Despite having an industry-leading revenue growth, Sonata Software incurred losses due to an one-time exceptional hit in the third quarter, said CFO Jagannathan Chakravarthi Narasimhan.
Facing a contingent consideration related to its recent acquisitions, Sonata Software this week reported a net loss of Rs 46 crore in the December quarter of FY24. In the September quarter, the IT firm reported a net income of Rs 124 crore. This was despite its Q3 revenue increasing by 30% quarter on quarter (QoQ) to Rs 2,493 crore.
Explaining the loss, Narsimhan said, “We have acquired two companies – Quant and Encore. Both, after their first year, have outperformed their original targeted growth by a substantial value. Hence, we have to make additional payout to these companies.”
He added, “When we acquired Quant, it had an EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization) multiple of 11. Now it has come down to six, which is almost half. From a CFO’s perspective, it gives a very solid return on investment (ROI). Their EBITDA margin went up 60% more than the target.”
Because Quant has overachieved its target, Sonata now has to restate for next year also, as per the accounting standard, added Narsimhan.
“So the extra $17 million of payout, we have to route through the P&L statement, because the capitalisation is over.”
Similarly, Encore in its three-year performance has achieved at least 100% more EBITDA than what was targeted. “So this will also be routed through P&L. We took an exceptional one-time hit of $21 million. That was the reason behind the loss we have reported. Otherwise, we are quite profitable and revenue growth has been industry-leading.”
Sonata’s international business is IT service, whereas its Indian (domestic) product and service business is a trading business. Sonata Software posted a revenue of Rs 697 crore from its international IT business in the third quarter. Its international IT business revenue was Rs 670 crore in September quarter.
