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Edited Transcript of SONATSOFTW.NSE earnings conference call or presentation 8-Aug-19 11:00am GMT

Q1 2020 Sonata Software Ltd Earnings Call

Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Sonata Software Ltd earnings conference call or presentation Thursday, August 8, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* P. V. S. N. Raju

Sonata Software Limited - Chief Delivery Officer

* Palem Srikar Reddy

Sonata Software Limited - CEO, MD & Executive Director

* Premnath Murthy

* R. Sathyanarayana

Sonata Software Limited - VP of Finance & Accounts

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Conference Call Participants

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* Amit Chandra

HDFC Securities Limited, Research Division - IT Analyst

* Baidik Sarkar

Unifi Capital Pvt. Ltd. - Research Portfolio Manager

* Madhu Babu

Centrum Broking Limited, Research Division - Research Analyst

* Mohit Jain

Anand Rathi Financial Services Limited, Research Division - Analyst, Technology

* N. Puranik

* Vipul Shah

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the Sonata Software Limited Q1 FY '20 Results Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Srikar Reddy, MD and CEO, Sonata Software Limited. Thank you and over to you, sir.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [2]

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Thank you. Good evening, everybody, and welcome to the analyst call post the announcement of our financial results for the first quarter ending financial year '20 yesterday. I understand the results are up on our website and hopefully, you all have had a chance to look at it.

I have here today with me P.V.S. N. Raju, our Chief Delivery Officer; and on the call from the U.S. is Ranganath Puranik, our Chief Growth Officer; and Sujit Mohanty, who heads our subsidiary Sonata Information Technology Limited. And I also have here with me Sathya, Head of Finance; and Premnath Murthy, Head of Strategic Finance and Risk Management.

Briefly, I'll touch upon the highlights of the results for the quarter. I think as we mentioned, we showed some good growth year-on-year on the international services business, both in terms of revenue and in terms of EBITDA and profit after tax.

The growth trend quarter-on-quarter at constant currency is about 2.5% in dollar terms. In the rupee terms, it wasn't that much because of the appreciation of the rupee against the dollar. And even in the dollar reporting, we've had cross-currency issues vis-à-vis the pound to dollar and that had an effect on even the cross-currency dollar revenues.

Our -- the 2 acquisitions we made in December, we have had full quarter revenue from both of them, that is both Scalable and Sopris. They have decent performance in their first 3 quarters of performance. But as I said, when we made the acquisition, in the short term we would expect these acquisitions to be EBITDA neutral as we transform these companies both from a revenue and margin perspective, and we will -- and also leveraging their assets globally. So to see the full impact of this will take a few quarters of these acquisitions.

So that's like a summary of the highlights of the financial performance in the quarter. But as we mentioned in our press release, we see continued interest and growth in our key initiative, which is the Platformation initiative, which is really the flagship strategy for the company in terms of becoming a digital transformation partner for our clients using our unique model. And of course, our alliance-led strategy and the IP-led strategy and all those are reflected in the numbers for the quarter.

So that's really the high-level qualitative assessment of our performance in the first quarter.

I'll hand over the mic to Premnath Murthy to take you through some quantitative financials for the quarter, and then we will open up the platform for questions you may have.

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Premnath Murthy, [3]

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Thank you, Srikar, and hello, everyone. Thank you for joining the call this evening. In terms of the consolidated numbers, I would like to inform you that our revenues were INR 874 crores. We registered a sequential quarter-on-quarter growth of about slightly short of 5% and a growth of 27% on a year-on-year basis.

Our EBITDA consolidated at about INR 106 crores, registered 10% sequential growth and growth of about 28% year-on-year.

After tax, our profits were a total of INR 67 crores, which registered a sequential growth of 2.6% quarter-on-quarter and a growth of 16% on a year-on-year basis.

In terms of our head count, we were over 4,000, about 4,011 to be precise, as of 30th of June that demonstrates, again, strong growth and our sales -- our (inaudible) acquisition in terms of DSO was down from 44 in the last quarter to 37 in the current quarter primarily pushed by our domestic business reduction in the DSO. And that's at a consolidated level [the] overview of the financial numbers that we have.

