Buy Sonata Software; target of Rs 330: ICICI Direct

ICICI Direct's research report on Sonata Software

Sonata Software reported poor Q1FY21 results. IT service revenues in dollar terms fell 17.8% QoQ mainly due to 85.1% QoQ dip in travel vertical (mainly impacted by top client that is in travel vertical). However, IT service EBITDA margin improved 125 bps QoQ to 23.5% mainly led by lower travel cost and higher offshoring. IT service PAT declined 15% QoQ mainly due to lower other income. Domestic revenues increased 12.0% QoQ while PAT fell 30% QoQ mainly due to higher discounting. Consequently, overall revenues increased 3% QoQ to Rs 952.4 crore while PAT fell 19.0% QoQ to Rs 49.9 crore.

Outlook

Hence, we increase our EPS estimates for FY21E and FY22E, prompting us to upgrade the stock from HOLD to BUY with a revised target price of Rs 330/share.

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