Buy This Multibagger Small Cap IT Software Stock, Shares Can Surge 43%, Gave 10.18% In A Week

Sonata Software Limited, an IT Software company, gets a buy call in the KR Choksey's September 2022 Top Ides Picks report. The brokerage recommended "buy" the stock of the company for an estimated target price of Rs 840 apiece. Considering the stock's current market price and the brokerage's estimated target price, the stock could surge up to 43%. Sonata Software is a Small Cap IT Software sector company having a market cap of Rs 8,240.98 crore.

Stock Outlook

The current market price (CMP) of the stock is Rs 588.10 apiece. The 52 week low of the stock was recorded on 20 June 2022 at Rs 457.59 apiece and the 52 week high was recorded on 20 October 2021 at Rs 768.69 apiece.

Returns of Investments

The stock gave 10.18% in the past 1 week. In the past 1 month, the shares surged 14.06% and gave a positive return. Over the past 1 year, the stock gave a negative return of 8.14%. Whereas, in the past 3 years, the shares gave a multibagger return of 151.03%. In the past 5 years, the shares gave a multibagger return of 410.29%.

Robust growth across board

For Q1FY23, company reported rupee revenue growth of 40%YoY to INR 17,789Mn. IITS revenue stood at USD 56.8mn with +2.0% QoQ growth (USD 55.7mn in Q4FY22). Digital/platform revenue contributed 73/25% to IITS revenue and grew +2/2% QoQ. The sell to Microsoft portfolio (ISV, +4.5% QoQ) was driving the growth & management remains optimistic about the Microsoft opportunity (product Engg + dynamics 365) and expects to deliver 15-20% YoY growth in the medium term. We expect the travel vertical to recover on the back of recovery in travel activity in Europe (peak summer bookings) and TUI hotel/flight bookings have reached ~90% of the pre-COVID level.

Strong deal wins to drive growth across geographies

Company is prioritizing on platformation & alliance led growth for International services. Management is also hiring sales personnel for acquiring new clients. Higher customer retention/large deals, strategic shift towards cloud, new strategic business lines for expansion, sales of multi year annuity licenses are likely to help domestic business to grow in the near future.

Lower attrition help expand the margin in coming quarters

The IITS EBITDA margin contracted 63bps QoQ to 22.4% due to wage hike offset by higher offshoring (+200 bps QoQ) and stable utilization.

Buy for a target price of Rs 840 apiece

Sonata Software is currently trading at a valuation with a P/E multiple of 18.0x/15.4x on FY23E/FY24E earnings. "We are assigning a P/E multiple of 17x to the FY24 estimated EPS of INR 46.57 to arrive at an upgraded target price of INR 840 per share (Earlier Price INR 791), an upside of 17.5% over the CMP," the brokerage firm said.

Business Overview

Sonata Software (SSOF) is a Bengaluru-based Indian multinational corporation, specializing in platform-based digital transformation, supporting businesses to become connected, open, intelligent and scalable. SSOF portfolio includes the Brick & Click Retail Platform, Modern Distribution Platform, Rezopia Digital Travel Platform, Kartopia E-commerce Platform etc. and Platformation based services built on Microsoft Dynamics 365, Microsoft Azure, AWS, Cloud Engineering and Managed Services deliver on the Platformation promise.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, 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 check with certified experts before making any investment decision.