Breaking down into individual segments. Our international business registered INR 304 crores of revenue, which is almost a flattish trend, but year-on-year growth of about 18%. That contributes to about 45% of our consolidated revenue and the remaining 65% coming from our domestic revenues.

In dollar terms, we did about $44.3 million during the quarter, which represents higher sequential growth of 2%. And in constant currency terms, it represents 2.7%. Year-on-year growth was about 17%.

Our revenues in the international segment from digital components continued to demonstrate strength. We [clocked] 26% this quarter and our IP-led revenues continue to be robust, about 24% in the services revenues. Our EBITDA of INR 84 crores stood at 28% of our revenue. Sequential growth was about 11% and year on growth -- year-on-year approximately 37%.

Our PAT for the international business at INR 53 crores was higher by 1% sequential -- 1.7% sequential and year-on-year was about 13%.

In terms of new client acquisitions, added 7 large ones, 2 of these coming from the U.S., 4 from Europe and 1 from the Australia and New Zealand region.

Our return on capital employed and return on net worth are still healthy in the region of about 28% and 36%, respectively. And our international DSO remains flattish at about 41 days, similar to last quarter.

Turning to the domestic business. India business showed revenue of INR 574 crores and a year-on-year growth of 31.3%. That contributes, as I said earlier, about 65% of our total consolidated revenue. EBITDA of about INR 22 crores represents 4% of revenue. That's more on the flattish margin, which we have been maintaining for the last 3 quarters. The growth -- in terms of growth, it was 5.3% year-on-year -- sorry, quarter-on-quarter and year-on-year 34%. Domestic head count was 148 out of 4,011.

And that would be the summary of the financial performance that I have for you.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [4]

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Right. Thank you. Back to you (inaudible). Yes. You can open up the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Baidik Sarkar from Unifi Capital.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [2]

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Srikar, if you would exclude the impact of the 2 acquisitions we made last year, Sopris and Scalable Data, would you assume that your sequential revenues might have actually been flat, if not similarly be grown?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [3]

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No. It's flat. And that's what I tried to explain that if you take into account the cross-currency because of the pound, there had been a marginal growth in the organic revenues. But because of the depreciation of the pound against the dollar, so that would have been more or less flat. So your observation is correct.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [4]

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Sure. Sir, the body language in the commentary as such, it's very difficult to make out. So as things stand today, what do your lead indicators on growth actually tell you? I mean just forgetting all the acquisitions you've made in your core organic business, what the lead indicators for growth you see?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [5]

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So I think -- I don't know, maybe -- I don't know whether you have attended a few of our previous calls. So I think you got to look at our whole business, including the acquisitions. The acquisitions are not bolt-on acquisitions, but they're strategic acquisitions. This is some space we have been trying to consolidate now for the last 4 or 5 years. So you got to look at it holistically and not individually. So the acquisitions are part of the growth strategy of the company, especially in the Microsoft Dynamics 365 space. And so I just wanted to clarify that. Please look at the acquisitions as an integrated part of the company, and they all add in to the organic growth of the company apart from the acquisitions growing themselves.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [6]

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Sure. Srikar, our head count over the last 3 quarters I've noticed has stagnated about 3,500 resources. Again, is that a lead indicator for weak ramp-up in the quarters to come because I see utilization has also inched up pretty well.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [7]

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No. So I think in the past too also we've had -- I mean I would say not a significant growth in head count. And we also have, I would say, more of a Just in Time model for building these capacities. So I would not be very concerned or worried about the lack of growth in the head count.

I think we also should understand that we have some nonlinearity to our business because of the IP-led and IP business we have. So that also should be factored in.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [8]

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Last question, Srikar, is that could you share with us your adjusted margins for both your IT services and products? What the margins might be before the adjustments for Ind As.

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [9]

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(inaudible).

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [10]

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Yes. Sathya, I will.

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [11]

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I think in terms of Ind AS I think you have got impact (inaudible).

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [12]

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(inaudible). That's obvious. So without the drag push (inaudible) margins be?

