Accumulate Sonata Software; target of Rs 694: KR Choksey

KR Choksey's research report on Sonata Software

In Q1FY25, Sonata Software reported revenue of INR 25,274 Mn, up 25.4% YoY (+15.3% QoQ). The revenue beat our estimates, driven by growth in domestic business. The Company reported EBIT of INR 1,429 Mn, down 2.8% YoY (+29.4% QoQ), largely in line with our estimates, driven by higher than anticipated raw material costs partially offset by higherreported revenue. The Company reported an adj. profit of INR 1,056 Mn, down 12.1% YoY (-4.3% QoQ), in line with our estimates.

Outlook

We increase our FY26E EPS to INR 26.7 (previously: INR 25.1) and raise our PE multiple to 26.0x (previously: 24.0x), reflecting higher than anticipated revenue in Q1FY25, materialization of new deal wins, and optimism on improved margins in FY26E. Accordingly, we increase our target price to INR 694 (previously: INR 603). However, since our last update, the stock has yielded a return of 22.9%, limiting the scope for potential upside. Accordingly, we downgrade SSOF to “ACCUMULATE” from “BUY”.