Buy Sonata Software, target price Rs 1020: Anand Rathi

Anand Rathi has buy call on Sonata Software with a target price of Rs 1020. The current market price of Sonata Software is Rs 642.25. Time period given by analyst is one year when Sonata Software Ltd. price can reach defined target.

Sonata Software Ltd., incorporated in the year 1994, is a Mid Cap company (having a market cap of Rs 6740.71 Crore) operating in IT Software sector.

Sonata Software Ltd. key Products/Revenue Segments include Computer Software, Software Products and Other Operating Revenue for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company reported a Consolidated Total Income of Rs 1508.66 Crore, down -19.46 % from last quarter Total Income of Rs 1873.29 Crore and up 37.82 % from last year same quarter Total Income of Rs 1094.63 Crore. Company reported net profit after tax of Rs 100.90 Crore in latest quarter.

Investment Rationale
Sonata’s IT business is likely to clock a 21% CAGR over FY22-FY24, with margins expected to contract to ~21.4% (FY22 23.4%, Q4 23%). On the domestic side, Sonata is likely to record a 23% CAGR, taking the consolidated FY24e EPS to Rs51. The stock trades at 13x FY24e EPS (6% FCF yield), which we find attractive. Risk: Supply-side challenges.

Promoter/FII Holdings
Promoters held 28.17 per cent stake in the company as of 31-Mar-2022, while FIIs owned 13.71 per cent, DIIs 14.69 per cent.