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [13]

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Yes. It would be around 24%.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [14]

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24%. Okay. I mean could you give us the exact numbers? I mean not the gross split for the product as well as IT services.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [15]

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The products business margin and the services business margin without the Ind AS adjustment.

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [16]

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Okay. In terms of product business, it impacted both (inaudible).

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [17]

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No. What is the margin percentage?

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [18]

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Margin percentage is 6%.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [19]

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Products business is 6% without the Ind AS adjustment, so there's not much Ind AS adjustment of the products business. On the services business, there is an impact of, what, 2%?

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [20]

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In terms of EBITDA growth, which was affected (inaudible).

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [21]

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[4%] is the impact [within that] on the services business.

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Operator [22]

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The next question is from the line of Madhu Babu from Centrum.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [23]

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Does the full impact of the acquisitions Sopris and Scalable, I think Sopris had last year -- last quarter $1.5 million in consolidation. So the $0.8 million from the incremental from the Sopris for this quarter?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [24]

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Sorry. What was the question, Madhu?

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [25]

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Yes. Full impact -- so full impact of Sopris in this quarter, have it added $0.8 million in revenue?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [26]

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Compared to last quarter, that's correct. Yes.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [27]

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Okay. So sir, organic growth has been a bit tepid, I think, like 1% (inaudible). So do you see acceleration in organic growth from 2Q onwards?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [28]

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We expect the organic growth also to be back in shape from Q2 onwards. Yes, you're right.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [29]

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And the Travel, there was a weakness. And of course, the (inaudible) have also been weak. So any weakness in the content Travel vertical? And is it over? Or do we expect it to continue?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [30]

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Not really. I think it's just that certain accounts wouldn't have grown as much as they would -- they normally would have in that quarter. So it's nothing to do with the vertical or industry as such. So it's just our own micro factors, which are showing up. So this is not a reflection of the overall vertical performance.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [31]

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Okay, sir. And lastly, on other income, what is the breakup? I think other income has been very strong.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [32]

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The other income last quarter was higher. This quarter is lower by about INR 4 crores.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [33]

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So other income is shown as INR 16.7 crores.

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [34]

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Yes. So our primary account for the foreign exchange gain was realized (inaudible).

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [35]

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(inaudible).

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [36]

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So how much is the ForEx gain in this INR 16 crores?

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R. Sathyanarayana, Sonata Software Limited - VP of Finance & Accounts [37]

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INR 16 crores, about INR 9.2 crores.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [38]

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Okay. And do we have hedge gains in the next quarter as well because how is the hedge position?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [39]

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Yes. We would expect to have hedge gains in the next quarter.

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Operator [40]

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The next question is from the line of Amit Chandra from HDFC Securities.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [41]

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Sir, my question is related to the growth we are seeing from the IP-led portfolio. So if I see the -- all the incremental growth mostly has been coming from the IP-led. I know that IP-led is our strategy and we're working. We have totally focused on it. So can we see other segments apart from IP-led? Because I'm seeing the revenue from digital at 36% constant and our IP-led portfolio is growing. So how these 2 things are linked? So is it IP-led something we are doing that is mostly only AX related or the 36% related that we are seeing is something else?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [42]

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Yes. No. So the IP-led would be all digital-only kind of stuff. So there would be a complete overlap in the IP-led and digital revenues. And the IP-led is not just the AX revenues, but also revenue from Rezopia, Kartopia and Halosys. And other question you had was on -- what was your next -- other question really?

