Accumulate Sonata Software; target of Rs 1148: KR Choksey

KR Choksey's research report on Sonata Software

Sonata Software reported a consolidated revenue of INR 20,155 mn as against INR 17,788 mn, registering a growth of 13.30% on a YoY basis and on a sequential basis it grew by 5.33% from INR 19,135 mn. International IT services revenue stood at USD 77.3 mn as against USD 60.5 mn in Q1FY23. EBIT for Q1FY24 stood at INR 1,471 mn, registering a growth of 14.39% on a YoY basis from INR 1,286 mn and on a QoQ basis it grew by 10.85% from INR 1,327 mn. The operating margin stood at 7.30%, which expanded by 7 bps YoY and 36 bps QoQ. PAT for the quarter came at INR 1,201 mn, which showed an improvement of 11.51% from INR 1,077 mn and on a sequential basis it grew by 5.63% from INR 1,137 mn. PAT margin for the quarter stood at 5.96%, which showed a decline of 9 bps on a YoY basis and improved marginally by 2 bps on a sequential basis. EPS for Q1FY24 came at INR 8.65 as against INR 8.20 sequentially and INR 7.78 on a YoY basis.

Outlook

Sonata Software is currently trading at a valuation with a P/E multiple of ~23.3x/~18.3x on FY24E/FY25E earnings. We expect strong deal momentum across geographies, a higher focus on Enterprise clients, and a tailwind in Managed Cloud Services will aid growth over the medium to long term in the future and hence we are assigning a P/E multiple of 20x to the FY25 estimated EPS of INR 57.4 to arrive at a revised target price of INR 1148 (Prev. target 1122) per share, an upside of ~9.31% over the CMP. Accordingly, we have changed our rating to “ACCUMULATE” from “BUY” to stock.