results review 3qfy19 09 feb 2019 sonata software · results review 3qfy19 09 feb 2019 sonata...

RESULTS REVIEW 3QFY19 09 FEB 2019

Sonata Software

BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

IP-led growth strategy Sonata delivered a good quarter, International IT services (IITS) revenue was up 4.3% QoQ (+5.0% CC) to USD 40.8mn, in-line with our est of USD 40.3mn. Growth was led by IP-led revenue (+10.7% QoQ) and continued traction in Top-5 accounts (+10.5% in 9MFY19). IITS margin expanded 779bps QoQ to 28.4% (highest ever) led by cut in high cost sub-con expenses, higher utilisation and operational efficiency. The sustainable margin range for IITS is 23-24% (9MFY19 23.8%). Total revenue stood at Rs 8.44bn, +42.3/10.1% QoQ/YoY, led by growth in Domestic Product & Services’ (DPS) rev (Rs 5.63bn, +72.8/6.2% QoQ/YoY).

IITS’s platformation strategy is to provide IT services around IPs like Rezopia, Halosys, Brick & Click and Retina. This strategy is working well and IP-led is now 19.1% of IITS rev. It has grown at a healthy 8-Qtr CQGR of 8.9% and is also aiding margin expansion. Microsoft Dynamic 365 (Cloud ERP & CRM platform) is in hyper growth phase and Sonata being the preferred development partner, is reaping benefits. Sonata also acquired Sopris and Scalable Data to enhance Dynamics 365 offerings. Growth will be led by OPD (Microsoft 365), Retail (Brick & Click Platform) and Travel (SAP Hybrid and Rezopia) verticals. We expect IITS’ USD

revenue to grow 14/11% with margin of 22.8/23.3% in FY20/21E.

We like Sonata’s IP-focussed business model, strong relationship with top-accounts, quality balance sheet (net cash of Rs 32/share, ~10% of Mcap), high RoE (~31%) and attractive dividend yield (~3%). Maintain BUY with a TP of Rs 466 based on 16x Dec 20 EPS.

Highlights of the quarter

ADM/IMS was up 4.3/4.3% QoQ. ADM/AX is driving growth (8 Qtr CQGR of 4.3/7.6%) led by Microsoft. Nine new customers were added and Top5/20 revenue grew 4.3/5.7% QoQ.

Consolidated EBITDA margin was down 65bps QoQ to 11.8% led by DPS margin (-197 bps QoQ).

In 9MFY19 total 491 employees were hired in IITS and utilisation remains at peak levels (86%). Revenue per employee stood at USD 43.6K (-0.6% QoQ).

Near-term outlook: We expect revenue growth to continue in 4Q led by integration of Sopris (USD 1mn, full Qtr) and Scalable (USD 0.5mn, one month). IITS margins will normalise and settle around 23-24%.

Financial Summary (Consolidated)

YE Mar (Rs bn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) FY17 FY18 FY19E FY20E FY21E

Net Revenue 8.44 7.67 10.1 5.93 42.3 23.71 24.54 28.02 31.30 34.17 EBITDA 1.00 0.65 53.4 0.74 34.9 1.92 2.31 3.33 3.71 4.21 APAT 0.64 0.49 29.6 0.62 2.8 1.56 1.93 2.47 2.76 3.11 Diluted EPS (Rs) 6.2 4.8 29.6 6.0 2.8 15.1 18.6 23.8 26.6 30.0 P/E (x)

22.1 18.0 14.0 12.6 11.1

EV / EBITDA (x) 16.8 13.2 9.6 8.5 7.4 RoE (%) 29.3 31.0 35.4 34.9 34.8 Source: Company, HDFC sec Inst Research

INDUSTRY IT

CMP (as on 08 Feb 2019) Rs 334

Target Price Rs 466

Nifty 10,944

Sensex 36,546

KEY STOCK DATA

Bloomberg/Reuters SSOF IN

No. of Shares (mn) 105

MCap (Rs bn) / ($ mn) 35/492

6m avg traded value (Rs mn) 90

STOCK PERFORMANCE (%)

52 Week high / low Rs 429 / 265

3M 6M 12M

Absolute (%) 1.2 6.1 14.7

Relative (%) (2.6) 9.6 8.5

SHAREHOLDING PATTERN (%)

