HDFC Securities' research report on Sonata Software
We maintain BUY on Sonata despite near term challenges. IT services (IITS) revenue was lower than est. but margin was inline. The impact on IITS will be material in 1HFY21 (-11.6% YoY for FY21E), due to issue in one large travel client and high Retail exposure (28% of rev). Sonata’s IP-led strategy and strong Microsoft partnership (Dynamics 365) will support IITS revenue. DPS impact will be lower because of high recurring licence revenue.
Outlook
Growth in DPS will be led by sale of higher Microsoft cloud licences. Overall, we cut our EPS estimate by 4.5/4.0% for FY21/22E. Our TP of Rs 240 is based on 9x (~30% discount to 5Y avg.) FY22E EPS.
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