KR Choksey has given Accumulate recommendation for Sonata Software with a target price of Rs. 1087 in its research report issued on Oct 20, 2021

KR Choksey’s research report on Sonata Software

Sonata Software Ltd (SSOF) Q2FY22 performance was lower than our estimate. Dollar Revenue was up materially by 11% QoQ to USD 49.4Mn (KRChoksey est. USD 48Mn). Rupee revenue grew by ~20% YoY to INR 9,632Mn (KRChoksey est. INR 13,884Mn). Reported operating margin witnessed an sharp uptick of 438bps to 11.6% QoQ and reported net profit grew by 5.1% QoQ to INR 912Mn (KRChoksey est. INR 928Mn) with margin of 9.5%, up 263bps. In-spite of a seasonally weak quarter (Q2FY22), domestic business performed well on YoY basis. International IT services witnessed a strong growth momentum backed by strong execution in platform, IP and alliance led businesses. Growth was broad based across the US (+13.7% QoQ), Europe(+7.3% QoQ) and RoW (+9.5%), mainly driven by ISV (+5.9% QoQ), Retail Essential (+8.7% QoQ), Distribution & Manufacturing (+5.3% QoQ) and Commodity business & services (+3.6% QoQ). The deal pipeline continues to be healthy and strong through multiple new digital wins from existing and new customers. Our target price of INR 1,087 is based on 26x Mar-24E EPS with EPS CAGR of 17.5% over FY22-24E.


Sonata Software is currently trading at a valuation with a P/E multiple of 26.4x/23.3x on FY23E/FY24E earnings. We expect strong deal momentum across geographies, higher focus on ISV and Retail (Essential/Non-Essential), and tailwind in Managed Cloud Services will aid growth over the medium to long term in future and hence we are assigning a P/E multiple of 26x to the FY24 estimated EPS of INR 41.8 to arrive at a target price of INR 1,087 per share (earlier target of INR 1,001 ), an upside of 11.5% over the CMP. Accordingly, we maintain our rating to an “ACCUMULATE” to the stock.

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