The shares of the leading Modernization engineering company of cement gained up to 0.5 percent after ICICI Direct, a well-known brokerage recommended a ‘buy’ rating.
With a market capitalization of Rs 20,841.17 crore, on Friday, the share of Sonata Software ltd closed at Rs 743.20 per share, decreased around 0.71 percent as compared to the previous closing of Rs 748.55 apiece.
Looking into Sonata Software’s performance, revenue increased by 10 percent from Rs 2,261 crore in Q3 FY23 to Rs 2,493 crore in Q3 FY24. During the same period, net profit decreased by 139 percent, from a profit of Rs 118 crore to a loss of Rs 46 crore.
ICICI Direct, one of the well-known brokerages in India, gave a ‘Buy’ call on the IT stock with a target price of Rs 900 apiece, indicating a potential upside of 21 percent from Friday’s closing price of Rs 743.20 per share.
Here is the rationale behind the bullish potential upside of 21%:
● Sonata anticipates a significant contribution from AI services, aiming for 20% of total revenue by FY26E. This diversification strategy aligns with the evolving market trends and positions Sonata to capitalize on the growing demand for AI-driven solutions, further enhancing its revenue growth potential.
● Sonata IT services will grow at 25.5% CAGR over FY23-26E in dollar terms and 27.4% CAGR in rupee terms. The brokerage expects Sonata’s overall revenues to grow at 18% CAGR over FY23-26E
● Sonata’s strategy of securing large deals has been fruitful, with 13 significant wins in YTD FY24 and an ongoing pursuit of 49 large deals. The emphasis on securing deals with Fortune 500 clients, along with expansions into new segments like Healthcare & Life Sciences (HLS) and Banking, Financial Services, and Insurance (BFSI), underscores the company’s proactive approach to business growth.
● Sonata’s addition of 27 new clients in 9MFY24 reflects its ability to attract new business opportunities. By diversifying its client base and continually adding new clients, Sonata not only expands its revenue streams but also strengthens its market presence, ensuring sustained growth momentum in the long run.
● Sonata expects IT service margins to be in the low 20s as it invests to drive growth. Brokerage forecasts the company’s EBITDA margins to rise from 8.1% in FY23 to 9.8% in FY26E as sales growth accelerates and significant acquisitions ramp up.
Sonata Software Limited offers modernization services based on its patented Platformation technique. Its specialties include cloud and data modernization, Microsoft Dynamics modernization, digital contact center setup and administration, managed cloud services, and digital transformation services.
Written by:- Abhishek Singh
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