HDFC Securities
Sonata Software (Buy)
CMP: ₹195.80
Target: ₹203–221
Sonata Software Ltd is an IT services and solutions company and it is involved in the provision of IT services and solutions to its customers, and distribution of software products in India. Its services include application lifecycle services, which deliver application management with facilities, such as application development and application migration; retail IT services, such as Dynamics AX retail, and technology infrastructure services. Its secondary segment comprises business segments, products and services.
Investment rationale: a) Recent alliance with Aeris brings expertise in IoT platform and solutions; b) Granted US patent for ‘Multi-channel delivery of augmented messages’ for Halosys Mobility Platform; c) Inorganic acquisition by Sonata Software over the last two years could add incremental growth in revenue; d) Expect to report doubling of revenue from International IT Services in the next 4 years; e) Domestic products and services (DPS) enables strategic partnerships with large ISVs; f) Attractive Dividend yield play and return ratios are attractive at about 35 per cent (FY16).
Risks: a) Increasing global uncertainties; b) Intense Price Competition; c) Currency volatility; d) Domestic product and services business — yielding slow growth and low margins.
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