| Sonata Software Limited | ||||
| Rating reaffirmed at 'CRISIL A+ / Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A+/Stable' rating on the long-term bank facility of Sonata Software Ltd (SSL).
SSL's revenue grew 11% during the first half of fiscal 2021, compared to the corresponding period of the previous fiscal, driven by a 24% growth in the domestic products and services business. The license renewals by clients were largely unaffected by the Covid-19 pandemic and there was an increase in demand from new clients. Revenues in the higher-margin international information technology (IT) services business declined 9% due to lower business from SSL’s major client in the travel vertical. This was partially offset by increasing demand for digitisation across verticals such as distribution, manufacturing, utility and service; and commodity business. As a result, earnings before interest, tax, depreciation, and amortisation (EBITDA) margin declined 200 basis points (bps) to 9.4% compared to the first half of fiscal 2020.
In fiscal 2021, SSL is likely to expand marginally over the previous fiscal driven by continuing growth in the domestic business. However, operating margin is expected to decline by 150-200 bps due to lower contribution from the IT services business partially mitigated by cost optimising measures taken during the first half of fiscal 2021. Growth over the medium term is expected to rebound with recovery in business verticals such as travel and non-essential retail, and expansion in to new verticals like agricultural commodity business.
The rating continues to reflect SSL’s comfortable business risk profile, marked by its established position in the IT services sector and software distribution business, and improving revenue diversity. The rating also factors in the strong financial risk profile. These strengths are partially offset by exposure to risks arising from geographical concentration in revenue, changes in regulations such as restrictions on H1B visas, and intense competition, especially in the software distribution business. |
Analytical Approach
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths
Weaknesses
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Liquidity: Strong SSL had a liquid surplus of Rs 642 crore as on September 30, 2020, against modest working capital debt of Rs 144 crore. The fund-based limit of around Rs 50 crore, remained largely unutilised in the 12 months through October 2020. Annual cash accrual of more than Rs 130 crore, expected over the medium term, will support yearly capital expenditure of around Rs 65 crore. |
Outlook: Stable CRISIL Ratings believes SSL’s credit risk profile will continue to benefit from its moderate business risk profile, supported by recovery in orders from key customers, moderate client addition and strong financial risk profile. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company SSL, incorporated in 1986, provides IT consulting, product engineering services, application development, application management, managed testing, business intelligence, infrastructure management, packaged applications, and travel solutions. The company derives most of its services revenue from overseas, with the US and Europe accounting for over 84%. SITL primarily distributes software products and is focused on the Indian market.
For the six months ended September 30, 2020, SSL reported net profit of Rs 107 crore on net sales of Rs 1,756 crore, as against Rs 139 crore and Rs 1,578 crore, respectively, for the corresponding period in the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Fully interchangeable between fund- and non-fund-based limits |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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