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [43]

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Sir, other drivers apart from IP-led.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [44]

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No. So -- I mean the driver, as you said, is IP-led and that gives us the differentiator. And those revenues are what will drive the growth for the company. Apart from that, we have said the other drivers of growth are what we said is the alliance-led, which is the Microsoft Alliance. And -- which is -- and the Dynamics investments we have made. And of course, our Platformation-led revenues. So that is all (inaudible) digital are growing slightly. So there would be an overlap between the strategies. They are not independent by themselves.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [45]

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Okay. Now because I'm seeing divergence between the growth that you are seeing in our portfolio that we classify as between digital and IP-led because IP-led has grown 11% quarter-on-quarter and digital is only 1.8%. So I just thought that there is a divergence in the growth rates between digital and IP-led. So this 36% digital that you are showing that is inclusive of IP-led, right?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [46]

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That will include IP-led growth. That's correct.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [47]

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Okay. So the portfolio in (inaudible) 36%. So the portfolio that -- which is ex IP-led, so there we are showing some weakness?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [48]

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Yes. So -- yes, your mathematic is correct in terms of the -- but because the focus is more on the IP-led, that's where the growth is coming from. And the rest of this is driven by, as I said, there's overlap in these Dynamics and the IP-led and the digital revenues. So that's what I was trying to say.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [49]

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Okay, sir. And sir, in terms of the services, we have seen decline in IMS and also the shortfall in IMS. So it is largely related to Travel vertical? Or IMS and testing both you have seen decline? So can you explain...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [50]

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Yes, we are seeing where there is more shift to automation. So that's why there is weakness in that, but that's normal. And even the IMS, I think a lot more is going into cloud-based management. So that's why in the traditional, we are seeing and that should be happening normally kind of stuff. So that's something should be based upon the overall trend in the way the client are spending their money.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [51]

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Okay. And sir, in terms of the head counts, we are seeing that the head count and the decreased business is coming down substantially, right? So in this quarter, it was 148. So...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [52]

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What business, sorry?

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [53]

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It is Domestic Products business.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [54]

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I don't know what's -- really what is the -- I think that the numbers have been...

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [55]

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So 156, it has dropped to 148. So are you doing some kind of restoration there?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [56]

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No, no. I think, as you see, the whole -- that business is mainly all salespeople and the technical people are in the current company. So -- and there could be some commercial people and so on and so forth. So it's not -- no, there's no restructuring there.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [57]

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Okay. Okay. Sir, lastly -- last question on the margin. So the IT is something -- the IT services margins, you said, adjusted for Ind AS was 24%, right?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [58]

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Yes, yes.

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Amit Chandra, HDFC Securities Limited, Research Division - IT Analyst [59]

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Okay. And 6% for the...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [60]

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For the prices at India business. Yes, that's correct.

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Operator [61]

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The next question is from the line of Mohit Jain from Anand Rathi.

(Operator Instructions)

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [62]

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Hello. Can you hear me, sir?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [63]

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Yes, I can hear you.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [64]

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Okay. Sir, just wanted to understand that like $0.5 million kind of a shortfall in this quarter on revenues. Like what really went through, was there some delay, cancellation? And the...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [65]

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Where are you getting this $0.5 million shortfall? I am a little confused.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [66]

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Sir, we are looking for 2%, 2.5% kind of organic growth. It turned out to be 1.5%.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [67]

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Okay. You are estimating. Got it, sorry. Okay, I got it.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [68]

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Sir, last 3 quarters were -- was revealed to be 12%, 13% kind of a revenue growth. I don't think...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [69]

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I thought -- okay, I thought somebody has given you this number. Okay, no problem.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [70]

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Nobody has given me the number.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [71]

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Okay. Fair enough.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [72]

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Sir, now we are telling both ways 10%.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [73]

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Yes, yes. As I said that there was some currency adjustments of the...

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [74]

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No, sir. I'm looking at constant currency number. So I understand that top line had a bit of exposure. But even if you see it from a constant currency point of view, our growth was slower than what we were always...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [75]

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Sure. Yes, correct, correct. But yes, I mean I couldn't read too much into it. I mean so that's all I can say. It's some short term, let's say, adjustments to the business in the quarter. So there is no trend in that, and there is nothing I would read in that kind of stuff.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [76]

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So you are confident a little bit in 2Q will go back to our trajectory?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [77]

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That's, Mohit, I just said about 10 minutes back.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [78]

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Right. And sir, what is your outlook overall from U.K. market and like travel industry? Is there a slowdown that you guys are anticipating in U.K., specifically, because this weakness is across the sectors?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [79]

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Sorry, what was the question?

