Sonata Software Ltd. share price target

SSL's capability in IP led offerings and digital has / should enable the company to maintain its growth momentum. Its prospects look bright, given its IP-focused business model, focus on scalable Microsoft Dynamics AX platform, sound balance sheet, healthy return ratios and attractive dividend yield.

Sonata delivered robust 2Q, international IT services (IITS) revenue growth came above our estimate boosted by sustained revival in core business. IITS revenue stood at US$ 31.2mn 6.8% QoQ led by second consecutive quarter of strong growth in OPD ( 10.8% QoQ). DPS declined 35.1% QoQ due to absence of large one-time license sale last quarter.

Sonatas international IT services (IITS) organic rev was flat (US$ 25.9mn). This was disappointing as the management expected to return to organic growth after client-specific issues in OPD impacted 1HFY16. Reported revenue grew a healthy 5.4% QoQ (US$ 27.4mn) aided by full consolidation of Halosys and 1.5 months consolidation of IBIS (US$ 1.5mn impact).

Sonata Software is a mid-sized IT services player with focus on travel, retail and consumer and OPD verticals. The company has grown profits, mostly driven by growth and margin traction in international IT services (IITS), which contributed 36% to FY15 revenue and 78% to EBITDA. However, 1QFY16 saw flat IITS revenue QoQ owing to client-specific issues.