Buy Sonata Software; target of Rs 1000: HDFC Securities

HDFC Securities is bullish on Sonata Software has recommended buy rating on the stock with a target price of Rs 1000 in its research report dated May 15, 2023.

Broker Research

May 16, 2023 / 23:12 IST

Buy

26 Aug, 2025 12:21

Volume

Todays L/H

HDFC Securities' research report on Sonata Software

Sonata delivered a better-than-expected IT services (IITS) growth (+8% QoQ CC) while organic growth was 4.5% QoQ. The growth was led by Cloud and Microsoft Dynamics. The management remains optimistic and plans for its IITS revenue to be USD 500mn by FY26 (implied CQGR of ~4%) with EBITDA margins in the early 20s. The company won 3 large deals during the quarter which included one deal of USD 160mn for 10-year IT modernisation in the retail vertical (full ramp-up expected from Q2FY24). The IITS EBITDA margin contracted 331bps QoQ to 18.5% due to wage and M&A costs. The margins will continue to be under pressure due to senior management wage hikes in Q1 (- 50bps) and continued investments to scale up in focus verticals like BFSI and healthcare. Large deal ramp and inorganic growth (Quant) will serve as tailwinds for FY24E revenue growth while softness in the hi-tech vertical will offset the growth to some extent. We increase our IITS revenue estimate by ~2% for FY24/25E but lower the IITS margin by ~55/70bps for FY24/25E.

Outlook

We maintain a BUY rating with a target price of INR 1,000, based on 20x Mar-25E EPS. The stock is trading at a P/E of 22/18x FY24/25E (5Y/10Y average P/E of 15/12x).

For all recommendations report, click here