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Sonata Software (SONSOF)
Sonata Software (SSL), an IT services and products company,
restructured its operations in 2012 to focus on the services business,
select verticals (travel, retail) and complex products (cloud). This led to
an improved financial performance (| 78 crore PAT in FY14 vs. | 3
crore loss in FY12), healthy balance sheet metric & attractive dividend
payout (50%). Encouraging growth outlook coupled with reasonable
valuations (~8x FY16E) make SSL an attractive investment story.
Highlights:
• Restructured and reinvented: SSL restructured itself in FY12,
leading to a change of guard and appointment of Srikar Reddy, an
SSL veteran, as CEO. The new management not only revamped
the sales function including appointment of new sales heads for
North America and UK but added senior professionals across
verticals and geographies from companies such as Accenture,
Infosys and MphasiS. The restructuring seems to have paid off as
IT services rupee revenues grew at 31% CAGR in FY12-14 while
EBITDA margins improved 640 bps to 17.5% from 11.1% in FY12.
• Aims at three stage EBITDA target for products business: Though
products revenue growth could be modest and lumpy given the
reseller nature of the business, SSL has set EBITDA targets for its
sales team. Further, a shift to cloud licence vs. on premise earlier
could help alleviate margin concerns as resellers are incentivised
with higher margins by large software vendors as they themselves
are endorsing the cloud strategy.
• Client mining focus continues to yield results: Post restructuring,
SSL renewed its go-to market strategy and emphasised on 1)
strengthening sales infrastructure, 2) hiring account managers, 3)
mining strategic accounts and 4) large deal wins: seven in its core
verticals (travel, retail, CPG) in the last 18 months. The strategy
seems to have paid off as top 10 account revenues grew at 26%
CAGR during FY12-14.
• We expect SSL to report revenue, EPS CAGR of 9%, 46% during
FY14-16E (average 9.8% EBITDA margin), respectively, vs. flat
growth reported during FY09-14 (7.9%), led by client mining, large
deal wins and improving operating metric (realisation rates,
utilisation). We value Sonata at | 150-170, i.e. 10.5-12x FY16E EPS
(2.4x Mcap/sales FY16E services business) of | 14.3, given
improving fundamentals, healthy cash balance (| 250 crore) and
high dividend payout (~50%).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Sonata Software (SONSOF)
Sonata Software (SSL), an IT services and products company,
restructured its operations in 2012 to focus on the services business,
select verticals (travel, retail) and complex products (cloud). This led to
an improved financial performance (| 78 crore PAT in FY14 vs. | 3
crore loss in FY12), healthy balance sheet metric & attractive dividend
payout (50%). Encouraging growth outlook coupled with reasonable
valuations (~8x FY16E) make SSL an attractive investment story.
Highlights:
• Restructured and reinvented: SSL restructured itself in FY12,
leading to a change of guard and appointment of Srikar Reddy, an
SSL veteran, as CEO. The new management not only revamped
the sales function including appointment of new sales heads for
North America and UK but added senior professionals across
verticals and geographies from companies such as Accenture,
Infosys and MphasiS. The restructuring seems to have paid off as
IT services rupee revenues grew at 31% CAGR in FY12-14 while
EBITDA margins improved 640 bps to 17.5% from 11.1% in FY12.
• Aims at three stage EBITDA target for products business: Though
products revenue growth could be modest and lumpy given the
reseller nature of the business, SSL has set EBITDA targets for its
sales team. Further, a shift to cloud licence vs. on premise earlier
could help alleviate margin concerns as resellers are incentivised
with higher margins by large software vendors as they themselves
are endorsing the cloud strategy.
• Client mining focus continues to yield results: Post restructuring,
SSL renewed its go-to market strategy and emphasised on 1)
strengthening sales infrastructure, 2) hiring account managers, 3)
mining strategic accounts and 4) large deal wins: seven in its core
verticals (travel, retail, CPG) in the last 18 months. The strategy
seems to have paid off as top 10 account revenues grew at 26%
CAGR during FY12-14.
• We expect SSL to report revenue, EPS CAGR of 9%, 46% during
FY14-16E (average 9.8% EBITDA margin), respectively, vs. flat
growth reported during FY09-14 (7.9%), led by client mining, large
deal wins and improving operating metric (realisation rates,
utilisation). We value Sonata at | 150-170, i.e. 10.5-12x FY16E EPS
(2.4x Mcap/sales FY16E services business) of | 14.3, given
improving fundamentals, healthy cash balance (| 250 crore) and
high dividend payout (~50%).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
LINK:
http://content.icicidirect.com/mailimages/IDirect_SonataSoftware_NanoNivesh.pdf
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