Reeling in Sonata Software

Photo by luis gomes on Pexels.com

BSE: 532221 |NSE : SONATSOFTW

Sonata Software is an IT Solutions provider that derives a solid 28% of the revenues from Travel & Tourism, 26% chunk from Retail Distribution and 27% from OPD Operations. Each of which we believed would sky rocket as normalcy would return.

The company made it to our MWI radar around 20th June’2020 at 220/sh levels.
Courtesy of the Covid Crash, that supposedly bottomed out at 23rd March on which date the stock of Sonata Software sold lowest at 148/.
The markets had probably sold Sonata hard since Recovery in the Travel Industry would come last.
The stock at 148/ had corrected a solid 60% from its 52 wk high of 379/.

Though we bought it at 220/- what we got was a :

  • An IT Company with a market capitalisation of Rs. 2,314 Cr, with a past 5 year average PAT of Rs. 201 Cr which translates to a 5Yr Avg Trailing PE of 11.5x
  • IT Companies usually maintain low debt, and the company has maintained its Interest Coverage above 18x across the past 5 years.
  • A net sales/ employee cost of 1.96
  • A company that has never seen a drop in Revenues YoY since FY13, rather since FY13 to FY20 the companies revenues have grown at a 16.17% CAGR through 7 years.
    While over the same period the company went from a net loss in FY 13 of Rs. 28 Cr to a net PAT in FY 20 of Rs. 277 Cr

Interestingly,

During, any normal scenario the same company with the given fundamentals would be trading at at-least 20x Forward PE.

Considering we are able to reach normalcy by the end of FY21 and factoring in a 20% reduction in the company’s PAT- we believe the company would make 221 Cr for FY 21 and should be trading at the bourses at 20x, viz- Rs. 4,420 Cr or 420/sh

Disclaimer: This post has been is only for educational purposes and should not be construed as an investment advice

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Create your website with WordPress.com
Get started
%d bloggers like this: