Sonata's platformation strategy to provide IT services around IPs like Rezopia, Halosys, Brick & Click and Retina, is yielding results. Growth in IP-led revenues is improving employee productivity and aiding margin expansion. Microsoft Dynamic 365 is in growth phase and Sonata being a preferred development partner is reaping benefits. Sopris and Scalable Data will enhance Dynamics 365 offerings and will support growth. We expect IITS' USD revenue to grow 13.6/11.1% with margin of 23.4/24.0% in FY20/21E. We like Sonata's IP-focussed business model, high RoE (~35%) and dividend yield of ~4%. The stock trades at a P/E of 11.2x FY21E, which is reasonable. Risks include high client concentration, slow down in Dynamics 365 portfolio and drop in margins due to onsite investments. We maintain BUY on Sonata based on inline 1QFY20. IP-led strategy is driving growth for the past ten quarters (+10.3% CQGR) and is aiding margin expansion. We downgrade multiple to 14x from 16x to factor in growth moderation (ex IP-led) and high dependence on few clients. Our TP of Rs 421 is based on 14x June-21E EPS.

Growth in the quarter was primarily led by acquisition, consolidation while organic growth was flat. However, the management expects organic growth to be back on track in Q2FY20E. Further, IP led business along with digital are expected to gain momentum in coming years led by its platformation and alliance led strategy and are expected to be primary growth drivers for the company. Taking this into consideration and consolidation of two acquisitions, we expect IT services revenues to clock rupee revenue CAGR of 15.9% in FY19-21E. However, domestic revenues, which constitute a...

IITS Revenue Slightly Soft, IP-Led Biz Continues Upward Journey Sonata Software (SSOF) posted a soft performance in 1QFY20, with its USD revenue from IITS Business rising by 1.8% QoQ to US$44.3mn, missing our estimate by 2.1%. The entire revenue growth was led by full consolidation of the acquisition of Sopris Systems, while organic revenue growth remained flat in USD terms. In CC terms, total revenue rose by 2.7% QoQ, while organic CC growth was ~1% QoQ. Lower revenue in the Travel vertical (down 5.4% QoQ in USD terms) was the main driver for the softer-than-expected revenue. This was owing to growth not coming in as expected, with deal ramp-up slower-than-expected. Given that Travel is mainly...

Sonata's platformation strategy to provide IT services around IPs like Rezopia, Halosys, Brick & Click and Retina, is yielding results. Growth in IP-led revenues is improving employee productivity and aiding margin expansion. Microsoft Dynamic 365 is in hyper growth phase and Sonata being a preferred development partner is reaping benefits. Sonata strategic acquisition of Sopris and Scalable Data will enhance Dynamics 365 offerings and will support growth. We expect IITS' USD revenue to grow 15/11% with margin of 22.6/23.0% in FY20/21E. We like Sonata's IP-focussed business model, strong relationship with top-clients, high RoE (~35%) and dividend yield of ~3%. The stock trades at a P/E of 11.9x FY21E, which is reasonable (~10% discount to tier-2 IT median). Risks include high client concentration, slow down in Dynamics 365 and drop in margins due to onsite investments. We maintain BUY on Sonata based on inline 4QFY19. Robust growth in IP-led revenue (+41% YoY) and margin expansion in IITS (~483 bps in FY19) is encouraging. Our TP of Rs 480 (+34% upside) is based on 16x FY21E EPS.

Sonata's IT services business grew 12% YoY to $161.2 million in FY19 driven by digital (grew 21.6% YoY, 35% of services revenue) and IP led (42.5% YoY, 19% of revenue). These two verticals are expected to gain traction over the coming years led by its platformation and alliance led strategy and are expected to be primary growth drivers for the company. Further, addition of leadership in digital segment (two in digital advisory and one in digital deli every) and sales head is expected to drive the company's deal pipeline. This coupled with consolidation of acquisition leads us to upgrade our IT services...

The IT service revenues increased 5.0% QoQ in constant currency terms. In dollar terms, revenues increased 4.3% QoQ mainly due to headwinds from cross currency. The rupee appreciation further...

Maintain BUY with a TP of Rs 466 based on 16x Dec 20 EPS. Sonata delivered a good quarter, International IT services (IITS) revenue was up 4.3% QoQ (+5.0% CC) to USD 40.8mn, in-line with our est of USD 40.3mn. Growth was led by IP-led revenue (+10.7% QoQ) and continued traction in Top-5 accounts (+10.5% in 9MFY19). IITS margin expanded 779bps QoQ to 28.4% (highest ever) led by cut in high cost sub-con expenses, higher utilisation and operational efficiency.

Maintain BUY with a TP of Rs 445 based on 16x Sep 20 EPS Sonata delivered a good quarter, International IT services (IITS) revenue was up 3.4% QoQ (+4.0% CC) to USD 39.1mn, in-line with our estimate of USD 39.1mn. Growth was led by higher IP-led revenue (+14.2% QoQ) and Digital (35% of rev, +9.7% QoQ). IITS margin contracted -153bps QoQ to 20.6%, after a significant improvement of 480 bps over the past five quarters. Total revenue stood at Rs 5.93bn, down 13.8% QoQ, led by drop in Domestic Product & Services (DPS) rev (Rs 3.26bn, -25.4% QoQ).

