Date: July 08, 2019 · 2019. 7. 10. · Sonata Software caters to leading companies in the world in the Retail, Distribution, Travel and Software industries, Sonata’s solution portfolio

Date: July 08, 2019

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Equity Research

Pick of the Week – PCG Research

Diversification across geography and products

Strong business momentum in IITS segment

Alliances & Strategic Acquisitions to drive Growth

Sonata Software

INDUSTRY

CMP

RECOMMEND ed

ADD ON DIPS TO

SEQUENTIAL TARGETS

TIME HORIZON ed

IT / Software

Rs. 351.35

Buy at CMP and add on declines

Rs. 322 – 351.35

Rs. 394 - 449 Rs. 282

4 quarters

Key Highlights

Robust Balance Sheet with superior RoE/RoCE

Consistent track record of healthy (> 50%) Dividend

pay-out

Estimate 9% revenue and 12% PAT cagr over FY19-21E

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HDFC Scrip Code SONSOFEQNR

BSE Code 532221

NSE Code SONATSOFTW

Bloomberg SSOF IN

CMP Jul 05, 2019 Rs. 351.35

Equity Capital (cr) 10.516

Face Value (Rs) 1

Eq- Share O/S(cr) 10.516

Market Cap(Rscr) 3695

Book Value (Rs) 74

Avg.52 Wk Volume 88713

52 Week High Rs.429

52 Week Low Rs.266

Red flag Price Level Rs.282

PCG Risk Rating * Yellow

Shareholding Pattern % (Mar 31, 2019)

Promoters 28.17

Institutions 35.40

Non Institutions 36.40

Total 100.0

FUNDAMENTAL ANALYST

Kushal Rughani [email protected]

Company profile:

Sonata Software (SSL), is a global technology Company that enables successful platform based digital transformation initiatives for enterprises, to create businesses that are connected, open, intelligent and scalable. SSL caters to leading companies in the world in the Retail, Distribution, Travel and Software industries, Sonata’s solution portfolio includes its own digital platform such as Brick & Click Retail Platform, Modern Distribution Platform , Rezopia Digital Travel Platform, RAPID DevOps Platform and Halosys Mobility Platform, best-in-class capabilities on ISV digital technology platforms such as Microsoft Dynamics 365, Microsoft Azure, SAP Hybris, Cloud Engineering and Managed Services, as well as new digital applications like IoT, Artificial Intelligence, Machine Learning, Robotic Process Automation, Chatbots, Block Chain and Cyber Security. USA contributes to ~57% of revenues while Europe contribution stands at 31% and 12% comes from RoW.

Investment Rationale:

• Diversification across geography and products • Strong business momentum in IITS segment • Digital business continues to expand and further growth to drive performance • Strong Quarterly and Annual numbers, reaffirms the growth story • Alliances & Strategic Acquisitions to drive Growth • Robust Balance Sheet and Strong Financials with superior RoE/RoCE • Consistent track record of healthy (> 50%) Dividend pay-out

Concerns:

• Forex Risk: SSL operates in many different companies across the globe. Unfavourable currency fluctuations may adversely impact SSL’s earnings. • Regulatory Risk: SSL operates across several nations viz. UK and US. Any change in law, regulations and taxation framework may affect the business operations. • Concentration Risk: SSL operates in a competitive business environment. A loss of client can impact the regular cash flows. • Competition Risk: The regional concentration as well as vertical concentration can adversely impact SSL’s business in case of a slowdown.

