Buy Sonata Software; target of Rs 380: HDFC Securities

HDFC Securities is bullish on Sonata Software has recommended buy rating on the stock with a target price of Rs 380 in its research report dated May 23, 2018.

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May 31, 2018 / 16:27 IST

26 Aug, 2025 12:21

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HDFC Securities' research report on Sonata Software

Sonata delivered soft 4QFY18 with slight miss on both revenue and IITS margin. International IT services (IITS) revenue was flat QoQ at USD 37.4mn, below our estimate of USD 38.9mn. Adjusting for one-time pass through revenue last quarter, QoQ IITS rev growth was 2.7%. IITS margin slipped to 19.8% (vs. our est. of 21.0%) despite higher off-shoring (+400bps QoQ). Travel (27% of rev, -3.6% QoQ) and Retail (25% of rev, -7.4% QoQ) were under pressure while OPD (28% of rev) was flat QoQ. Focus on IPs and Platforms is driving Digital revenue (33% of rev, +3.1% QoQ, +23% YoY for FY18). Total revenue stood at Rs 6.26bn, down 18.4% QoQ, led by drop in Domestic Product & Services’ (DPS) rev (Rs 3.89bn, -26.7% QoQ).

Outlook

We expect IITS’ USD revenue to grow 14/15% with margin of 20/21% in FY19/20E. We like Sonata IP-focussed business model, capability to scale up top-accounts, quality balance sheet (net cash of Rs 48/share, ~13% of Mcap), high RoE (~31%) and high dividend yield (~3.1%). Maintain BUY with a TP of Rs 380 based on 16x FY20 EPS.

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