Oracle, Wipro said to be in race for Sonata stake

Two software majors are eyeing a substantial stake in Bangalore-based Sonata Software, a deal that analysts said could signal a consolidation wave among smaller information technology companies.

Three sources familiar with the development said Wipro Infotech and Oracle, the US-based business software and hardware giant, have shown interest in picking up some if not all of the 19.77% stake held by co-promoter Shyam Bhupatirai Ghia through Bhupati Investments Finance Pvt Ltd.

Sources said both Wipro and Oracle are also in discussions with Rajan Raheja, who, along with family, holds another 22.05% in Sonata.

The total promoter shareholding in Sonata currently stands at 43.83%.

“While so far the stake sale by Ghia is confirmed, the Rahejas may also exit and are still in discussions,” the source said.

Ghia and Raheja are also promoters of Futura Polyesters, another listed company. Raheja also controls Prism Cement and Hathway Cable and Broadband Services.

A spokesperson for Wipro Infotech called it ‘market speculation’.

Oracle India said it had no comments on the matter. M D Dalal, one of the promoters of Sonata, said talks of a stake sale to Wipro is “completely and totally untrue”.

“It is 100% not India’s top three (Wipro, Infosys and TCS),” he said.

“Whenever there is any deal, we will inform the stock exchange. If we have a good offer on the table that will enhance stakeholder value, we will consider it,” Dalal said.

On valuations, a source said 8-10 times enterprise value/Ebidta is the norm for smaller software companies in India, but Sonata may get a higher billing due to its business model as a SAP implementer.

Bombay Stock Exchange data show Ghia, through Bhupati, sold 6.25 lakh shares or 0.60% of the company’s paid-up capital in October alone. And between June and September, he offloaded 16.5 lakh shares or 1.57% stake.

This has brought down his shareholding from 21.94% as on June 30 to 19.77% on October 30, 2010.

B Ramaswamy, president and managing director of Sonata, said if the promoters decide to sell their shares, “the company management does not have a role in it.”

He said Sonata has cash and equivalents of Rs130 crore.

“This cash is for strategic acquisition,” Ramaswamy said.

Dalal concurred, saying Sonata is also on the lookout for good acquisitions.

The company had revenues of Rs236 crore, profit after tax (PAT) of Rs60 crores and earnings before interest depreciation and tax of Rs69 crore in the year to March 31, 2010.