View and valuation:

SSL is strongly positioned to enjoy industry-beating performance by a range of sound strategic business decisions. Its focus on Platformation - platform based DT solutions, places SSL as one of the fastest growing segments in the market. The focus on delivering through differentiated IP of its own coupled with high quality ISV platform alliances with Microsoft and SAP will add to the value and margins. This will drive robust investments in the new technology services. A wider customer base that is acquired over the years, offers SSL a strategic expansion potential within the existing accounts. These factors should see SSL sustain its strong growth and profitability trends. We have estimated 9% revenue cagr over FY19-21E led by strong 14% increase from IITS revenues. DPS revenues may see 5% cagr over FY19-21E along with 20bps margin expansion. Strong 9% revenues growth along with 60bps margin expansion would drive 12% cagr in PAT over the same period. We recommend investors to buy Sonata at CMP of Rs 351 and add on dips to the Rs.322 for sequential target price of Rs.394 (13x FY21E EPS) and Rs 449 (15x FY21E EPS) over the next 4 quarters.

mailto:[email protected]

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Key Highlights

The company operates in two major business units: International IT services (IITS) and domestic products and services (DPS). Its operations include software development, technical services and product marketing.

Sonata has a strategic partnership with

Microsoft for the Dynamics solution and delivers world-class supply chain solutions, including its proprietary Advanced Supply Chain Software solution.

IITS segment contributed to 62% of

revenues. In terms of EBITDA, IITS contribution for FY19 was at 78% vs. 74% in FY18 as margins saw strong expansion.

USA contributes to ~57% of revenues

while Europe contribution stands at 31% and 12% comes from RoW.

We have estimated 9% revenue cagr over FY19-21E led by strong 14% increase from IITS revenues. DPS revenues may see 5% cagr over FY19-21E along with 20bps margin expansion. Strong revenues growth along with 60bps margin expansion would drive 12% cagr in PAT over the same period.

Company Background:

Sonata Software caters to leading companies in the world in the Retail, Distribution, Travel and Software industries, Sonata’s solution portfolio includes its own digital platform such as Brick & Click Retail Platform, Modern Distribution Platform, Rezopia Digital Travel Platform, RAPID DevOps Platform and Halosys Mobility Platform, best-in-class capabilities on ISV digital technology platforms such as Microsoft Dynamics 365, Microsoft Azure, SAP Hybris, Cloud Engineering and Managed Services, as well as new digital applications like IoT, Artificial Intelligence, Machine Learning, Robotic Process Automation, Chatbots, Block Chain and Cyber Security. The company operates in two major business units: International IT services (IITS) and domestic products and services (DPS). IITS is lucrative high margin business with margins of 26%. IITS contributes to 78% of EBITDA while 22% from DPS. Top 10 customers’ revenues contribution at 69% while Top 20 at 77% for FY19. Sonata is giving more importance in specific areas in R&D, like Focus in Technology, Software Engineering, Productizing and Branding Services. For a technology company, having a strong alliance with Global IT companies like Microsoft, Oracle & Lotus to access to technology by participating in beta programme and business partner programme is very important. The company has been doing research in the area of e-commerce which lead to evolving a set of services Viz-web-enablement, Business Intelligence & Technology deployment service branded as 'e-Sonata'. With the efforts spend in R&D, company has to executing large project in area of EJB, DCOM & J2EE, Java. New branded e-Sonata executing medium to large e-commerce projects & several new addition to the portfolio of international customers in the area of B2B and B2C. SSL’s Platformation methodology brings together industry expertise, platform technology excellence, design thinking led innovation and strategic engagement models to deliver sustained long term value to customers. The company’s operations can be broken down into Indian and Overseas Subsidiaries that operate under two distinct heads namely, International IT Services (IITS) and Domestic Products and Services (DPS).

Q4FY19 and FY19 results overview:

IITS revenue grew 7% QoQ (~3% Organic) to Rs 304cr and DPS revenue grew 38% YoY to Rs 536cr in the quarter. IITS margin expanded 483bps YoY to 23.5% in FY19 fueled by growth in IP-led business, higher utilisation (86%)

and operational efficiency. However, with limited margin levers available, the desired range is around 22-24%. It is still second highest in the Tier-2 IT pack.

Growth was broad based across geographies with USA/Europe/RoW up 4.7/6.6/15.5% QoQ Top 5/10 clients grew strongly for the quarter Growth in tail accounts (Non-Top 10) was also strong at 10.1% QoQ. Tail accounts account for 31% of the

revenue. In FY19, company added 31 new customers in IITS business. Top 10 customers’ revenues contribution at 69% while Top 20 at 77% for FY19. IP led revenues continues to see robust growth with 19% of IITS revenues. In FY19 revenues grew 21% to Rs 2961cr and PAT saw 29% yoy to Rs 249cr.