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [80]

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U.K. market weakness.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [81]

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U.K., we are not seeing any weakness. It's only the currency is the challenge. But otherwise, we are seeing pretty decent, let's say, hints in the last quarter in the U.K. market. So yes, I said, bigger challenge is currency because since we announced these results, I think the pound has further depreciated against the dollar, it's now, I think, $1.2, $1.21 from about $1.26, $1.25 kind of stuff. Otherwise, there is no other headwind we are facing currently in the U.K. market.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [82]

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Okay, sir. Product margin is 6%, right?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [83]

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The product margin, yes, that's correct.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [84]

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Is it margin for 6% or we should expect the normal 4% gain that you've historically maintained?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [85]

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I didn't get that question.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [86]

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From last 3 quarters, you are running domestic business at around 4% EBITDA margin on a like-to-like basis. This quarter, you are seeing adjusting for the Ind AS, it was 6%.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [87]

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That's correct, that's correct. Yes, yes.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [88]

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Do we expect it to revert back to 4%?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [89]

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No. But that Ind AS impact will be there. So I think you are [subtracting] the path only now because -- and the fact, actually, this quarter, we actually had a negative effect on our path because of Ind AS to the tune of about INR 1.5 crores, I guess.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [90]

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Should this margin -- if I look at EBITDA pattern, the margin...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [91]

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Yes, yes, because it's an accounting issue. So certain costs are being moved from cost into depreciation and interest. So that's the new Ind AS accounting norms. So those costs, which were there in operating costs have now been moved into many operating leases and their treatment has changed. So that has moved the costing from an operating cost to depreciation and interest.

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Operator [92]

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(Operator Instructions) The next question is from the line of Vipul Shah, an investor.

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Vipul Shah, [93]

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Yes. I just want to know -- can you give more color about this IP-led revenue? This is not exactly IP revenue.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [94]

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No, no, no. No correct, correct. I think maybe you have not attended any of our earlier calls where I have explained it. So as you know, we have about 6 IPs, 3 of them are under Dynamics, which is Brick & Click, Modern Distribution and now recently the acquired Commodity Trading. And then we have other than the license for e-commerce like Kartopia and the travel called Rezopia and others. So what you have said is that these are differentiated strategies to win accounts and the services, which we get because of the IP [derived] from these customers, we call it IP-led. They are not IP licensed revenues. So the IP licensed revenues, as I said earlier, would be lower than 5% of our revenues kind of stuff. Have I explained that clearly to you?

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Vipul Shah, [95]

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Yes, yes. So these are the revenues derived from...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [96]

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Derived because we had the IP, and we've won the customer and then the services, both on the IP and surrounding the IP, we call it, IP-led services revenues. It also has the license revenue business, but it will be small amounts.

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Vipul Shah, [97]

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So all IP should form prior, means 100% should be...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [98]

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No, no. That's what the question -- no, that's what we explained in the previous, right? So all IP-led services will be part of digital. That's what we have told in the previous question.

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Vipul Shah, [99]

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And I missed the -- in Ind AS, this adjustment reply, which was given. So what was the net effect on our net profit, please?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [100]

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That's what is there. If the Ind AS adjustment was not there, our net profit would have been higher by about INR 1.5 crores.

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Operator [101]

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The next question is from the line of Sunil Jain from Nirmal Bang. (Operator Instructions)

We will take the next question from the line of N. Puranik from ENAM Securities.

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N. Puranik, [102]

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I have a simple question about your relationship with Microsoft and your deep relationship with Microsoft, I should say, in terms of various technologies you work with and the kind of revenues and margins you derive from them. I -- my question is about, how do you leverage these relationships and your platforms, particularly, to get into large revenue accounts? How do you build more 5 million, 10 million accounts; 10 million, 25 million accounts? The point is, do you think that your platforms have the power to derive a large platform-led services from Rezopia to Halosys to IBIS? So if you can tell me about that? Because that's important to get the growth to the next level. If you want to be a $500 million company, it's important that you win larger deals. So if you analyze each of this platform, which are the ones which can take you to the next level in terms of growth? At the same time, you did derisk the Microsoft universe.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [103]

