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SENSEX: 72748.42 104.99

NIFTY: 22055.70 0.00

Multi Baggers

Hem Securities

5.30 AM Jan 1st 1970

Sonata

BSE ID : 532221     NSE ID : SONATSOFTW

RECOMMENDED PRICE 127.15

PEAK FROM RECO 1147.40 802.40%

CURRENT PRICE 744.20 Resource id #19

Sonata Software is a leading IT consulting and services company. We initiate a 'BUY' on the stock with a target price of Rs 175 with the medium to long term investment horizon.

Sonata Software

Sonata Software, headquartered in Bangalore, India, is a leading IT consulting and services company. Sonata's customers are located across the US, Europe, Middle East and the Asia-Pacific region. The company has strategic alliance with Microsoft (Gold Certified Partner), SAP (Gold Partner), IBM (Business Partner), Oracle (Platinum Partner) and HP (Platinum Business Partner).

The company has registered sharp results for the quarter ending June 2014. The revenues from operations grew by about 22% to Rs.417 crores vs. Rs.340.71 cr. in the preceding quarter while it remained flat on y-o-y. Operating profit climbed sharply by ~162% at Rs.39.10 crores as against Rs.14.93 crores in the previous year quarter. The adjusted net profit(before exceptional item of income tax refund of Rs.1.64 crores) stood at Rs.30.41 crore for the quarter as against Rs.7.69 crore; registering a growth of ~295% and 29% on a sequential basis. On the margins front, operating margin climbed about 576bps at 9.37% as against 3.61% while net profit margin expanded 543bps at 7.29% from 1.86% y-o-y.

This is again another quarter of highest revenues and growth for us in terms of people, in terms of profits, in terms of utilization, realization and so on. Company continues to be debt-free and it only borrows for working capital requirements on a sporadic basis. As a part of expanding near shore service delivery capabilities the company has opened a Development Centre facility at Redmond, USA and has also opened operations in Australia.

Valuation

With improving operating metrics, restructuring process paying off, healthy balance sheet, large deal wins and improving margin profile; Sonata Software Ltd. growth prospects and profitability looks optimistic. We believe the company is trading at an attractive valuation at 11.88x and 8.94x of FY15EPS of Rs.10.70 and FY16EPS of Rs.14.22. We initiate a 'BUY' on the stock with a target price of Rs.175 (appreciation of about 37%) with the medium to long term investment horizon.

Disclosure of Interest Statement - Company Name

1. Analyst Ownership of the Stock - No
2. Hem & its Group Company Ownership of the Stock - Yes
3. Hem & its Group Companies' Director Ownership of the Stock - Yes
4. Broking relationship with company covered - No

 

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Disclaimer & Disclosure: This document is prepared for our clients only, on the basis of publicly available information and other sources believed to be reliable. Whilst we are not soliciting any action based on this information, all care has been taken to ensure that the facts are accurate, fair and reasonable. This information is not intended as an offer or solicitation for the purchase or sell of any financial instrument and at any point should not be considered as an investment advise. Reader is requested to rely on his own decision and may take independent professional advise before investing. Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited, Directors and any of its employees shall not be responsible for the content. The person accessing this information specifically agrees to exempt Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and further agrees to hold Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The companies and its affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities there of, company (ies) mentioned here in and the same have acted upon or used the information prior to, or immediately following the publication. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

SonataSoftware_HemSec_Multibagger.pdf

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