Sonata Software Ltd. share price target

ICICI Securities Ltd | Retail Equity Research Sonata Software reported a good set of Q2FY18 earnings wherein international IT services revenues grew 11.3% QoQ to $36.4 million in dollar terms. Rupee revenues declined 32.7% QoQ to | 426.9 crore...

Maintain BUY with a TP of Rs 230 12x Sep-19 EPS Sonata delivered robust numbers in 2QFY18. International IT services (IITS) revenue grew 11.2% QoQ (+10.3% CC, +6.8% QoQ excl. one-off) to USD 36.4mn, ahead of our estimate of USD 34.0mn. A positive takeaway was sustained recovery in OPD (29% of rev, +7.7% QoQ) and Travel (27% of rev, +7.4% QoQ). Strong growth in Dynamics AX (19% of rev, +25% QOQ) is driven by traction in Retail, while the focus on IPs and Platforms is driving Digital revenue (32% of rev, +15% QoQ). Total revenue stood at Rs 4.27bn, down 32.7% QoQ, led by drop in Domestic Product & Services (DPS) revenue (Rs 2.00bn, -53/-32% QoQ/YoY).

Maintain BUY with a TP of Rs 200 based on 11x FY19 EPS. Sonata delivered robust numbers in 1QFY18, International IT services (IITS) revenue grew 6.5% QoQ to USD 32.7mn ahead of our estimate of USD 31.0mn. Positive take away was recovery in OPD (30% of rev, +10.4% QoQ) and Travel (28% of rev, +10.5% QoQ). Sonata is now a preferred vendor for Microsoft ISV Development Center, which will drive growth in OPD vertical. Total Revenue stood at Rs 6.35bn down 10.4% QoQ led by weak Domestic Product & Services (DPS) revenue (Rs 4.34bn, -15.2% QoQ).

Sonata delivered decent 4Q numbers. International IT services (IITS) revenue stood at USD 30.7mn ( 1.3% QoQ), in-line with our estimate of USD 31.0mn. Total revenue was Rs 7.08bn, up 15.6% QoQ, led by strong DPS revenue (Rs 5.11bn, up 23.1% QoQ).

vertical outperformed other verticals in 4QFY17 following revenue decline in 3QFY17. Envisaging platforms as growth drivers, Sonata has made major investments for developing and marketing these platforms. Following several quarters of healthy growth, Retail & CPG vertical recorded...

Sonata Software Ltd is an IT services and Solutions Company and it is involved in the provision of IT services and solutions to its customers, and distribution of software products in India. The company operates in two major business units: international IT services (IITS) and domestic products and services (DPS).

We met Sonata Softwares (SSOFs) CFO Prasanna Oke for a business update and came away enthused about FY18-19 growth prospects. Management is confident of driving growth in the International IT services (IITS) business (36% of revenues, 77% of EBITDA) with diversified IP-led offerings (~40% of IITS revenue) and continued traction in Infra services (IMS).

Sonata delivered weak 3QFY17 numbers, as its International IT services? (IITS) revenue stood at US$ 30.3mn (-2.9% QoQ), led by weakness in OPD and Travel. Adjusting for a one-off revenue and GBP impact, IITS? growth stood at 3.5% QoQ in line with our estimates of 3.0%. IITS EBITDA margin expanded 150 bps QoQ to 23.2% (a positive surprise) led by a better revenue mix (off-shoring) and a break even in IBIS.

Sonata witnessed pressure on its key verticals in 3QFY17. Continuing to remain volatile, revenue from OPD vertical dipped 6% QoQ, following two successive quarters of 10% QoQ growth. We had noted this risk owing to disruptive impact of SMAC in our initiating report on Sonata in Dec'16. Steep 9.8% sequential revenue decline in Travel (Sonata's key focus area particularly for Rezopia platform, acquired >2 years back) is another area of concern. Sequential growth of 14% in Retail & CPG business, which is now the 2nd-largest vertical, is a key positive. This vertical has accounted for ~80%...

BUY Sonata Software Ltd at CMP Rs. 183 and add on dips to Rs. 166-170 for sequential targets of Rs. 203, 221