Sonata Software’s IT Services segment was strong in Q3FY22 and growth was driven by CPG/Retail. The domestic business, which was up 32% year-on-year, continued to shine. However, on a sequential basis adjusted for forex and after absorbing Q3 increments, IT services margin was flattened.
Domestic brokerage and research firm Anand Rathi has given a buy rating on multibagger stock and have modified its target value 1,050 per share (from 1,070 before) after Q3 results. Shares of Sonata Software have risen over 118% in one-year period 399 level is currently hovering 874 per share mark.
“Sonata Software’s IT business is expected to grow at a CAGR of 17% (organic) in FY 2012-FY24 and segment of around 25.6% by FY14 (FY 26.4%) on global distribution build out and high incremental growth. Margin can be seen. On the domestic front, it is likely to register a CAGR of 21% (compounded annual growth rate), which will boost the consolidated FY24e EPS. 50,” the brokerage note said.
The management of the IT services provider expects the fourth quarter (Q4) of travel and growth to resume in Q1FY23. However, Anand Rathi sees supply-side disruption as a major risk in the next few quarters.
IT services margin was flat on higher utilization and absorbing wage growth through steady offshoring. Going forward, utilization may decline marginally while offshoring is likely to remain stable. Sonata announced salary hikes in Q4 FY22 (for some grades) and Q1 FY23 (for rest) as attrition touches 22-23%, the note highlighted.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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