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About the Industry: It has been noted that IT Services and ITeS-BPO segments have been responsible for impacts on the growth of Indian economy. The Indian IT / ITeS industry has made one of the great success stories on modern India putting the country on the global map as the leader in the Information Technology (IT) and Business Process Outsourcing (BPO). The Indian Information Technology (IT) and Information Technology Enabled Services (ITeS) sectors go hand-in-hand, in every aspect. The industry has not only transformed India’s image on the global scenario, but also fuelled economic growth and has contributed a lot to social transformation in the country. India has the opportunity to tap a market that is growing day by day with its cost advantage, huge resource pool and expertise. This sector has evolved over the past few years with main focus on the execution of Business Processes and Information/ data Security, End User Privacy, Business Contingency, Technology, People Management and above all efficiency, productivity and customer satisfaction. In CY 2018, the global tech spending reached a record of $3.65 trillion, with ~US$ 194-198 billion of that coming from the global sourcing market. There is tremendous growth and development opportunity in the IT industry in India. Investment Rationale: Diversification across geography and products: SSL caters to various leading companies across multiple sectors. Its product offerings are also huge with partnerships with major tech service providers like Mircrosoft, SAP, Oracle, Symantec, and VMware. This allows the company to not just offer their own patented products, but also distribute and re-sell the products of other leading industry players based on the client demands. The company services are offered across the globe including US, Europe, Middle-East, Asia-Pacific, Australia & New Zealand. US is a huge market for SSL as it contributes ~55% of its IITS revenues from the US markets. Europe comes next with ~32% contribution to SSL’s IITS revenues. SSL is also expanding its reach trying to exploit new market. Last year, the company opened new offices in Copenhagen, Denmark, to facilitate the ease of reach to Northern European customers. SSL also acquired a 15% stake in a Danish company Izara, to help it strengthen the dynamic capabilities and access to the Nordic markets. By expanding, the company is making sure that they are not too vulnerable to a particular market or client, along with overall growth. Software Products: According to NASSCOM, the global ER&D spends have witnessed a robust CAGR of 7% since 2009. This is a sustainable growth as companies continuously pursue innovation to re-engineer their products as per market needs and align them with ever-improving technology. Moreover, with rising digital adoption, the role of ER&D will gain prominence in introducing new products or penetrating deeper into existing geographies. Digitization and user experience have been the central themes of today’s software services. Several traditional OEMs are now re-branding themselves as technology firms. Platform-as-a-service, products-as-a-service and Big Data analytics are the new revenue drivers. Besides there have been new Cloud-based pricing models like pay-per-use. Investments are also being made on innovation labs and design centres to enable creation of indigenous & innovative solutions, establish strong IoT ecosystems as well as create a new genre of Cloud computing. India continues to maintain its leadership in the offshore destinations in delivering engineering R&D services with a market share of 22%. SSL is right in the mix when it comes to software products. It caters to multiple industries, like Travel, Retail, Distribution & Manufacturing, and ISV, and caters to many different sub industries within these like, airlines, railways, hotels, apparel cos., groceries, super and hyper markets, logistic cos, wholesale distributors, industrial manufacturers, etc. and then offers various inhouse software products as well as products of other players that its distributes across multiple technology platforms. The wide range of service offerings by Sonata, is the reason why its customers prefer to do business with them.

Travel & Tourism: Technology in Travel and Tourism plays a key role in achieving economic growth. The advancement of IT allows continuous communication and streamlines the guest experience, from reservation to checkout or to make reservations and compare prices. Booking engines cut costs for travel businesses by reducing call volume and give the traveller more control over their purchasing process. The development of vertical portals has further redefined the travel business. This has led to the formation of various last minute online travel portals which effectively organize and distribute distressed tourism inventories to the clients. Tourism suppliers have started applying e-Commerce applications, thereby allowing the customers to directly access the reservations systems. The advent and application of mobile technologies have further impacted the Tourism and Travel industries.

