Given the slower momentum in the first half of the year, analysts have reduced the estimated earnings growth rate for the full year.
Sonata provides solutions to modernise the technology infrastructure used by clients across verticals including banking, financial services and insurance (BFSI), healthcare, retail, manufacturing, travel, media and telecom around the world. For the international business, the company has a high client concentration with top 10 customers contributing half of the segment revenue.
The revenue from the domestic business constituted nearly 57% of the total revenue in FY24; this proportion increased to 64% in the June 2024 quarter as the overseas revenue growth slowed during the quarter.
Total revenue grew by 15.3% sequentially to Rs 2,527.4 crore in the June quarter led by the Indian operations as revenue from its international services business rose at a slower pace of 1.3% to $ 82.7 million. The company’s operating margin before depreciation and interest (EBITDA margin) improved by 40 basis points sequentially to 7%. The consolidated net profit fell by 4.3% to Rs105.6 crore due to lower other income. The company had earlier guided for $ 1.5 billion in revenue by FY26 compared with $ 1 billion in FY24 with an EBITDA margin in the low 20s. However, the target deadline is likely to be extended FY27 due to the current phase of delays in project ramp ups.In an analyst call after the quarterly result, the company management stated that the deal decisioning by clients and the project completion in the UK, Europe and retail manufacturing would remain slow in the upcoming quarters. In addition, the large healthcare deal won during the June quarter would be margin dilutive for the first two to three quarters due to an upfront investment in artificial intelligence (AI) related technologies. The company expects 20% revenue from the AI related projects in the next three years.The company closed three large deals in the June quarter. It has another 49 such deals in the pipeline.
Given the near term challenges such as margin dilution and increase in finance cost, IDBI Capital Markets and Securities has reduced the earnings per share (EPS) estimate by 10% for FY25. The brokerage has downgraded the stock rating to “hold” from ‘buy” while retaining the target price of Rs 770, implying an FY26 price-earnings multiple of 28. The stock closed 3.4% higher at Rs 603.3 on the BSE on Wednesday.
