ERP cloud and data are the key focus areas for us: Jagannathan Chakravarthi, CEO, Sonata Software

Jagannathan Chakravarthi, Chief Financial Officer, Sonata Software Limited, talks about Q4FY21 numbers, expected $revenue growth rate for FY22, Microsoft Digital Platformation Services, pressure on pricing front and deal wins among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Q4FY21 numbers are looking good from the point of view of profitability but there is a fall in income. What is the reason for it and what is your future outlook, especially in terms of margins? 

A: Our revenue in the last year has grown well. Last year, we had a major impact of second-largest customer drop, which had an almost 20% impact on our international business. Despite it, we have closed quarter-four at almost the same revenue as pre-COVID level, which was a quarter-on-quarter from quarter two has been a stellar growth or industry-leading growth. We had a solid industry-leading growth of 7% in quarter four dollar revenue. We are seeing a lot of momentum in revenue and our pipeline is very strong and we expect a growth of Q3 and Q4, at somewhere industry-leading growth to continue for the coming quarters.

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We are expecting the profitability for us as very-very strong last year particularly because onsite has come down and offshore has increased by 8-9%. We expect that this is a peak of offshore and this had to stabilize somewhere between 59-68%, which was offshore pre-COVID and post-COVID. We believe somewhere in between it will settle and onsite will increase. So, we expect that the medium term and long term are margins to be somewhere between 22-25% EBITDA. Our current EBITDA is around 27-28% but a 2-3% impact is expected if things are all open up and more onsite comes up in the second half of the year. We expect the travel vertical to be better in the second half of the year and our revenue growth will be very very strong this year. We will continue to have industry-leading profitability in the coming years also. Our ash flaw is very-very strong.

Q: What is your estimate for $revenue growth rate for FY22 and what are going to be key revenue drivers for the company?

A: In the financial year 2021-22, the dollar revenue would be very very strong and we do not give guidance but we will have industry-leading growth. The vertical which is helping us is retail – particularly the essential retail, distribution is doing well, all the hi-tech companies and ISBs is really doing well for us. Customer experience business is really back in quarter four and the utility business will also improve in this coming year. So, we believe the US and Australia are really doing well now and in the coming quarter, Europe will also do well.

Q: As per the service line, Microsoft Digital Platformation Services has gone up from 16.6% to 20.3% (YoY). Where do you see this share by Q4FY22? What's the run rate of upgrades you are seeing in MICROSOFT DYNAMICS?  

A: MICROSOFT DYNAMICS is really doing well for us and more than 50% of our revenue comes from Microsoft technology. We believe that this kind of growth will continue with this business dynamics as well Microsoft digital platform business is really doing well. And, we will continue to have very good growth in the coming quarters.

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Q: On the pricing front, which kind of pressure you are seeing and are you still giving discounts to your clients, especially in light of the second wave of CORONA? Has there been a payment deferral arrangement running for your clients?

A: In international business, there is no discount, no credit period extension as it has stabilized now and is doing very well. In a domestic business initial first quarter, there was some pressure on pricing. But now domestic business is also very much stabilized, we didn’t have any major bad debts in domestic business. Our credit period went up a little bit but it has come down in this quarter if you see there is a substantial reduction in GSO. So, we believe there is no pricing pressure and a lot of opportunities because of the cloud in domestic business. This business will also continue to grow like in the last five years, we have been at the industry-leading growth in the domestic business and we will have the same amount of growth in this service. And across contribution will be growing faster than the revenue growth, we expect a very-very strong contribution overall. In this business, we did have even a single rupee of working capital investment. Last year, in spite of COVID, all the four quarters, this business has given a positive cash flow and the return on capital employed is 23-24%. This is the best performing business, very-very stable and we will continue to perform very well in domestic business also.

Q: How has been the deal wins in this quarter and what is your outlook going ahead for the next three-four quarters? Also, you have seen a good jump in digital contracts. How are you differentiating between the big and medium-size vendors? 

A: We are focusing on digital from the beginning. We are only focusing on ERP cloud and data. If you see only ERP and data, it has really grown very well and the cloud has also done well in this period. We believe that we have a complete differentiation because of our tie-up in dynamics Microsoft technology and we have a 15-year long relationship with Microsoft. We are a 360-degree partner to Microsoft. We sell to them; sell with them and for them. So, we have a 360-degree relationship and we strongly believe that we will have an extra edge over the other players. We are very highly focused on very high-end services. So, our margins will continue to be better than the industry and our growth will also be better than the industry. Our pipeline is very very strong and our all business is a digital business, but we are carving out only the top-end of the business. Even in the cloud, we take only cloud computing and high-end business as a digital business. For the rest of the business, we do not consider digital. Digital pricing is very very strong and we will have great growth in the coming quarters.

Q: Work from Home culture has been adopted. So, what kind of model your company is setting up, as many tech companies are talking about the hybrid model? Also, what is the percentage of your employees who are working from home, currently? 

A: When the lockdown was announced within one week we have done that 100% of people are working from home for us. We are not having even one person working from the office. We continue to work from home. Once the vaccination is done and the COVID cases come down and there is stability in the environment, some portion of people may start working from the office. But it has to be evolved, we cannot announce like a large player, it has to evolve but we are exploring the option of continuing to have some percentage of people to work from home, even after it becomes normalized level. But at present, 100% of people are working from home. Unless there is a safety and vaccination happens across all the people, we will wait for that policy or strategy to be launched at that time. But we will have some percentage of people working from home for longer period of time.