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Yes. So to first answer your question on the Microsoft relationship, so basically, we do both work for Microsoft and then obviously, do that work to go-to-market with them. The focus significantly has been around Dynamics 365 platform, which include the AX and CRM, and now they have got other components to it. And there is where we have invested in IP, both acquired and be it our own, so in area of retail, distribution, consumer goods. And now we just acquired the Commodity Trading (inaudible) . And the trends on that is that the platform itself has now been going up the value chain. It started with the small, medium kind of enterprises to mid-market, now going into the upper mid-market. In some cases, the enterprise space itself. So aligned to that in there, we are seeing also our own policy of clients we are building, and their potential has been growing up. And so to answer your question, we definitely see now clearly a visibility of this partnership and these platforms getting into larger clients in the $3 million to $5 million annuity revenue space. So that's what we are seeing. Apart from that, really the other platform which has the potential to get large revenue is the Rezopia travel platform because that's enterprise platform, and it's large and core kind of stuff. So these 2, that is the Dynamic-led 2003 retail and distribution and Commodity Trading. And we have this Commodity Trading just acquired from Australia about 4 months ago, and we are seeing actually good traction. We haven't obviously done enough in terms of taking it to market, but what we have done we are seeing some good interest in the market. So to give you a simple answer, we see these 3 platforms, and the Rezopia platform are the 4 which can drive us to get into larger opportunities for us.

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N. Puranik, [104]

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Apart from building partnerships, what more you need to do in terms of reaching these platforms to high spend areas from mid-market to large-spend market? Do you need to beef up the whole platform itself to -- in terms of its maturity, sophistication and variety? Or you need to hire more people at the client's partner level to sell closer to the [high-speed test] ?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [105]

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Yes. Both. And that's a continuous process. We have, I think, invested and hired quite a bit in last 6 months. I think I did mention we have hired some (inaudible) [seniors] , client-facing people, both in Europe and U.S. in the last 6 months. So I did mention it in my last call. So we've done that. And also the platform strengthening is a continuous kind of a process and we are doing that. But the key for us and still the partnership is extremely key for us to get to these markets because that is -- that for us is extremely key. And so we would continue to rely fairly heavily on the partnerships to get us access to larger opportunities.

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N. Puranik, [106]

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And these partnerships include the consulting firms or the accounting firms and what kind of partnership?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [107]

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I was talking about the partnership primarily with Microsoft. The rest of it, of course, is more practical. I mean we will look at those partnerships on a more value.

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N. Puranik, [108]

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Do you mean go-to-market with Microsoft?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [109]

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Microsoft using this platform is very essential to get access to these large things. And we are seeing that, obviously it's been a gradual journey for both us and Microsoft to move into these enterprise space increase platform, certainly significantly new to them for going to the enterprises through the application through rather than the traditional route of Office productivity applications. But we are seeing how, you say, a lot more factors in the market right now are still not with us, but we are seeing it for some of the other larger partners currently. And so as we see, for us, we think it's a matter of time.

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N. Puranik, [110]

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So that means to attain scale economies, you need to reach the North American Microsoft relationship on a sustainable basis, isn’t it?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [111]

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Which is there, so that's the challenge. It is actually sort of going up the value chain with them, they test you with smaller opportunities, then with size and then its -- they don't directly take you and put you into relatively larger opportunities. Otherwise, the relationships are very strong. That's not a challenge. It's obviously, a journey we need to go through. There is no shortcut to that.

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N. Puranik, [112]

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Sir, do you get lot of technical and business input from the Microsoft leadership team to take the platform to the next stage or...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [113]

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Yes, yes. Technical business, we have joined go-to-market. So [all 3 dimensions] . Yes, yes.

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N. Puranik, [114]

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So they act more like a product manager.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [115]

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Not like a product manager...

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N. Puranik, [116]

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In the higher level.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [117]

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From a technical perspective because they trust on us to bring the industry knowledge. They very clearly say that, that's not their strength. So they provide input from a technical perspective.

