Order momentum gives hope for Sonata amid short-term demand points

The inventory of Sonata Software program, a mid-tier IT providers exporter, has misplaced 24% over the previous two weeks after the corporate reported lacklustre December quarter efficiency affected by ramp down in a key consumer account. The inventory is prone to stay beneath stress given the spillover impact of the undertaking ramp down on the fourth quarter income and revenue. A turnaround is predicted within the second half of FY26 given a sustained momentum within the order bookings. Analysts have reduce FY26 income and earnings estimates because of the weak spot within the brief time period.

Sonata supplies digital engineering and modernisation options to world purchasers throughout verticals together with know-how, media and telecom (TMT), retail, manufacturing and distribution (RMD), banking, monetary providers and insurance coverage (BFSI), and healthcare and life sciences (HLS). The corporate’s home enterprise shaped 74% of the income whereas worldwide enterprise contributed the remaining.

For worldwide enterprise, the US and Europe contributed 78% and 11% to income respectively whereas the remaining was from the remainder of the world within the December quarter. The corporate added 11 new purchasers throughout the third quarter. Whereas it was larger than eight added within the prior quarter reflecting enhancing momentum, it was nonetheless decrease than 13 in contrast with the year-ago quarter indicating room for additional restoration.

As well as, consumer focus for the worldwide section elevated throughout the December quarter as prime 10 prospects contributed 66% to income in contrast with 56% a 12 months in the past whereas the focus of the highest 20 purchasers rose to 78% from 69%. This can be a explanation for concern as any slowdown within the enterprise of prime purchasers will influence Sonata’s efficiency considerably.

As an illustration, the efficiency of the worldwide section was affected within the third quarter as a consequence of a ramp down for a consumer and a one-off low cost given to a TMT buyer. The division’s income grew by 2.8% sequentially to $ 87 million. This was slower than the 44.4% development within the home income at Rs2,111.1 crore. The undertaking ramp down additionally affected the consolidated working margin earlier than depreciation and amortisation (EBITDA margin), which shrank by 250 foundation factors sequentially to six.5%.The corporate had earlier guided for $ 1.5 billion in income by FY26 in contrast with $ 1 billion in FY24 with an EBITDA margin within the low 20s.Given the slower undertaking ramp ups, it now expects to attain the goal by FY27.

IDBI Capital expects the primary half of the following fiscal 12 months to be higher than the second half of the present fiscal 12 months given a powerful order e-book. Although the brokerage has retained a purchase score on the inventory, it has decreased the income and earnings per share (EPS) estimates for FY26 by 6% and 26% to Rs 10,888 crore and Rs 18.5 respectively. It has additionally reduce the 12-month value goal by 9% to Rs 635.