The fact that it is country's largest software distribution house, didn't quite help Sonata Information Technology Ltd (SITL) maintain the growth momentum that it had built up between 2000 and 2003. On the contrary, last fiscal, company's revenues slipped by 14% as it clocked Rs 142 crore as against Rs 164 crore in 2002-03. However, its services business posted a strong 61% revenue increase, taking the figure to Rs 11.82 crore.

This dip in the topline, company asserts, was a result of the conscious de-risking of its business. Its focus got directed towards products capable of offering high margins and not necessarily high value. This was inevitable also to an extent as the profitability in its mainstay business of Microsoft, Oracle and IBM dwindled to low-single digit figures, even as these three contributed 65% to the turnover.

It got aggressive on 'push products' and channeled its resources better to sell solutions from principals like Data Direct, Business Objects, and so on. It also signed up with Red Prairie for its warehouse management solutions and Geac for business performance management solutions-both very niche offerings with lucrative returns. And keeping a strong eye on profitability, it has recently signed up with Mercury Interactive as well for its Business Technology Optimization products.

Realizing that channel defaults could deplete its bottomlines, SITL got strict on credit and offered the same only to 42 of its selected partners. For others, transactions were largely based on financial instruments. Over the years, the company has also differentiated itself by engaging in the projects where its products were being sold into. This gave it a better understanding of customers' requirement and also the flexibility of being selective on picking the orders. It was also particularly benefited by the RTGS (real-time gross settlement) directive by RBI, as a good amount of its business happened due to projects in the banking segment.

It made its business services division strong and developed practices in the field of ERP and CRM. It also got involved in many ISV-related initiatives of Microsoft and Oracle.

With distribution business getting increasingly burdened with margin pressure, it would now require a fresh re-thinking and innovative strategy on SITL's part to display good toplines as well as profitability. Something, that Sonata Software's (of which SITL is a subsidiary) shareholders too would be expecting.

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