ICICI Securities' research report on Sonata Software
Sonata witnessed growth of 2.7% to $37.4 million in international IT services (IITS) in Q3FY18 led by the continued traction in its IP led offerings. Vertical-wise, travel and retail led the IITS sequential growth with 6.6% and 6.7%, respectively. OPD segment was soft with 0.8% degrowth QoQ. However, the management expects it to witness growth in coming quarters owing to some deal wins at quarter end. Domestic business grew 165.5% QoQ to Rs 530.3 crore and continues to witness volatility.
Outlook
Improving business mix towards high margin international services business would be the key driver for margin expansion. Hence, we expect Sonata to report PAT CAGR of 15.2% during FY18-20E. Also, it is currently trading at attractive valuation of 12.4x FY20 EPS. We roll our valuations to FY20E and maintain our BUY rating on Sonata with revised target price of Rs 340 (15x FY20E EPS).
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