Sonata Software falls 14% after weak Q4 results; HDFC Securities retains 'add' call

Sonata Software's management indicated that the macro environment remains challenging, large-deal decision-making is slow, and growth could be challenging in the near term.

Shares of Sonata Software plummeted 14 percent on May 8, a day after the company posted weak earnings for the quarter ended March 2024. The global IT services and technology solutions company reported a 3 percent year-on-year drop in net profit at Rs 110.4 crore.

Its revenue from operations, however, rose 14.53 percent YoY to Rs 2,191.6 crore in the March quarter.

Sonata Software specialises in cloud and data modernisation, Microsoft dynamics modernisation, digital contact center setup and management, managed cloud services and digital transformation services.

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Sequentially, Sonata posted a weak quarter with a revenue decline of 2.2 percent CC and a margin fall of around 350 bps QoQ was much higher than anticipated, according to HDFC Securities Institutional Equities (HSIE).

The quarter-on-quarter drop in revenue was led by the Quant seasonality, delay in large deal closure and delay in deal ramp-up, according to analysts.

The brokerage expects the company to be back on the growth trajectory based on a healthy deal pipeline and strong book-to-bill of 1.22 (TCV of $100 million in Q4).

The large deal pipeline is strong with around 67 large deals under pursuit with 52 percent of the large deals being with Fortune 500 clients.

Sonata Software's management indicated that the macro environment remains challenging, large-deal decision-making is slow, and growth could be challenging in the near term.

However, they have maintained their aspiration to reach a $500 million run rate for IT services and technology solutions in the next two years.

"The investments in Microsoft Fabric and Gen Ai capabilities will pave the way for future growth," said HSIE as it maintained its 'Add' rating on the stock with a target price of Rs 610, based on 23x FY26E EPS.

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At 12:53 pm, Sonata Software shares were trading 13.8 percent lower at Rs 549.70 on the National Stock Exchange (NSE.) So far in the day, a total of 65 lakh shares of the firm changed hands on BSE and NSE combined, way over the 1-month average trading volume of six lakh shares.

The market cap of the firm slipped below Rs 15,300 crore on NSE. So far this year, Sonata Software stock has plummeted 24 percent, underperforming Nifty 50, which has risen 2.6 percent during the same period.

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