Sonata Software - A Temporary Blip; Long Term Drivers Intact; Systematix Initiates Coverage With A Buy

Systematix Research Report

We initiate coverage on Sonata Software Ltd. with a Buy rating, and value the company at 25 times FY27E earnings per share to arrive at a target price of Rs 760 per share, which offers a 22% upside from current market price.

We have observed some volatility in Sonata Software Ltd. in the last six months. The stock has corrected by ~40% after a peak in Feb 2024, probably factoring in slowdown ahead of the Q4 results.

Management’s deferral of FY26 guidance to FY27 could have triggered the recent price correction. Although we expect muted performance in FY25, long-term growth drivers seem intact in terms of recently won deals as well as focus on large deals by the company.

Sonata Software’s partnership with Microsoft also helps to sustain growth momentum.

Higher-than-anticipated earnouts (like in FY24, which eventually impacted profitability) and a miss on FY27 revenue guidance are key risks to our estimates.

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