Sonata Software Q1 Results Review - Near Term Headwinds, Long Term Attractive: IDBI Capital

IDBI Capital Report

Sonata Software Ltd. reported services revenues (up 1.2% QoQ) which were impacted due to delay in large deal in healthcare. Going forward, the company expects macro challenges which will lead to delay in decision making (elongated from three-four quarters) and in large deal closure.

However, Sonata Software expects H2 FY25E to be better than H1 FY25E and confident to grow above industry in FY25E on the back of strong order book (1.24 times book to bill) and AI deals.

Furthermore, management expectation of achieving $1.5 revenue mark to get deferred by couple of quarters and margin to be dilutive in near term. However, we remain positive for long term with conservative for near term. Hence, we have downgraded our EPS estimates downwards by 10% for FY25E (due to margin dilution and increase in finance cost) and increase by 3% for FY26E.

Hence, we have maintained our target price to Rs 770 (28 times FY26E EPS) and we revise our rating to Hold on the stock.

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