Buy Sonata Software; target of Rs 410: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Sonata Software

Steady revenue growth: Sonata Software delivered a steady performance for 2QFY19 with inline IT services USD revenues and beat on consolidated PAT aided by higher other income. IT services revenues came at USD39.1mn up 3.4% QoQ and in line with our estimates (PLe: 39.1mn). Sonata derives ~20% from GBP and hence cross currency movement was a headwind for the quarter. Constant Currency revenue growth for IT services business stood at 4% for 2QFY19. IT services adjusted EBIDTA margin came at 20.6% down 230bps QoQ and below our estimates (PLe: 21.7%). IT services business Headcount of company came at 3679 employees which is net addition of 225 employees. Travel vertical (29% of total revenues) up 11% QoQ, Retail &CPG vertical (up 7.6% QoQ) aided growth on vertical fronts. During 2QFY19, the company had higher effort mix shift towards offshore. Revenues from offshore accounted to 58% of total revenues in 2QFY19 (vs 56% in 1QFY19).

Outlook

Stock trades at 11.7x FY20E EPS. Robust balance sheet and strong free cash flow has helped company maintain superior pay-out ratios (~70% of PAT paid as dividend in FY18). Dividend yield stands at 3.5% at CMP. We value stock at 15.5x FY20E EPS which yields a TP of Rs 410/sh (15.5x FY20E EPS). Retain BUY.

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