Sonata Software Ltd. share price target

• SSOF’s Q3FY25 result missed our expectations. The company reported revenue of INR 28,428 Mn, up 14.0% YoY (+31.0% QoQ).
• EBIT stood at INR 1,313 Mn, down 24.5% YoY (-9.0% QoQ). EBIT margin stood at 4.6%, down 236bps YoY (-203bps QoQ).

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

SSOF’s Q2FY25 result exceeded expectations. The company reported revenue of INR 21,698 Mn, up 13.5% YoY (-14.1% QoQ), primarily drivenby strong YoY revenue growth in domestic business.

In Q1FY25, Sonata Software reported revenue of INR 25,274 Mn, up 25.4% YoY (+15.3% QoQ). The revenue beat our estimates, driven by growth in domestic business.

In Q4FY24, Sonata Software reported revenue of INR 21,916 Mn (-12.1% QoQ/+14.5% YoY). The revenue beat our estimates by 2.0% due to slightly better-than-expected international business.

For Q3FY24, the Company recorded a revenue of INR 24,934 Mn, registering a growth for 10.3% YoY and 30.4% QoQ. Revenue from International business grew by 42.3% YoY/ 4.0% QoQ to INR 6,968 Mn while domestic business grew at 1.5% YoY/ 44.7% QoQ to INR 18,003 Mn.

During the quarter, the company recorded revenue of INR 19,125 Mn, registering a YoY growth of 27.8%, driven by the full ramp-up of a USD 160 Mn agreement announced earlier this year. Revenue from International IT Services (IITS) increased 6.0% QoQ/46.0% YoY to INR 6,700 Mn.

Sonata Software reported revenue of USD 77.3 mn in Q1FY24 as against USD 56.8 mn in Q1FY23, registering a robust growth of 36.09% on a YoY basis and on a sequential basis it grew by 17.48% from USD 65.8 mn. The growth was mainly attributed to large deal wins and the acquisition of Quant Systems.

Sonata Software reported revenue of INR 19,135 mn in Q4FY23 as against INR 14,636 mn in Q4FY22, registering a growth of 30.7% on a YoY basis. However, revenue declined by 15.4% on a QoQ basis mainly due to slowdown in the Hi-tech segment. The USD IITS revenue grew by 18.1% YoY and 8.7% QoQ to USD 65.8 mn.