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Pick of the Week – PCG Research The emergence of new and high tech mobile phones has stirred a revolution in mobile technology. It is estimated that over 150 million travellers now use the smartphone for planning travel, accommodation bookings, ticket bookings, cab booking, route mapping and more activities. The Travel and Tourism Sector contributes 10.4% to the global GDP. During 2017, it grew 4.6%, outpacing the global economic growth for seven consecutive years. Asian countries continued to drive the global tourism. As global economic growth continues to accelerate, the outlook for the Travel & Tourism sector remains encouraging. While SSL’s business in this sector currently accounts for ~28% of its total revenue, coming from only 12 out of its 159 customers. The travel business for SSL has been growing at a compounded ~4.9% in the last eight consecutive quarters. Last year, SSL acquired the copyright of Transit software in India in order to further boost its revenues and expand its reach. Transit is a big data analytics solution tailor made for travel companies. SSL also offers other products and solutions in this space like the SAP Hybris Travel, and its own Rezopia Digital Platform (Railway). Time Tested Strategy: The Company’s strategy of strengthening its sales, infrastructure, converting existing account into strategic account, focused go to-market strategy towards acquiring new strategic accounts, leveraging technology alliance partnerships and focusing on enhancing talent has benefited the SSL in the past. SSL has been consistently adding new clients and enhancing its delivery center and customer service presence globally. As a part of the expansion plans, the SSL had finalised last year its new 32,000 Sq Ft. facility in Hyderabad. In terms of business strategy, SSL is continuously making efforts to invest in platform and IP based solutions. SSL’s platforms are featured on the app stores of other players, which gives it more visibility. SSL has further added features on B2B commerce and mobile field applications to its Modern Distribution platform built on top of Advanced Supply Chain Software, enhancing the scope of this solution. The company’s platformation strategy, which includes providing IT services bundled around company IP’s like Rezopia, Halosys, Brick & Click and Retina, is already yielding results for the company. Growth in said services, is improving employee productivity and aiding in margin expansion. SSL’s IP led revenues make up ~22% of its revenue as of the last quarter from ~15.5% a year back. SSL management has indicated very clearly to move ahead with this strategy, which can lead to better margins in the future. ~61% of the incremental revenue of IITS came from IP-Led services. IP-led focus has been a successful strategy for Sonata (8quarter CQGR of 10.3%) and also led to strong margin performance. Alliances and Strategic Acquisitions: SSL has existing alliances with Microsoft and SAP through which, it is a gold partner with Microsoft for 13 product competencies, which include ERP, Analytics, Cloud, Productivity & Communications, etc. Also as a part of this alliance, 3 of SSL’s industry specific IP’s are live on the Microsoft Appsource, ie. Brick & Click Retail, Modern Distribution and Rezopia. SSL has been named Microsoft’s Country Partner of the Year in India for 3 years in the past. SSL is also a global silver partner for SAP Hybris Commerce. Hence, the company is expanding its product and customer base by increasing its service offering portfolio through such alliances with industry leaders. SSL has also been making acquisitions to enter and grow new or existing industry categories. Three such acquisitions include, Rezopia, a cloud based travel ERP SaaS (software as a service), which was mainly acquired to enhance the company’s digital travel platform with commerce, mobility and analytics. Second one was Halosys, a unified enterprise mobility platform that integrated with Sonata’s industry specific platform IP and extended their mobility capabilities. And the third one was IBIS Inc., and advanced supply chain management software. These strategic acquisitions have worked out in the favour of the company. Late last year, SSL announced the acquisition of Sopris Systems, USA. Sopris Systems is a Microsoft Dynamics 365, Enterprise partner specializing in helping project-centric and field services companies improve business performance. Another acquisition it made last year was that of Scalable Data Systems, a leader in providing Dynamics 365 solutions to Australian market and Commodity Trading CTRM product for Dynamics customers globally. These acquisitions will strengthen Sonata’s Microsoft Dynamics AX (AX) capability, which has grown at 8 quarter CQGR of 9.6%.

