Buy This IT Mid Cap Stock, It Surged By 45.15% In 1-Year

ICICI Direct has suggested investors to buy shares of Sonata Software Limited. The brokerage believes that the stock price of this company will probably rise upto a target price of Rs 835 per share. Its current market price is Rs 823.20 per share.

Sonata Software Limited is a mid cap company, with a market capitalisation of Rs 11,542.29 crore.
It is a leading Modernization and digital engineering company, headquartered in Bangalore. It was established in1986 as the IT division of Indian Organic Chemicals, the company spun off as an independent entity in 1994. The company became a public company in 1998. It offers IT services (30%) and product licensing & deployment (70%).

It specializes in cloud and data modernization, Microsoft Dynamics Modernization, Digital contact center setup and management, managed cloud services and digital transformation services. It has a presence in North America, Europe, and Asia-Pacific. Sonata has partnerships with leading technology providers such as Microsoft, Amazon, Google, among others, and has received several awards and recognition for its services. In 10 years the company's CAGR has been 18%.

According to ICICI Direct the company is net debt free and healthy double digit return ratio (with RoCE of >30%). and the acquisition is beneficial."Sonata's wholly owned US subsidiary signed a definitive agreem of US$ 160 mn (4.3x sales), US$65 mn to be paid upfront while rest US$95mn to be paid in next 2 years based on certain milestones. Quant Systems's revenue grew 4x in last 2 years and growth going forward is also expected to be strong. EBITDA margins for the company are also healthy i.e., upwards of 30%. Acquisition of QS will strengthen Sonata offering in BFSI and Healthcare & Life science verticals which will aid the revenue growth of company and also help in commanding better pricing"

ICICI Direct's explains its valuation on the stock of Sonata Software Limited, "Winning large deals and strong digital spending by the clients prompt us to build IT service dollar revenue growth of over 23.8% CAGR over FY22-25E. Sonata's share price has grown by ~3x over the past five years (from ~| 238 in February 2018 to ~| 706 levels in February 2023). We maintain our BUY rating on the stock target price and value Sonata at Rs 835 i.e., 18x P/E on FY25E EPS."

Disclaimer:
The stocks have been picked from the brokerage research of ICICI Direct, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.