Buy Sonata Software; target of Rs 780: Emkay Global Financial

Emkay Global Financial's research report on Sonata Software

In its International IT Services business, SSOF delivered ~26% revenue CAGR over FY21-24 and ~4.3% CQGR over the last 10 quarters which remain among the top quartile revenue growth performances. Revenue growth moderating in the last 3 quarters is, we believe, just a temporary blip and growth is likely to rebound strongly with improvement in the spending environment. Anticipated uptick in demand, particularly discretionary spending in CY25, should augur well for SSOF’s growth acceleration; we remain positive on its medium-term growth prospects. The management shared its aspiration of achieving revenue run-rate of USD1.5bn (~USD1bn from SITL; USD0.5bn for the International IT Services business, implying ~4% CQGR) by FY27E, with International IT Services business EBITDAM in the low 20s. SSOF trades at ~45%/30% discount to PSYS/Coforge which we believe will narrow with rebound in growth momentum.

Outlook

We initiate coverage on Sonata Software (SSOF) with BUY and TP of Rs780, at 30x Dec-26E earnings.