Buy Sonata Software, target price Rs 780: HDFC Securities
HDFC Securities initiates coverage on Sonata Software with a buy call and a target price of Rs 780. Sonata's strong revenue growth, despite a recent moderation, is expected to rebound with improved spending. The brokerage anticipates growth accel...
By ETMarkets.com |
Agencies
HDFC Securities has a buy call on Sonata Software with a target price of Rs 780. The current market price of Sonata Software Ltd. is Rs 669.9. Sonata Software, incorporated in 1994, is a Mid Cap company with a market cap of Rs 18709.94 Crore) operating in IT Software sector.
Sonata Software's Ltd. key Products/Revenue Segments include Computer Software, Software Products and Other Operating Revenue for the year ending 31-Mar-2024.
Financials
For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 2189.01 crore, down -14.03% from last quarter Total Income of Rs 2546.30 crore and up 13.08% from last year same quarter Total Income of Rs 1935.77 crore. The company has reported net profit after tax of Rs 106.49 Crore in latest quarter.
Investment Rationale
HDFC Securities has initiated a coverage on Sonata Software (SSOF) with BUY and target price of Rs780, at 30x Dec-26E earnings. In its International IT Services business, SSOF delivered ~26% revenue CAGR over FY21-24 and ~4.3% CQGR over the last 10 quarters which remain among the top quartile revenue growth performances. Revenue growth moderating in the last 3 quarters is, we believe, just a temporary blip and growth is likely to rebound strongly with improvement in the spending environment. Anticipated uptick in demand, particularly discretionary spending in CY25, should augur well for SSOF's growth acceleration; we remain positive on its medium-term growth prospects. The management shared its aspiration of achieving revenue run-rate of $1.5 billion (~$1 billion from SITL; $0.5 billion for the International IT Services business, implying ~4% CQGR) by FY27E, with International IT Services business EBITDAM in the low 20s. SSOF trades at ~45%/30% discount to PSYS/Coforge which the brokerage believes will narrow with rebound in growth momentum.
Promoters held 28.17 per cent stake in the company as of 30-Sep-2024, while FIIs owned 12.13 per cent, DIIs 23.37 per cent.
Sonata Software's Ltd. key Products/Revenue Segments include Computer Software, Software Products and Other Operating Revenue for the year ending 31-Mar-2024.
Financials
For the quarter ended 30-09-2024, the company has reported a Consolidated Total Income of Rs 2189.01 crore, down -14.03% from last quarter Total Income of Rs 2546.30 crore and up 13.08% from last year same quarter Total Income of Rs 1935.77 crore. The company has reported net profit after tax of Rs 106.49 Crore in latest quarter.
Investment Rationale
HDFC Securities has initiated a coverage on Sonata Software (SSOF) with BUY and target price of Rs780, at 30x Dec-26E earnings. In its International IT Services business, SSOF delivered ~26% revenue CAGR over FY21-24 and ~4.3% CQGR over the last 10 quarters which remain among the top quartile revenue growth performances. Revenue growth moderating in the last 3 quarters is, we believe, just a temporary blip and growth is likely to rebound strongly with improvement in the spending environment. Anticipated uptick in demand, particularly discretionary spending in CY25, should augur well for SSOF's growth acceleration; we remain positive on its medium-term growth prospects. The management shared its aspiration of achieving revenue run-rate of $1.5 billion (~$1 billion from SITL; $0.5 billion for the International IT Services business, implying ~4% CQGR) by FY27E, with International IT Services business EBITDAM in the low 20s. SSOF trades at ~45%/30% discount to PSYS/Coforge which the brokerage believes will narrow with rebound in growth momentum.
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Promoter/FII Holdings Promoters held 28.17 per cent stake in the company as of 30-Sep-2024, while FIIs owned 12.13 per cent, DIIs 23.37 per cent.
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