Target: ₹915

CMP: ₹769.30

We initiate coverage on Sonata Software with a Buy rating and a target price of ₹915 (valued at 30x PE FY26E EPS). New CEO has enabled the company to drive strong financial performance over the past few quarters.

Sonata’s focus on investing in sales and marketing, account mining & hunting and strong platformation framework are expected to be key long term growth drivers. This has led to the company aspiring to double its international services revenues by FY27 from FY 23.

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We believe the company could achieve the same by FY26 (implying Service revenue CAGR of 27% over FY23-FY26). Considering this we expect overall revenue (including domestic sales) and PAT to grow at a CAGR of 23 per cent and 24 per cent over FY23-FY26.

Sonata through partnership, large deals, partnership, capability building and refreshed CEO strategy has outperformed peers in revenues by 70-200 bps on QoQ basis and has better EBITDA margins than peers (200-500 bps higher). Considering the size of the company and strategy we expect the outperformance to continue in the medium term.

Further, strength in digital, traction in large deals, tier 1 hires & partnerships has prompted us to have positive view on Sonata.