Sonata Software's IT service revenues in constant currency grew 4.0% QoQ. Further, the company's dollar revenues increased 3.4% QoQ to $39.1 million mainly led by 9.7% QoQ growth in digital revenues. Vertically, the company's Dynamics AX business grew 14.9% QoQ. Geographically, Europe revenues grew 7.0% QoQ led by better growth & addition of two new clients and Rest of the World (RoW) revenues increasing 12.8% With healthy growth in IT service dollar revenues, rupee revenues...

Steady revenue growth: Sonata Software delivered a steady performance for Change in Estimates | Target | Reco 2QFY19 with inline IT services USD revenues and beat on consolidated PAT aided...

Sonata Software 1QFY19 results were a mixed bag with revenue miss negated Change in Estimates | Target | Reco up 1.1% QoQ and below our estimates (PLe: 38.5mn). Sonata derives ~29%...

Maintain BUY with a TP of Rs 375 based on 16x FY20 EPS. Sonata delivered a decent quarter with slight miss on revenue but margin beat was a positive surprise. International IT services (IITS) revenue was up 1.1% QoQ (+3.0% CC) to USD 37.8mn, below our estimate of USD 38.5mn. IITS margin jumped to 22.2% (vs. our est. of 20.0%) due to higher IP-led revenue (+5.6% QoQ and 82% of incremental rev). The company is witnessing increased traction on the Microsoft Dynamic AX (Cloud ERP platform) and is a preferred ISV development center partner for Microsoft.

Sonata Software's USD revenue from IITS business rose by a relatively subdued 1.1% QoQ to touch US$37.8mn, while in CC terms it rose by 3% QoQ, which was largely in-line with our estimate. In INR terms, IITS revenue rose by 6.3% QoQ to Rs2.57bn. On the other hand, DPS revenue grew 12.5% QoQ to Rs4.37bn. Consolidated revenue saw a 10% QoQ rise to Rs6.88bn. Consolidated EBITDA margin rose by 50bps QoQ to touch 10.7% aided by depreciating INR. On YoY basis, the expansion was even more substantial at 314bps. In absolute terms, EBITDA rose by as much as 53.9% YoY, aided by higher contribution of IITS business and INR depreciation. Segment-wise, IITS margin expanded by a robust 307bps QoQ to 22.9%, while DPS margin...

ICICI Securities Ltd | Retail Equity Research Sonata Software reported Q1FY19 earnings wherein international IT services revenues grew 3% in constant currency terms on account of higher contribution from IP led revenues. Services dollar revenues grew 1.1% sequentially to $37.8 million on account of currency headwinds mainly due to GBP. Consolidated rupee revenues grew 10% QoQ to | 688.3 crore, with international revenues growing 6.3%...

ICICI Securities Ltd | Retail Equity Research Sonata Software reported Q4FY18 earnings wherein International IT services revenues was flat sequentially (2.7% sequential growth adjusting for one time revenues in Q3FY18) at $37.4 million in dollar terms. Consolidated rupee revenues declined 8.7% QoQ to | 625.8 crore, mainly on account of the domestic business that witnessed a decline of 26.7% QoQ to | 388.7 crore EBITDA margins witnessed a healthy performance and grew ~160...

Maintain BUY with a TP of Rs 380 based on 16x FY20 EPS. Sonata delivered soft 4QFY18 with slight miss on both revenue and IITS margin. International IT services (IITS) revenue was flat QoQ at USD 37.4mn, below our estimate of USD 38.9mn. Adjusting for one-time pass through revenue last quarter, QoQ IITS rev growth was 2.7%. IITS margin slipped to 19.8% (vs. our est. of 21.0%) despite higher off-shoring (+400bps QoQ). Travel (27% of rev, -3.6% QoQ) and Retail (25% of rev, -7.4% QoQ) were under pressure while OPD (28% of rev) was flat QoQ.

Though Sonata reported disappointing IITS revenue of US$37.4mn, this came following three quarters of healthy growth (+2.7% QoQ in 3QFY18; +11.3% QoQ in 2QFY18 and +6.5% QoQ in 1QFY18). On YoY comparison, IITS USD revenue rose by a strong 21.8% led by focus on platforms and IP-led solutions (platformation'). Focus on consumer-centric verticals, which require high investment in digital initiatives, has been the key tailwind. Notably, 15.6% of Sonata's 4QFY18 revenue was IP-led (vs. 15.2% in 3QFY18). We expect focus on its platformation strategy to drive...

ICICI Securities Ltd | Retail Equity Research Sonata Software reported Q3FY18 earnings wherein international IT services revenues grew 2.7% QoQ to $37.4 million in dollar terms. Consolidated rupee revenues grew 79.6% QoQ to | 766.8 crore...

Maintain BUY with a TP of Rs 335 based on 15x (earlier 14x) Dec-19 EPS. Sonata delivered robust 3QFY18 numbers with beat on both revenue and margin. International IT services (IITS) revenue grew 2.7% QoQ to USD 37.4mn, ahead of our estimate of USD 36.2mn. A positive surprise was 328bps expansion in IITS margin to 20.9% (vs. our est. of 18.0%) led by higher productivity. Travel (28% of rev, +6.5% QoQ) and Retail (27% of rev, +6.6% QoQ) continue to drive growth. OPD (28% of rev) was down 0.9% QoQ but will recover led by deal wins.