Sonata Software Ltd., incorporated in the year 1994, is a Mid Cap company (having a market cap of Rs 9649.94 Crore) operating in IT Software sector.
Sonata Software Ltd. key Products/Revenue Segments include Computer Software, Software Products and Other Operating Revenue for the year ending 31-Mar-2021.
Financials
For the quarter ended 30-09-2021, the company reported a Consolidated Total Income of Rs 976.70 Crore, down -24.68 % from last quarter Total Income of Rs 1296.69 Crore and up 21.15 % from last year same quarter Total Income of Rs 806.21 Crore. Company reported net profit after tax of Rs 91.17 Crore in latest quarter.
Investment Rationale
The brokerage maintains BUY rating on Sonata, following strong growth of 11% QoQ (~5% organic) in the IT services segment (IITS) and better margin performance. Revenue from Microsoft related services (~50% of IITS) is driving growth (+10.6% QoQ), which is further expected to come in high teens. The Microsoft Dynamics modernisation program is a multi-year opportunity and Sonata is constantly investing in this area. Travel vertical has recovered but will accelerate with an increase in leisure travel (currently at ~50% of pre- COVID level). The IITS EBITDA margin expanded 365bps QoQ, despite supply side concerns, led by offshoring (~69%), higher utilisation (89%), and lower sub-contracting cost. The company has stepped up the hiring of freshers and attrition has touched 23-24% level; the target margin range for IITS is ~23- 24%. DPS was weak (seasonality), but the growth in DPS will be driven by higher cloud adoption (~77/75% of DPS is revenue is from cloud/annuity). Sonata’s growth profile is sturdy, led by the Microsoft ecosystem, recovery in travel, and strong DPS business. The brokerage increases EPS estimates by +3.6/3.3% for FY22/23E. Its target price of INR 1,050 is based on 22x Dec-23E EPS. The stock trades at a P/E of 1.9/18.6x FY23/24E.
Promoter/FII Holdings
Promoters held 28.17 per cent stake in the company as of 30-Sep-2021, while FIIs owned 16.56 per cent, DIIs 12.98 per cent.
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