The IT stock is trading higher on its biggest acquisition. More Rally Ahead?

,sonata software Announced its largest acquisition of Quant Systems. The deal is valued at a P/S of 4.3x, which we feel is on the high side, but justified by Quant’s high growth profile, superior margins of >25%, excellent partnership network and domain capabilities across BFSI and healthcare verticals Is. The acquisition is in line with management’s goal of doubling IITS’ revenue (hit half a billion) in four years, supported by higher investments in new verticals and geographies, and growing partnerships beyond Microsoft. The deal is EPS accretive and will increase FY24/25E EPS by +2/6% respectively,” said analysts at HDFC Securities.

The acquisition will also add two new clients to Sonata’s top-5 list and help it expand its presence in the BFSI and healthcare verticals. The brokerage likes Sonata based on growth acceleration at IITS, strong Microsoft relationship, new CEO focus on improving sales engine, sustained growth in DPS and high ROE. It has maintained its buy rating it stock and increased its target value 775 per share.

“Sonata’s share price has appreciated ~3x in the last five years. The acquisition of QS will strengthen Sonata’s offering in BFSI and Healthcare & Life Science verticals which will aid in the company’s revenue growth. It will better position Quant Systems as Will also help in pricing. Led by data analytics, data engineering is already commanding premium billing rates. Winning large deals and strong digital spend by customers will help us drive IT service dollars at over 23.8% CAGR over FY22-25E induces to build revenue growth,” said analysts at ICICI Securities maintaining a buy rating on the stock with a target price of 835 each.

The views and recommendations given above are those of individual analysts or broking companies and not of Mint.