Sunday, December 18, 2011

Sonata Software : A value buy or a value trap?

Sonata software was founded in the year 1986. The company is in the business of providing IT consulting and software services.

The average ROCE of the company on consolidated basis over the last five years is 26%. On a consolidated basis, the company has debt of INR 30.76 crore while the net current assets stood at INR 246.95 crore. The cash flow of the company over the last five years has been positive. The turnover of the company has risen from INR 511 crore in FY06 to INR 1411 crore in FY11, i.e. 22.52% compounded annually. The profit after tax of the company has risen from INR 28 crore in FY06 to INR 86 crore in FY11, i.e. 25.16% compounded annually. The company's total income declined in FY10 to INR 1393 crore from INR 1602 crore in FY09. The profit after tax of the company never declined in the last seven years.

The promoter holding of the company has decreased from 45.35% in September 2006 to 43.29% in September 2011. Also the promoters have pledged a part of their holding. This is a big negative for the company.

Mutual Fund Holding
Some of the UTI schemes hold this company.

The book value of the company on consolidated basis is INR 38.7. So at the current market price of INR 23, the company is trading below its book value. The current market capitalization of INR 241.87 crore is just a tad above the (net current assets - debt) of INR 216.21 crore. As per my understanding, this company is a value trap unless it gets acquired and the investors get an open offer.

Image: dream designs /
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Siobhan said...


I came across your page recently and I'm trying to find an email address to contact you on to ask if you would please consider adding a link to my website. I'd really appreciate if you could email me back.

Thanks and have a great day!

Siva Sankar N said...


Can FDC be bought at this price?

Siva Sankar N.

Chinmay said...


I think you can wait for 60.


Inquisitive Stranger said...

Hi Chinmay,

Since your post the company value has dropped significantly, so you see this still as a value trap or has it become and value buy now?


Chinmay said...

@Inquisitive Stranger

I wouldn't consider 20% drop as significant. It is still too early to tell. Value of an IT services business lies in its human capital. That is why IT companies are difficult to evaluate since humans can leave the company. I think you will have to wait till at least December 2013 to find whether it really was a value buy or value trap when I posted the article.


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