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Pick of the Week – PCG Research Digital revenues growing fast: Digital transformation has become the main theme for most businesses as they attempt to compete with new emerging competitors and are simultaneously transforming their businesses by leveraging new technologies to create new business models. With ever changing consumer behaviour and expanding technologies, it is challenging to keep up with new demands on businesses to be agile and flexible. Business executives are increasingly involved in taking IT buying decisions unleashing technology’s power by developing new platforms. The platform based business models and strategies are the driving force behind the most profound global macroeconomic change since the industrial revolution. In the digital economy, platform ecosystems are cornerstones for new value creation. Different building blocks for digital and Platform companies are Cloud services, API strategy and architecture, mobile development platforms among others. Sonata has already built its strength in terms of customers, people, technologies, processes, alliances and IP which helps it to leverage on success and has already succeeded in digitally transforming its clients. The Company has progressed well with its proprietary model of achieving digital transformation called Platformation that it announced two years ago. The recent acquisitions of Sopris and Scalable, reflect Sonata’s strategic intent to invest in Microsoft technologies especially Microsoft Dynamics 365 a rapidly growing platform of choice for companies wanting to digitally transform. SSL has been focused on being a Digital Transformation Partner of choice for customers in Retail, Distribution, Manufacturing, and Travel industries through its Platformation methodology, end-to-end digital platforms and alignment to be a strategic partner for Microsoft in their digital transformation initiatives. The acquisitions will strengthen Sonata’s US Dynamics footprint and expand the Dynamics 365 capabilities making Sonata one of the strongest and largest Dynamics 365 partners globally with depth of services and breadth of industries and IP. Robust performance in FY19: SSL ended FY19 with consolidated revenues of Rs.2961 Cr, up ~21% YoY. EBITDA margin stood at 12.35% and PAT margin at 8.42% with a 29% growth in PAT. Both, the IITS & DPS businesses of the company have grown by 30% in the year. SSL has consistently maintained its market share in its international and domestic markets and SSL’s IITS debtor days are among the lowest in the industry at 40-42 days. 36% of the company revenue’s came from digital business in FY19. SSL added 31 new customers in FY19 as against 33 in FY18. Company has maintained healthy dividend pay-out (> 50%) in the past few years and we believe it will be continued in the coming years.

Risks & Concerns Forex Risk: SSL operates in many different companies across the globe. More than 80% revenues come from international operations so, unfavourable currency fluctuations may adversely impact SSL’s earnings. Regulatory Risk: SSL operates across several nations viz. UK and US. Any change in law, regulations and taxation framework may affect the business operations. Further legislation in various countries in which SSL operates may impose restrictions on companies in those countries from outsourcing work to SSL, or may implement stricter immigration laws, or may limit SSL’s ability to send their employees to certain client sites. Concentration Risk: SSL operates in a competitive business environment. A loss of client can impact the regular cash flows. Besides, the Top 5 clients of the company account for 61% of the company revenues, and the top 10 clients account for 69% of the company revenues. While there is some stickiness in the business, it leaves SSL exposed to the risk of being over dependant on a few clients for stability in its revenues. Competition Risk: The regional concentration as well as vertical concentration can adversely impact SSL’s business in case of a slowdown.