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N. Puranik, [118]

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So when do you think platform like Rezopia or the Dynamics derived platform will get to $5 million to $10 million deals?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [119]

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So we are almost there, not in the $5 million to $10 million, but we are in the $2 million to $3 million kind of stuff. I mean -- and as I said, it was (inaudible) process, right? I mean there is no shortcut to that in terms of suddenly moving from the $2 million to $3 million to the $5 million to $10 million overnight kind of stuff. But we are seeing -- if you see the 7 accounts, we won last quarter, we are qualitatively, significantly much, much better and stronger than the similar accounts.

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N. Puranik, [120]

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And they are potentially big accounts?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [121]

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Yes. They are potentially big accounts -- bigger accounts -- I wouldn't say big accounts -- to what we have won in the past. So we are definitely seeing a qualitative shift of change to the access to these [large client] . Yes.

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N. Puranik, [122]

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Yes. So what would our data and analytics? Is there -- is it a big focus for you because that's enduring piece of business that will last a long?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [123]

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So that's part of -- all of them are either part of our Platformation, whether data and analytics platform, engineering, cloud engineering, micro-services, they're all part of our Platformation go-to-market. So regarding -- but for us, the platform-led is what is, I would say, the beachhead or an entry strategy into the opportunity for us to do these other things.

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N. Puranik, [124]

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Do you have a focused analytics team? Or you are -- they are part of this full StratAgile developers?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [125]

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No, no. We have a focused analytics team. We have a focused platform engineering team. Although their focus is -- tends to be a lot more around the Microsoft platform, that's okay with us.

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N. Puranik, [126]

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So how big is the analytics team?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [127]

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Mr. Raju?

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P. V. S. N. Raju, Sonata Software Limited - Chief Delivery Officer [128]

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(inaudible) our data analytics team [is 250 people strong now on top line.]

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N. Puranik, [129]

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Oh, I see. Do they build at superior rates?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [130]

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Yes. They are at -- subject to our average rate, it is a higher rate.

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N. Puranik, [131]

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Higher rate. It's 20%, 30% higher or more?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [132]

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[I think around that percentage.]

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N. Puranik, [133]

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So that is growing on an active...

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [134]

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That is growing. We think that there's still lot of runway for that. But it's growing.

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N. Puranik, [135]

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So one last question, Srikar. Are you looking at beyond the Microsoft universe other technologies to grow your business? Or just you're happy with Microsoft?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [136]

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We are looking at -- I mean we do look at -- the Amazon is the other factor, mainly on the data side there -- as about platform side is there we are participating. But that's really based upon the client we have won. But we have built a parallel universe of capability there. But our go-to-market is still very heavy Microsoft focused. Yes, yes.

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N. Puranik, [137]

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So to work with someone like Salesforce and Tabloo would be conflict?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [138]

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No, it's not a conflict but then, again, we have to build, I mean the same the level of capabilities, platforms, IP, size, scale, partnership. So it's a completely new business build kind of stuff, I would call it. And as I said, the runway is very large in this space. So if we just do this well, we can get to the $500 million or whatever we talked about kind of thing. So that's not the limiting factor of the market we are operating in or is it sufficient, is it large enough. So those are not really our preference. So everything requires a fair amount of investment in branding, and it'll take 2 to 3 years. I mean that one is big enough even with this, almost 3, 4 years to come to this level of maturity.

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N. Puranik, [139]

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And Agile and DevOps is enterprise right now?

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [140]

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Yes, most of our project there (inaudible) .

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Operator [141]

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(Operator Instructions)

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [142]

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If there are no other questions, we can close the call.

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Operator [143]

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Yes, sir. We don't have anybody in the queue.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [144]

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Sure. Okay. So thank you all for joining and your questions, and your support. Look forward to talking to you soon in our next call. So thank you all again.

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Operator [145]

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Thank you very much, sir.

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Palem Srikar Reddy, Sonata Software Limited - CEO, MD & Executive Director [146]

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Bye-bye.

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Operator [147]

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Ladies and gentlemen, on behalf of Sonata Software Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.