KR Choksey's research report on Sonata Software
SSOF’s Q2FY25 result exceeded expectations. The company reported revenue of INR 21,698 Mn, up 13.5% YoY (-14.1% QoQ), primarily driven by strong YoY revenue growth in domestic business. EBIT stood at INR 1,443 Mn, down 12.0% YoY (+1.0% QoQ). EBIT margin stood at 6.7%, down 192bps YoY (+100bps QoQ), beating our expectations. PAT stood at INR 1,065 Mn, down 14.2% YoY (+0.8% QoQ). PAT margin stood at 4.9%, down 158bps YoY (+73bps QoQ). SSOF’s EBIT margins remain under pressure in comparison to historical levels (YoY), on the back of elevated operating expenses. The company has highlighted margins to continue facing headwinds, on account of ramp-up in large deals, ongoing investments in the Healthcare and BFSI sectors, salary increases, and the rebadging of onsite personnel resulting in increased operating expenses. Consequently, we lower our FY26E EPS estimate to INR 26.1 (previously: INR 26.7) while maintaining FY26E P/E multiple of 26.0x.
Outlook
Accordingly, we lower our target price to INR 679 (previously: INR 694) and maintain an ACCUMULATE rating on the share of Sonata Software Ltd.
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