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View and valuation SSL is perfectly positioned to enjoy industry-beating performance by a range of sound strategic business decisions. Its focus on Platformation - platform based DT solutions, places it on one of the fastest growing segments in the market. The focus on delivering through differentiated IP of its own coupled with high quality ISV platform alliances with Microsoft and SAP will add to the value and margins. Sonata’s industries of focus such as Retail and Distribution are seeing further digital disruptions. This will drive robust investments in the new technology services. A wider customer base that is acquired over the years, offers SSL a strategic expansion potential within the existing accounts. SSL’s Platformation™ solutions, strong alignment with alliance partners and investments in Sales and Marketing will drive new business development. These factors should see SSL sustain its strong growth and profitability trends. We have estimated 9% revenue cagr over FY19-21E led by strong 14% increase from IITS revenues. DPS revenues may see 5% cagr over FY19-21E along with 20 bps margin expansion. Strong 9% revenues growth along with 60bps margin expansion would drive 12% cagr in PAT over the same period. While external factors such as world economy, geo political and policy environment is likely to be a mixed. The Indian IT players have made a transition to remain relevant, skilled and strategic partners to their customers. The overall IT industry and Indian IT services business is expected to post a moderate growth. More strategic mergers and acquisitions that add leverage to the Company’s growth potential cannot be ruled out. SSL is well placed to sustain its performance trend going ahead. At cmp, the stock trades at 11.7x FY21E earnings. Strong revenues visibility, continuous margin expansion, robust return ratios (RoE/RoCE), cash rich balance sheet and consistent healthy dividend pay-out are some of the positives for the stock. We recommend investors to buy Sonata at CMP of Rs 351 and add on dips to the Rs.322 for sequential target price of Rs.394 (13x FY21E EPS) and Rs 449 (15x FY21E EPS) over the next 4 quarters.

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Revenue to see 9% cagr over FY19-21E

Source: Company, HDFC sec Research

2371 2454 2961 3259 3504

22

4

21

108

-10

0

10

20

30

40

500

1000

1500

2000

2500

3000

3500

4000

FY17 FY18 FY19P FY20E FY21E

Revenues Growth

PAT trend over FY19-21E


149 191 247 280 311

-4.1

29

28

1311

-10

0

10

20

30

40

50

100

150

200

250

300

350


PAT PAT growth

EBITDA and EBITDA Margin

Source: Company, HDFC Sec Research

192 231 336 374 418

8.1 9.4

11.311.5 11.9

3

6

9

12

15

50

100

150

200

250

300

350

400

450


EBITDA EBITDA Margin

Return Ratios (%)


2931

3534

33

19

24

3029 29

10

20

30

40


RoE RoCE

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Revenues Segment Mix


822929

11211299

14471577 1547

18631960

2058

0

500

1000

1500

2000

2500


IITS DPS

IITS revenue Mix (%)


25

17

21

4

16

8

63

ADM

Testing

AX

ERP

IMS/Cloud

BI

E-Commerce

Mobility

EBITDA and EBITDA Margin for IITS


144 173 263 294 333

17.518.6

23.522.6 23

5

10

15

20

25

50

100

150

200

250

300

350


EBITDA EBITDA Margin

Geographywise Customers for IITS


68

43

24

16

6 2

US

ANZ

Europe

India

Asia

Middle East

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Overall Revenues by geography


5731

12

USA

Europe

RoW

EBITDA Mix (%)


77.8

22.2

IITS DPS

Revenues Split (%)


37.6

62.4

IITS

DPS

Consistent healthy dividend pay-out (%)


