Sonata Software surges 6% in weak market on healthy Q2, 1:1 bonus issue

Shares of Sonata Software surged 6 per cent to Rs 1,101.50 on the BSE in Thursday’s intra-day weak market on the back of heavy volumes after the company reported a healthy operational performance for the quarter ended September 2023 (Q2FY24).

The board has also recommended a bonus issue of 1 equity share for every 1 equity share held by the shareholders of the company as on the record date.

The board also declared an interim dividend of Rs 7 per share (700 per cent on par value of Rs 1) for the financial year 2023-24. The company has fixed November 7, 2023 as record date for the purpose of payment of the interim dividend.

Meanwhile, in Q2FY24, Sonata Software reported earnings before interest, taxes, depreciation, and amortization (ebitda) margin of 11.3 per cent on consolidated basis, up 130 bps quarter-on-quarter (QoQ) driven by IT services business, which reported a margin of 23.6 per cent, up 87 bps QoQ.

Consolidated profit after tax up 3 per cent QoQ and 10 per cent year-on-year (YoY) at Rs 124.20 crore.

The company reported consolidated revenues of Rs 1,912.60 crore, down 5 per cent QoQ as it is a seasonally weak quarter for domestic product business, which fell 11 per cent QoQ.

The international IT services business grew 6 per cent QoQ and 46 per cent YoY at US $ 80.9 million on constant currency basis.

The management said the company successfully renewed all its large multiyear software contracts with its key customers. The company will continue focusing on its Multi-Cloud Management offerings and System Integration business to drive future growth, the management said.

"Sonata Software’s growth of 4.6 per cent QoQ in IT services is very strong considering other peers' reported numbers. The company has outlined 3-4 years revenue target of $1.5 billion (vs. US$ 0.92 billion in FY23), implying a CAGR of 15 per cent over the next 3-4 years with low 20s margin in IT services business. For FY24, it is expecting industry leading high teen growth (also aided by Quant (new acquisition integration)", ICICI Securities said in note.

The brokerage believes strong deal wins (won 10 large deals won YTD), enhancing presence in life sciences and BFSI through Quant, should enable the company to attain its growth targets.