the biggest IT service companies that I moved on to later! :slight_smile:

Rezopia is a cloud based service where tour operators/hotels/tourist attractions etc can move their operation online without a big initial investment to start with. Even though it has won some prestigious world travel awards, it is difficult for a product backed by a small company to rise beyond small deals. With Sonata in the picture, it may give potential customers more confidence to move their operations to Rezopia.

Not much insights into Sonata yet or about the industry potential. Will get back if I get any more info.


Thanks Tolaha for the useful inputs.

Do post whatever you can find about Sonata . Seems that have appointed a reputed Autralian retail expert amongst their board of advisors Mr Peter Wilkinson and have also won 4 orders last quarter from Australia only where they opened a office recently.

Hdfc Sec research head Dipen was sounding very bullish on Sonata post recent changes from a 2 year POV .

IT services company Sonata Software has acquired a controlling stake in Rezopia, a cloud-based travel management platform. The terms of the deal were not announced. However, president of Rezopia, Nirav Chhatrapati told Tnooz that the acquisition stake is in the range of 50%-60%.

Rezopia is a cloud-based platform that enables travel companies to manage their end-to-end reservation process, contracts, operations, and distribution systems. CEO of Sonata, Srikar Reddy, says: aWe believe the Rezopia Platform combined with its strong management team and travel domain specialists will further strengthen our competitive position in the travel vertical.a

Chhatrapati comments about the value Rezopia adds to Sonata Software: aSonata was primarily building bespoke custom solutions for clients before. With Rezopia, Sonata now has access to a next generation travel ERP software with proven success in the wholesaler and rail business.This acquisition will enable Sonata stay ahead of the curve in offering its customers the flexibility and innovation that a combination of next-gen platform based IT offerings and mainstream IT services can bring.a Rezopiaas customers include Queensland Rail (replaced a large GDS provider with its own rail reservation platform),DiscoverBranson, and Resortime.

CEO of Rezopia, Rakesh Hegde, says: aI am proud of the accomplishments of my team. Even with bootstrap funding, we have been able to replace large incumbent legacy system providers with our technology. With this deal we look forward to scaling and taking the Rezopia product to even greater heights.a Also, Sonata Software has fully acquired XYKA (owned by the same founders of Rezopia), the primary IT services company to Rezopia. XYKA is a well known travel tech services company in India with customers including STA Travel, Houseoftours, Adventurelink, and Blueskytours.

Sonata Software is a listed company on the Indian stock exchange and has over 2,600 employees worldwide. Following completion of the deal, Rezopia and XYKAas 75-member team will join Sonata Software.

NB:Disclosure a the author worked at Rezopia during 2011.


Awesome inputs Tolaha. I think Sonata is taking the right steps but we need some inputs from people working there, u have any contacts. I to am trying to reach, so far my efforts haven’t been fruitful.

I have just gone through the 2014 AR . It has 150 crore contingent liabilities (Page 44)

a) Guarantee – 5 crores (No issue as it is product guarantee)

b)Legal notice from ex employee - 2.2 crores

c)Disputed demand of service tax -6.8 crores

d)Disputed demand of income tax -141 crores

Is it a negative or can we ignotr it

d)Disputed demand of income tax -141 crores–> i guess some amount has already been paid by them, case is ongoing.

Hi Srinivas,

Please have a look at page 87 of AR 13-14, total tax dispute is 253 crores. Attaching pic for the same.