55

60

65

5754 55 56

20

30

40

50

60

70

FY15 FY16 FY17 FY18 FY19P FY20E FY21E

Dividend Payout

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Income Statement

(Rs cr) FY18 FY19P FY20E FY21E

Net Revenue 2454 2961 3259 3504

Other Income 47 30 37 40

Total Income 2501 2991 3296 3508

Growth (%) 3.5 20.7 10.1 7.5

Operating Expenses 2223 2625 2885 3086

EBITDA 278 366 411 422

Growth (%) 20.6 45.3 11.6 11.7

EBITDA Margin (%) 9.4 11.3 11.5 11.9

Depreciation 12 13 15 16

EBIT 266 353 396 406

Interest expenses 5 3 4 4

PBT 260 349 393 438

Tax 68 101 114 127

RPAT 193 249 280 311

Growth (%) 28.8 28.8 13.4 11.3

EPS 18.4 23.7 26.9 29.9 Source: Company, HDFC Sec Research

Balance Sheet

As at March (Rs cr) FY18 FY19P FY20E FY21E

SOURCE OF FUNDS

Share Capital 10.4 10.4 10.4 10.4

Reserves 643 758 857 966

Shareholders' Funds 653 768 867 976

Long Term Debt 41 52 52 52

Net Deferred Taxes -12 -12 -12 -12

Long Term Provisions & Others 10 11 11 11

Total Source of Funds 693 819 918 1028

APPLICATION OF FUNDS

Net Block (incl. CWIP) 33 55 57 59

Long Term Loans & Advances 85 63 72 81

Goodwill & Other Intangibles 81 145 145 145

Total Non Current Assets 199 263 274 285

Trade Receivables 396 811 714 768

Cash & Equivalents 546 346 489 561

Other Current Assets 80 96 111 127

Total Current Assets 1022 1253 1314 1456

Trade Payables 432 587 553 592

Other Current Liab & Provisions 96 109 116 121

Total Current Liabilities 529 697 669 713

Net Current Assets 494 556 645 743

Total Application of Funds 693 819 918 1028 Source: Company, HDFC Sec Research

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Cash Flow Statement

(Rs cr) FY18 FY19 FY20E FY21E

Reported PBT 260 349 393 438

Non-operating & EO items -15 -27 -37 -40

Interest Expenses 4 3 4 4

Depreciation 12 13 15 16

Working Capital Change 90 -90 46 -36

Tax Paid -55 -101 -114 -127

OPERATING CASH FLOW ( a ) 298 148 307 255

Capex -6 -99 -16 -18

Free Cash Flow 291 49 290 237

Non-operating income 10 27 37 40

INVESTING CASH FLOW ( b ) 3 -71 21 22

Debt Issuance / (Repaid) -21 -11 0 0

Interest Expenses -4 -3 -4 -4

FCFE 266 57 286 233

Dividend -115 -156 -181 -201

FINANCING CASH FLOW ( c ) -140 -148 -184 -205

NET CASH FLOW (a+b+c) 161 -72 143 72 Source: Company, HDFC Sec Research

Key Ratios (%)

(Rs cr) FY18 FY19 FY20E FY21E

EBITDA Margin 9.4 11.3 11.5 11.9

EBIT Margin 10.8 11.9 12.2 11.6

APAT Margin 7.8 8.4 8.6 8.9

RoE 31.0 35.1 34.2 33.8

RoCE 24.3 30.3 29.4 29.3

Solvency Ratio

Net Debt/EBITDA (x) -2.2 -0.9 -1.2 -1.2

Net D/E -0.8 -0.4 -0.5 -0.5

PER SHARE DATA

EPS 18.4 23.7 26.9 29.9

CEPS 19.7 25.2 28.3 31.5

BV 63 74 84 94

Dividend 10.5 12.8 14.8 16.8

Turnover Ratios (days)

Debtor days 68 74 80 80

Creditors days 71 82 70 70

VALUATION

P/E 19.0 14.8 13.2 11.8

P/BV 5.7 4.8 4.3 3.8

EV/EBITDA 14.2 10.4 9.0 7.9

Dividend Yield (%) 2.9 3.7 4.1 4.7

Dividend Pay-out 57.1 54.0 55.0 56.2 Source: Company, HDFC Sec Research

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Ratings Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICE CAN FALL 20%

OR MORE

IF RISKS MANIFEST PRICE CAN FALL 15% &

IF INVESTMENT RATIONALE FRUCTFIES PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE FRUCTFIES

PRICE CAN RISE BY 20% OR MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS


OR MORE





RED HIGH RISK - HIGH RETURN STOCKS


OR MORE





# Explanation of Red-flag Price level: If stock prices starts sustaining below red-flag level, the premise of the investment needs to be reviewed. Risk averse

investors should exit the stock and preserve capital. The downside of following red-flag level is that if the price decline turns out to be temporary and if

it recovers, subsequently you won’t be able to participate in the gains.

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Price Chart

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Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year Sell: Stock is expected to decline by 10% or more in the next 1 Year

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Equity Research


Disclosure: I, (Kushal Rughani), (MBA), authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. 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Date: July 08, 2019 · 2019. 7. 10. · Sonata Software caters to leading companies in the world in the Retail, Distribution, Travel and Software industries, Sonata’s solution portfolio