Prabhudas Lilladher has given Buy recommendation for Sonata Software with a target price of Rs. 503 in its research report issued on Feb 08, 2021

Prabhudas Lilladher’s research report on Sonata Software

Sonata’s IT services revenue growth was driven by ISV (grew 15% QoQ), retail & travel. In terms of verticals, growth was led by ISV (independent software vendors) business (+15% QoQ USD, +8% YoY USD) which includes work done for Microsoft dynamic and other platform services clients. This is also reflected by strong growth in Digital Platformation Services (Microsoft & Open source), +11% QoQ USD. Overall consolidated revenues grew at healthy rate of 8.3% YoY USD led by strong growth in DPS (+110 QoQ USD, +12% YoY USD) and steady growth in IITS (5.1% QoQ USD, -12.4% YoY USD). IITS margins were highest ever at 29% led by improved realization, utilization, offshoring & revenue productivity. We believe that IITS margins will come down to steady levels ~26% once travel and facility costs come back. We expect healthy revenue momentum given huge opportunity in digital platforms & cloud. The compensation hike across the board, effective 1st Jan, will result in some headwinds to margins. We expect IT services to register a CAGR of 11.6% over FY21-23E & growth in domestic business to register a CAGR of 10% over FY21-23E.


We believe most of the loss of revenue from its top travel account has been factored & we can expect steady revenue momentum in FY22. We continue to value Sonata on 15X FY23 earnings to arrive at changed TP of INR 503 (earlier: 427). Sonata is currently trading at 13x/12x on FY22/23 earnings of INR 30/33.5. Maintain Buy.