'Add' Sonata Maintains HDFC Securities But Reduces Target Price, Citing Near-Term Uncertainty, Macro Pressures

Sonata’s partnership with Microsoft remains important but faces challenges as the latter adopts a more methodical approach to investments and tighter budget controls, leading to longer deal cycles and potential risks of direct client engagement models, especially with large customers..NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..HDFC Securities Institutional Equities.Sonata Software Ltd. has positioned itself as a differentiated modernization engineering and AI-driven organization aiming for top-quartile growth. However, Sonata’s growth has slowed down in the last four quarters, owing to client specific issues (Microsoft and BFSI) and macro challenges (retail) despite ramp-up of large deals won. Microsoft dynamics (sell-to) growth, which was under stress, is expected to stabilize and investments in areas like data, Dynamics CRM, and Fabric will accelerate growth. One large BFSI client continues to experience budgetary constraints, and the slowdown is expected to continue in Q2 as well. The retail and manufacturing verticals remain under industry-wide stress due to tariffs and regulatory changes. The DPS business growth is challenged due to IT/ITES softness and price sensitivity, partly due to Microsoft’s strategy to directly engage with large enterprise clients. Sonata aims for 18% IITS EBITDA margin by FY26E (wage hike in Q2 and Q3), driven by revenue stabilization, an improved onsite-offshore mix and better utilization. Overall, the growth engine appears to be under stress, and we expect FY26E to be a muted year, with IITS revenue/consolidated EPS CAGR of 7/13% over FY25-28E. Considering the near-term growth challenges and slow margin recovery, we cut our EPS estimates by 7-8%. We maintain Add with a SoTP-based target price of Rs 400, valuing the IITS business at 22x and the DPS business at 15x..Click on the attachment to read the full report:.HDFC Bank, SBI Among Motilal Oswal's Top Picks In Bank Stocks — Check Full List.DISCLAIMERThis report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

'Add' Sonata Maintains HDFC Securities But Reduces Target Price, Citing Near-Term Uncertainty, Macro Pressures

Considering the near-term growth challenges and slow margin recovery, HDFC Securities cuts Sonata's EPS estimates by 7-8%.

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