Sonata Software provided the music to investors' ears as its PAT y-o-y rose 55%.

The scrip of the software services and products company jumped 4% to Rs 18.80 on BSE in morning trades on Monday. It hit a high of Rs 20, earlier. Around 237,000 Sonata Software shares were traded on BSE so far.

The scrip had surged 60% from a low of Rs 12.60 on 7 October 2002 to Rs 20.20 on 2 December 2002. It pared some those gains to reach Rs 16.35 on 13 January 2003. Subsequently, it gained (ahead of the results) to settle at Rs 18.05 on 17 January 2003.

On a sequential basis, Sonata posted a 10% rise in sales to Rs 69.41 crore on a consolidated basis. However, this good top line growth was largely due to the products business, which recorded a 14% sequential rise in sales to Rs 43.63 crore. On the other hand, the sequential rise in the services business was just 3% to Rs 25.78 crore. On a year-on-year basis, Sonata posted a 47% growth in sales aided by a 105% increase in products but 1% fall in services.

However, the Q3 performance was marked by pressures on operating margins leading to 3% sequential fall in operating profit. It was the rise in other income and fall in tax provision, which boosted the bottom line growth. Moreover, the core business of services recorded a huge fall of 8% sequentially in OP due to pressure on margins. The pressure on margins may be due to increases in staff costs and legal, professional & technical fees as well as change in the offshore/onsite mix. The profit after tax surged 19% sequentially to Rs 4.33 crore. On a year-on-year basis, PAT surged 55%.

Sonata has two major segments namely - services and products. While the services business was affected in Q3 mainly due to slowdown in the US, the products business has been a drag on the company due to its poor margins.

In Q3, Sonata added 5 (5) new clients. The US contributed 54.45% (55%) of total exports, while Europe's share was at 44.21% (43%) and Rest of the World at 1.34% (2%).

During the quarter ended 31 December 2002, there was substantial drop in offshore revenues, which were down to 62.88% (from 67% in the quarter ended 30 September 2002). On the other hand, on-site increased to 37.12% (33%). This is another reason for the severe pressure on the margins during this quarter.

Sonata has provided a guidance for consolidated revenues of Rs 260-280 crore (Rs 2.6-Rs 2.8 billion) and profit after tax of Rs 16-18 crore for full year FY 2003. This is against consolidated revenues of Rs 193.3 crore (Rs 1.93 billion) and profit after tax of Rs 11.3 crore in the first nine months of the year,

At the current Rs 18.80, the scrip trades at a PE multiple of 12.3 based on its projected full year FY 2002-03 EPS of Rs 1.52 (lower range of the projected EPS of between Rs 1.52-1.71 based on projected PAT of Rs 16-18 crore for the year).

Sonata is a SEI - CMM Level 5 software company. The promoters hold 45.26% in Sonata as on 31 December 2002 (same as on 30 September 2002).