Why Sonata Software Share Price is Falling

Sonata Software, a mid-cap IT services company, is on a rollercoaster ride. Its share price trajectory in the past 3 months has moved up and down exactly like a roller coaster.

The company, known for its expertise in digital transformation, had faced investor disappointment in May 2024 following the announcement of FY24 results. This led to a significant decline in its share price.

The stock had gradually begun to recover, regaining investor confidence. After a significant setback following disappointing FY24 results, the stock had embarked on a recovery path.

However, this upward trajectory has been abruptly halted. The company's share price has plummeted 12% in the past five days, leaving investors puzzled.

A close examination of the recently announced Q1 FY25 results is necessary to understand the factors contributing to this sharp decline.

Weak Quarterly Results

Sonata Software reported a 12% YoY drop in its consolidated net profit at Rs 1.1 billion (bn) for Q1 FY25. This resulted in steep fall in the stock.

Its revenue from operations during the reporting quarter stood at Rs 25.3 bn, an increase of 25% YoY. Earnings before interest, tax, depreciation, and amortisation (EBITDA) was flat on a YoY basis at Rs 1.8 bn.

Revenues from international IT services stood at Rs 6.9 bn, reflecting a QoQ growth of 1.3%. This growth was led by the BFSI (retail banking) and TMT verticals (Microsoft Fabric). EBITDA for international revenue for the same period reached Rs 1.3 bn, with a QoQ growth of 9.5%.

However, PAT for international services decreased to Rs 0.7 bn, showing a QoQ decline of 7.3%. The company added 14 new customers during the quarter.

Revenue from domestic products and services for Q1FY25 was Rs 18.5 bn, a QoQ growth of 22.1%.

The gross contribution from domestic segment for the quarter was Rs 0.7 bn, showing a QoQ increase of 5.8%. PAT for the segment in the quarter stood at Rs 0.4 bn, a modest QoQ growth of 0.9%.

What Next?

Sonata Software's primary objective is to become the fastest-growing modernisation engineering company. The target revenue is US$ 1.5 bn by FY26, with an international EBITDA margin in the low-20s.

Its key strategy is the continued partnership with major technology companies like Microsoft and AWS. This collaboration is expected to drive the development and deployment of cutting-edge AI and Gen AI technologies.

A deal pipeline worth US $ 64 m across 110 customers has already been created for AI initiatives. The Microsoft Fabric initiative also shows promise, with a US$ 46 m pipeline across 80+ customers.

The company plans to leverage its platformation framework to enhance service delivery and customer satisfaction. The focus will be on expanding its presence in key verticals such as healthcare, financial services, and manufacturing.

This includes major deals like the Dynamics D365 Business Transformation Program and the SAS Viya migration for prominent clients.

To support these initiatives, Sonata plans to train 67% of its employees in AI technologies and continue to foster an AI-first culture. The company is also actively pursuing large deals and expanding its market share, particularly in North America and Europe.

However, it's essential to address the challenges identified. For instance, there is a need for consistent quarterly revenue and gross contribution growth. Addressing these areas will be crucial for sustaining long-term success.

Overall, Sonata Software's strategic focus on modernisation, AI, and sustainability, coupled with robust partnerships and an ambitious revenue target, positions the company for a dynamic and prosperous future.

How Sonata Software Share Price has Performed Recently

In the past five days, Sonata Software share price tumbled 12%. In the past month its share price is up 4.3%.

In 2024, so far its share price is down 9.3% and it is up 25.6% in the last year.

The stock touched its 52-week high of Rs 867.1 on 27 February 2024 and a 52-week low of Rs 469.1 on 4 June 2024.

About Sonata Software Technology

Sonata Software Limited is an Indian information technology services company, based in Bangalore.

Sonata provides services in business intelligence and analytics, application development management, mobility, cloud, social media, testing, enterprise services, and infrastructure management services.

For more details about the company, you can have a look at Sonata Software company fact sheet and Sonata Software quarterly results on our website.

For a sector overview, read our software sector report.

You can also compare Sonata Software with its peers on our website:

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