Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    

| More

BUY on Sonata Software - On the path to recovery - HDFC Securities

Posted On: 2020-08-12 02:59:02

Mr. Amit Chandra & Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities.

Sonata posted a weak quarter; the fall in IT services (IITS) revenue (-19.6% QoQ organic) was higher-than-estimated, but margin expansion of 104bps QoQ came as a positive surprise. The impact on IITS was due to an issue in one large travel client (down ~80% QoQ); ex-travel, its revenue was up 1.2% sequentially. Sonata has invested in strengthening the Microsoft relationship, which has yielded positive results (4Y CAGR of 19%). Dynamics D365 related services (34% of revenue) has grown at an eight-quarter CQGR of 7.8%. Furthermore, the margin expansion in IITS was led by a reduction in cost, offshoring and higher IP-Led revenue. The IITS margin will be maintained in the range of 21-22%. DPS growth was strong (+12.2% QoQ), but higher discounts impacted margins. Higher cloud license sales should lead to growth in DPS, but discounts could impact profitability. We like Sonata's IP-led business model, highest margin (IITS) in Tier-2 IT, focus on high growth Microsoft ecosystem, healthy RoE (~38%), and high dividend yield (~5%). We cut our EPS estimate by 2.3/6.2% to factor in the near-term growth challenges and lower DPS margin. The stock is trading at a P/E of 13/11x FY21/22E, in line with the five-year average multiple. We increase our target multiple to 12x (vs. 11x) to arrive at a target price of Rs 320, based on June-22E EPS.

1QFY21 highlights: IITS revenue declined 17.8% QoQ to USD 36.5mn vs. estimate of USD 38mn. The decline was led by travel (-85% QoQ) and non-essential retail (-17.8% QoQ) verticals. The recovery in travel will be gradual and will reach ~50% of 4QFY20 level by 4QFY21. IP-led revenue was up 5.5% QoQ and supported margins. Consolidated revenue was up 2.6% QoQ, and EBITDA margin stood at 8.2% (vs. the estimate of 8.3%). Microsoft (SI + Product Engineering + AX up-gradation) is ~60% of IITS revenue.

We expect IITS revenue to recover from 2QFY21; IITS growth ex-TUI for 2/3/4Q is expected to be 0.4/1.7/1.8% QoQ. IITS margin is expected to be at 21.1/21.4% for FY21/22E.

Shares of SONATA SOFTWARE LTD. was last trading in BSE at Rs.283.05 as compared to the previous close of Rs. 290.3. The total number of shares traded during the day was 41964 in over 1476 trades.

The stock hit an intraday high of Rs. 290.5 and intraday low of 272. The net turnover during the day was Rs. 11838529.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

HeidelbergCement India - Play on better priced Central India; initiate with BUY - ICICI Securities

Healthcare - Diagnostics: Multiple tailwinds likely to emerge - ICICI Securities

Mazagon Dock Shipbuilders Ltd - IPO Review - ICICI Securities

Persistent Systems - 28th September 2020 - Angel Broking

Canara Bank - 28th September 2020 - Angel Broking

Subscribe to UTI Asset Management Company Limited - IPO Note - Angel Broking

Multiplex Sector - Mr. Jyoti Roy - DVP - Equity Strategist, Angel Broking Ltd

Sale of Sequent stake to Strides Pharma - Angel Broking

Subscribe to Mazagon Dock Shipbuilders Ltd - IPO Note - Angel Broking

JSW Energy - First big renewable step - ICICI Securities

V-MART Retail - Best play in value fashion segment; initiating with BUY - ICICI Securities

Gas sector - New winners and losers likely on policy changes in gas sector - ICICI Securities

Mazagon Dock Shipbuilders Limited - IPO Note - Geojit

UTI Asset Management Company Limited - IPO Note - Geojit

Preview on RBI Monetary Policy - Oct 2020 - Shanti Ekambaram

Rollover Report for September 2020 - October 2020: Angel Broking

Covid Recovery Pulse - Sep 25, 2020 - ICICI Securities

Quick Comment - Suven Pharmaceuticals - ICICI Securities

Derivatives Strategy - Sep 25, 2020 - Positional Option - ICICI Securities

Gladiator Stocks - Ramco Cement - ICICI Securities

IPO Review - UTI Asset Management Company - ICICI Securities

Stock of the Day - Zensar Technologies - Sep 25, 2020 - Angel Broking

Accenture Q4FY2020 Result - Angel Broking

Granules India receives ANDA approval - Angel Broking

Zydus Cadila receives US FDA approval - Angel Broking

Cipla - ANDA approval - Mr. Yash Gupta - Equity Research Associate, Angel Broking Ltd

Mindspace REIT - Mr. Yash Gupta - Equity Research Associate, Angel Broking Ltd

UTI AMC - IPO - Mr. Jaikishan Parmar - Sr. Equity Research Analyst, Angel Broking Ltd

Balkrishna Industries - Growth momentum continues - ICICI Securities

Rollover Analysis (September 25): Nifty starts October series with low OI amid high volatility

Derivatives View (September 25): Sell Bank Nifty in range of 20650-20750 - ICICI Securities

Rollover Analysis - Sept 20: Selling climax on expiry as markets crumble - YES Securities

Zydus Wellness - Leadership in niche categories; initiate at BUY - ICICI Securities

Power - Setting the stage - ICICI Securities

Company Update - Elgi Equipments - ICICI Securities

Nano Nivesh - The Anup Engineering - ICICI Securities

RBI OMO announcement of Rs. 10000 crore - Angel Broking

TCS deal win - Sep 24, 2020 - Angel Broking

View on Pre-Monetary Policy by Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

US FDA approval to Zydus Cadila - Angel Broking

HDFC Securities Institutional Research Desk: Cement Sector Thematic - Spotting the sweet spot

Bharat Forge - Expectation hurdle remains steep - ICICI Securities


Mutual Fund Review - September, 2020 - ICICI Securities

UTI AMC announces IPO date - Angel Broking

Asian Paints - Mr. Amarjeet Maurya - AVP - Mid Caps, Angel Broking Ltd

Britannia Industries - Mr. Amarjeet Maurya - AVP - Mid Caps, Angel Broking Ltd

Hexaware Technologies (Not Rated): Hexaware accepts 475/share as final delisting price - ICICI Securities

CAMS IPO - Day 2 Subscription - Angel Boking

Chemcon Speciality Chemicals - IPO subscribed 12.62 times on second day - Angel Broking

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019