Promoters 29.41

FIs & Local MFs 7.82

FPIs 15.22

Public & Others 47.55

Source : BSE

Amit Chandra [email protected] +91-22-6171-7345

Apurva Prasad [email protected] +91-22-6171-7327

Akshay Ramnani [email protected] +91-22-6171-7334

SONATA SOFTWARE: RESULTS REVIEW 3QFY19

Page | 2

Quarterly Consolidated Financials Snapshot Particulars 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%)

IITS Net Revenues (USD mn) 40.8 37.4 9.1 39.1 4.3

Net Revenues 8,440 7,667 10.1 5,931 42.3

Inventory Costs 5,393 5,171 4.3 3,063 76.1

Employee Costs 1,404 1,312 7.0 1,464 (4.1)

Other Operating Expenses 644 535 20.5 664 (3.0)

EBITDA 998 651 53.4 740 34.9

Depreciation 30 31 (6.1) 29 2.1

EBIT 969 619 56.4 711 36.2

Interest Cost 11 9 17.0 10 11.6

Other Income -47 65 (172.7) 167 (128.4)

PBT 911 675 34.8 869 4.8

Tax 271 182 49.0 247 9.9

Minority Interest 0 0 NM 0 NM

RPAT 639 493 29.6 622 2.8

E/o (adj for tax) 0 2 NM 0 NM

APAT 639 491 30.2 622 2.8

Source: Company, HDFC sec Inst Research

Margin Analysis Particulars 3QFY19 3QFY18 YoY (bps) 2QFY19 QoQ (bps)

Inventory Cost % Net Revenue 63.9 67.4 (353) 51.6 1,226

Employee Cost % Net Revenue 16.6 17.1 (47) 24.7 (804)

SG&A and Other Expenses % Net Revenues 7.6 7.0 66 11.2 (357)

EBITDA Margin (%) 11.8 8.5 334 12.5 (65)

EBIT Margin (%) 11.5 8.1 340 12.0 (51)

Tax Rate (%) 29.8 27.0 283 28.4 138

APAT Margin (%) 7.6 6.4 117 10.5 (291)


IITS’ revenue grew 3.2% QoQ to Rs 2.84bn and DPS revenue grew 6.2% YoY to Rs 5.63bn in INR terms IITS’ EBITDA margin expanded 779 bps to 28.4% led by cost rationalisation and higher utilization, but will normalize in the coming quarter. Some high cost sub-contracting expenses were not there in the quarter leading to 4.1% fall in employee expenses Other income was down due to forex loss of Rs 0.06bn APAT stood at Rs 0.64bn up 2.8% QoQ (vs. our exp of Rs 0.64bn), beat stabilised at PAT level led by loss of Rs 47mn in other income (vs. gain of Rs 167mn in 2Q) Tax rate will remain the range of 27-28% for FY19-20E


Page | 3

Segmental Revenue & EBITDA Mix Particulars (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) 9MFY19 9MFY18 YoY (%)

IITS Net Revenues 2,840 2,408 17.9 2,753 3.2 8,164 6,867 18.9

DPS Revenue 5,632 5,303 6.2 3,259 72.8 13,262 11,581 14.5

Inter segment (32) (44) NM (81) NM (173) (167) NM

Total Revenue# 8,440 7,667 10.1 5,931 42.3 21,254 18,281 16.3

EBITDA (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) 9MFY19 9MFY18 YoY (%)

IITS * 807 503 60.6 568 42.1 1,945 1,250 55.6

DPS 195 154 26.6 177 10.2 539 445 21.1

Inter segment (4) (6)

(5)

(13) (21)

Total EBITDA 998 651 53.4 740 34.9 2,472 1,674 47.6

EBITDA Margin (%) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) 9MFY19 9MFY18 YoY (%)

IITS 28.4 20.9 755 20.6 779 23.8 18.2 562

DPS 3.5 2.9 56 5.4 (197) 4.1 3.8 22

Total EBITDA Margin (%) 11.8 8.5 334 12.5 (65) 11.6 9.2 247

Source: Company, HDFC sec Inst Research, *IITS EBITDA excludes other income and income tax refunds, # Reported revenue

IITS Vertical Revenue Mix (% Contribution) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

OPD 30.0% 29.0% 28.0% 28.0% 28.0% 28.0% 27.0%

TTL 28.0% 27.0% 28.0% 27.0% 27.0% 29.0% 28.0%

CPG & Retail 24.0% 26.0% 27.0% 25.0% 25.0% 26.0% 26.0%

Others 18.0% 18.0% 17.0% 20.0% 20.0% 17.0% 19.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Company, HDFC Sec Inst Research

IITS Vertical-wise Revenue Growth (Growth % QoQ; USD) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

OPD 10.2% 7.7% -0.9% 0.0% 1.1% 3.4% 0.6%

TTL 10.5% 7.4% 6.5% -3.6% 1.1% 11.1% 0.7%

CPG & Retail -1.7% 20.7% 6.6% -7.4% 1.1% 7.6% 4.3%

Others 6.5% 11.4% -3.0% 17.6% 1.1% -12.1% 16.6%

Total 6.5% 11.4% 2.7% 0.0% 1.1% 3.4% 4.3%


DPS business is lumpy in nature due to closure of some large deal in a particular quarter. The best way to measure its performance is on absolute EBITDA basis, which was up 10.2% QoQ IITS EBITDA expanded in the quarter but in 9M also the improvement has been significant (+562bps). The benefits of IP-led shift and cost rationalisation is reflecting in margins OPD/Travel/Retail has grown at an eight quarter CQGR of 2.4/4.8/3.3% respectively The number of clients in the others bracket is down from 39 to 27 which has led to some cost saving reflecting in IITS margins Out of the total 112 customers 54/19/12 are in Retail/OPD/Travel respectively


Page | 4

IITS Service Line Break-up (% Contribution) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

ADM 23.0% 23.0% 23.0% 24.0% 26.0% 25.0% 25.0%

Testing 19.0% 18.0% 19.0% 18.0% 17.0% 17.0% 17.0%

IMS 18.0% 17.0% 17.0% 19.0% 17.0% 16.0% 16.0%

AX 17.0% 19.0% 20.0% 19.0% 18.0% 20.0% 20.0%

BI 8.0% 7.0% 8.0% 7.0% 8.0% 8.0% 8.0%

E-commerce 5.0% 6.0% 5.0% 5.0% 6.0% 7.0% 6.0%

ERP 5.0% 5.0% 4.0% 4.5% 4.0% 4.0% 4.0%

Rezopia/Mobility/Cloud 5.0% 5.0% 4.0% 3.5% 4.0% 3.0% 4.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


IITS Service Line Growth (Growth %, QoQ) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

ADM -2.0% 11.4% 2.7% 4.3% 9.5% -0.5% 4.3%

Testing 19.0% 5.5% 8.4% -5.3% -4.5% 3.4% 4.3%

IMS 0.9% 5.2% 2.7% 11.8% -9.6% -2.6% 4.3%

AX 20.7% 24.5% 8.1% -5.0% -4.2% 14.9% 4.3%

BI 6.5% -2.5% 17.3% -12.5% 15.5% 3.4% 4.3%

E-commerce -11.2% 33.7% -14.4% 0.0% 21.3% 20.7% -10.6%

ERP 6.5% 11.4% -17.9% 12.5% -10.2% 3.4% 4.3%

Rezopia 6.5% 11.4% -17.9% -12.5% 15.5% -22.4% 39.1%

Total 6.5% 11.4% 2.7% 0.0% 1.1% 3.4% 4.3%


IMS revenue has declined due to shift to cloud, but is nearing bottom ADM/Testing has grown at an 8 Qtr CQGR of 4.3/3.8% led by Top-5 clients Microsoft Dynamics AX has growth at an 8-quarter CQGR of 7.6% (company average is 3.8%) Among IPs, Rezopia, Halosys and Brick and Click are witnessing increased traction Cloud migration, front end development and Analytics engine is a significant part of Digital revenue


Page | 5

IITS Geographic Revenue Mix (% Contribution) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

USA 60.0% 59.0% 59.0% 58.0% 60.0% 58.0% 56.0%

Europe 26.0% 27.0% 27.0% 28.0% 29.0% 30.0% 32.0%

RoW 14.0% 14.0% 14.0% 14.0% 11.0% 12.0% 12.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


IITS Geographic Revenue Growth (% QoQ) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

USA 6.5% 9.5% 2.7% -1.7% 4.6% 0.0% 0.7%

Europe 15.4% 15.7% 2.7% 3.7% 4.7% 7.0% 11.3%

RoW -6.8% 11.4% 2.7% 0.0% -20.6% 12.8% 4.3%

Total 6.5% 11.4% 2.7% 0.0% 1.1% 3.4% 4.3%


IITS Onsite-Offshore Split IT services revenue break-up (%) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Offshore 57.0% 55.0% 55.0% 59.0% 56.0% 58.0% 58.0%

Onsite 43.0% 45.0% 45.0% 41.0% 44.0% 42.0% 42.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


IITS Onsite-Offshore Growth IT services revenue growth (% QoQ) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Offshore 6.5% 7.5% 2.7% 7.3% -4.1% 7.1% 4.3%

Onsite 6.5% 16.6% 2.7% -8.9% 8.5% -1.3% 4.3%

Total 6.5% 11.4% 2.7% 0.0% 1.1% 3.4% 4.3%


Europe is seeing significant traction led by Travel and Microsoft ISV center, focus is to grow US revenue which is a bigger market Onsite/Offshore revenue mixed remained stable in the quarter, off-shoring is a margin lever


Page | 6

IITS Client Concentration Client concentration (%) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Top 5 61.0% 60.0% 62.0% 61.0% 61.0% 61.0% 61.0%

Top-10 70.0% 69.0% 71.0% 69.0% 70.0% 69.0% 69.0%

Non-top 10 30.0% 31.0% 29.0% 31.0% 30.0% 31.0% 31.0%

Top 20 79.0% 78.0% 79.0% 79.0% 80.0% 77.0% 78.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


IITS Client Concentration Growth Client concentration (% growth) 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

Top 5 10.1% 9.6% 6.1% -1.6% 1.1% 3.4% 4.3%

Top-10 6.5% 9.8% 5.6% -2.8% 2.5% 2.0% 4.3%

Non-top 10 6.5% 15.1% -4.0% 6.9% -2.2% 6.9% 4.3%

Top 20 3.9% 10.0% 4.0% 0.0% 2.3% -0.4% 5.7%

Total 6.5% 11.4% 2.7% 0.0% 1.1% 3.4% 4.3%


Top 5/10 clients grew strongly for the second consecutive quarter, added 9 new clients in the quarter High client concentration is a risk, but there is enough scope to grow increase wallet share in Top-5 accounts


Page | 7

IITS Rev Growth Trend IITS EBITDA, Margin Trend

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

IITS Headcount IITS Debtor Days


IITS revenue/EBITDA has growth at a CQGR of 4.1/9.4% over the last eight quarter IITS EBITDA margin will be in the range of 23-24%. In 9M IITS margin stood at 23.8% +562bps YoY Added 491 employees in the IITs business to broaden the pyramid. The company has been replacing the high cost sub-con expenses with internal talent which has led to margin expansion Average revenue per employee stood at USD 43,572 down 0.6/1.6% QoQ/YoY Debtor days is among the lowest in the industry, stable at 40-42 level

27

.4

28

.5

29

.2

31

.2

30

.3

30

.7

32

.7

36

.4

37

.4

37

.4

37

.8

39

.1

40

.8

(5)

(1)

3

7

11

15

0

5

10

15

20

25

30

35

40

45

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2QFY

18

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

Revenue (USD mn) QoQ growth (RHS)

(USD mn) (%, QoQ)

42

3

32

0

34

2 41

4

39

4

32

5

33

5 41

3 50

3

479 5

70

56

8

807

9

14

19

24

29

34

50

150

250

350

450

550

650

750

850

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

EBITDA EBITDA margin (RHS)(Rs mn) (%)

2,9

08

3,1

39

3,1

11

3,14

4

3,1

47

3,1

61 3,2

13

3,4

18

3,46

4

3,29

6

3,3

13 3,4

54 3,

679 3,8

12

2,500

2,700

2,900

3,100

3,300

3,500

3,700

3,900

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

Nos

60

52 55

60 60

48

52

47

40 39 40 41 4

2

40

0

10

20

30

40

50

60

70

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

Days


Page | 8

DPS Quarterly Revenue Trend DPS EBITDA Margin Trend


DPS’ Headcount DPS’ Debtor Days


DPS EBITDA has grown at a CQGR of 3.4% over the last eight quarter DPS’ debtors days has come down to 42 led by efficient collections and higher cloud license sales

2,3

16

3,43

8

3,55

6

4,8

93

2,95

5

4,1

57

4,8

61

4,2

81

1,99

7

5,3

03

3,8

87

4,3

71

3,25

9

5,6

32

0

1,000

2,000

3,000

4,000

5,000

6,000

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

(Rs mn)

13

2 15

0

149

14

2

142 14

9

14

1

151

14

0 15

4

158 16

7 17

7 19

5

0

1

2

3

4

5

6

7

8

50

70

90

110

130

150

170

190

210

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2QFY

17

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

EBITDA EBITDA margin (RHS)

(Rs mn) (%)

14

2

14

0

14

8

14

7

156

15

3 153

15

7

16

4

16

3

16

3

16

1

15

7

15

5

125

130

135

140

145

150

155

160

165

170

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

(Nos)

10

1

65

62 6

9

110

95

76

81

59

38

49

55

48

42

0

20

40

60

80

100

120

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2QFY

17

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2Q

FY1

9

3Q

FY1

9

Days


Page | 9

IITS’ Segment Estimates IITS (Rs million) FY17 FY18 FY19E FY20E FY21E

Revenue (USD million) 121.4 143.9 160.5 182.8 203.5

% Growth 12.6 18.6 11.5 13.9 11.3

Revenue 8,218 9,285 11,206 13,160 14,651

% Growth 16.3 13.0 20.7 17.4 11.3

EBITDA 1,438 1,730 2,645 2,995 3,414

EBITDA Margin (%) 17.5 18.6 23.6 22.8 23.3


DPS’ Segment Estimates DPS (Rs million) FY17 FY18 FY19E FY20E FY20E

Revenue 15,774 15,468 17,149 18,514 19,926

% Growth 26.2 (1.9) 10.9 8.0 7.6

EBITDA 583 603 714 755 833

EBITDA Margin (%) 3.7 3.9 4.2 4.1 4.2


Change In Estimates Particulars Earlier estimates Revised estimates % change

FY20E

Revenue (Rs mn) 30,318 31,299 3.2

EBITDA (Rs mn) 3,338 3,713 11.2

EBITDA margin (%) 11.0 11.9 85 bps

APAT 2,621 2,756 5.2

FY21E

Revenue (Rs mn) 33,080 34,167 3.3

EBITDA (Rs mn) 3,732 4,205 12.7

EBITDA margin (%) 11.3 12.3 103 bps

APAT 2,915 3,113 6.8



Page | 10

Peer Set Comparison

Company Mcap

(Rs bn)

CMP (Rs)

Rating TP

(Rs)

EPS (Rs) P/E (x) RoE (%)

FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E

LTI 319 1841 BUY 2,240 67.0 87.4 92.2 105.9 27.5 21.1 20.0 17.4 33.2 35.3 30.7 29.6

Mphasis 189 1020 BUY 1,390 45.4 58.1 68.2 81.5 22.5 17.6 15.0 12.5 14.6 20.5 23.3 24.1

LTT 162 1557 BUY 2,030 45.7 66.5 75.3 97.7 34.1 23.4 20.7 15.9 27.7 31.9 29.8 31.8

Mindtree 147 892 BUY 1140 30.5 44.3 52.5 59.0 29.2 20.1 17.0 15.1 20.5 25.5 25.1 24.3

Hexaware * 106 356 BUY 470 16.8 19.6 22.8 26.2 21.2 18.2 15.6 13.6 26.6 26.5 26.9 27.3

Cyient 68 606 BUY 790 38.6 39.2 45.5 50.7 15.7 15.5 13.3 12.0 18.1 17.9 18.9 19.0

Tata Elxsi 56 905 NR 1145 38.5 46.9 51.3 61.1 23.5 19.3 17.6 14.8 37.0 35.1 31.1 30.4

Persistent 51 636 BUY 815 40.4 44.9 51.8 59.8 15.7 14.2 12.3 10.6 16.0 16.0 16.8 17.0

Zensar 50 223 BUY 300 10.6 13.4 16.7 19.5 21.0 16.6 13.4 11.4 15.1 16.8 18.1 18.3

eClerx 39 1010 NEU 1035 70.8 58.7 71.9 80.9 14.3 17.2 14.0 12.5 22.4 18.3 21.1 22.2

Sonata 35 334 BUY 466 18.6 23.8 26.6 30.0 18.0 14.1 12.6 11.1 31.0 35.4 34.9 34.8

Intellect 23 175 BUY 300 3.7 7.5 11.7 16.7 47.3 23.3 15.0 10.5 NM 10.3 14.0 17.1

Majesco 14 483 BUY 761 -2.1 29.3 39.5 49.4 NM 16.5 12.2 9.8 NM 14.7 18.5 22.4

Midcap Average

24.2 18.2 15.3 12.9 23.8 23.4 23.8 24.5

Source: HDFC sec Inst Research * YE Dec, NR - Not Rated


Page | 11

Consolidated Income Statement YE March (Rs bn) FY17 FY18 FY19E FY20E FY21E

IITS USD Revenue (mn) 121.4 143.9 160.5 182.8 203.5

Growth (%) 12.6 18.6 11.5 13.9 11.3

Net Revenues 23.71 24.54 28.02 31.30 34.17

Growth (%) 22.2 3.5 14.2 11.7 9.2

Total Operating Expenses 21.79 22.23 24.69 27.59 29.96

EBITDA 1.92 2.31 3.33 3.71 4.21

EBITDA (%) 8.1 9.4 11.9 11.9 12.3

EBITDA Growth (%) (0.2) 20.6 44.0 11.6 13.3

Depreciation 0.11 0.12 0.17 0.19 0.22

EBIT 1.81 2.19 3.15 3.52 3.99

Other Income 0.55 0.47 0.33 0.34 0.38

Interest 0.09 0.05 0.04 0.04 0.04

PBT 2.26 2.60 3.44 3.82 4.32

Tax (incl deferred) 0.69 0.68 0.98 1.07 1.21

Minority Int. and associate profit -0.01 0.00 0.00 0.00 0.00

RPAT 1.56 1.93 2.47 2.76 3.11

EO (Loss) / Profit (Net Of Tax) 0.08 0.01 0.02 0.00 0.00

APAT 1.49 1.91 2.45 2.76 3.11

APAT Growth (%) (4.1) 28.8 27.9 12.6 13.0

EPS 15.1 18.6 23.8 26.6 30.0

EPS Growth (%) (1.4) 23.2 28.1 11.8 13.0


Consolidated Balance Sheet YE March (Rs bn) FY17 FY18 FY19E FY20E FY21E

SOURCES OF FUNDS

Share Capital - Equity 0.10 0.10 0.10 0.10 0.10

Reserves 5.80 6.43 7.30 8.28 9.38

Total Shareholders' Funds 5.90 6.53 7.41 8.38 9.49

Minority Interest 0.00 (0.00) 0.00 0.00 0.00

Total Debt 0.35 0.19 0.19 0.19 0.19

Net Deferred Taxes (0.05) (0.12) (0.12) (0.12) (0.12)

Long-term Provisions & Others 0.14 0.13 0.13 0.13 0.13

TOTAL SOURCES OF FUNDS 6.36 6.72 7.60 8.57 9.68

APPLICATION OF FUNDS

Net Block 0.38 0.33 1.00 1.12 1.24

CWIP 0.00 0.00 0.00 0.00 0.00

Goodwill & Other Intangible Assets 0.80 0.81 0.81 0.81 0.81

Investments 0.00 0.00 0.00 0.00 0.00

LT Loans & Advances, Others 0.80 0.85 0.96 1.10 1.25

Total Non Current Assets 1.99 1.99 2.78 3.03 3.30

Inventories 0.00 0.00 0.00 0.00 0.00

Debtors 5.20 3.96 5.37 6.00 6.55

Cash & Equivalents 3.81 5.46 3.86 4.37 4.97

Other Current Assets 0.93 0.80 0.88 0.97 1.07

Total Current Assets 9.94 10.22 10.11 11.34 12.59

Creditors 4.48 4.32 4.06 4.53 4.93

Other Current Liabilities & Provns 1.09 1.17 1.23 1.26 1.29

Total Current Liabilities 5.58 5.49 5.29 5.80 6.21

Net Current Assets 4.37 4.73 4.82 5.55 6.38

TOTAL APPLICATION OF FUNDS 6.36 6.72 7.60 8.57 9.68



Page | 12

Consolidated Cash Flow YE March (Rs bn) FY17 FY18 FY19E FY20E FY21E

Reported PBT 2.26 2.60 3.44 3.82 4.32

Non-operating & EO items (0.48) (0.45) (0.30) (0.34) (0.37)

Interest expenses 0.09 0.05 0.04 0.04 0.04

Depreciation 0.11 0.12 0.17 0.19 0.22

Working Capital Change (0.78) 1.13 (1.85) (0.35) (0.38)

Tax paid (0.69) (0.68) (0.98) (1.07) (1.21)

OPERATING CASH FLOW ( a ) 0.52 2.78 0.51 2.30 2.62

Capex (0.09) (0.08) (0.84) (0.31) (0.34)

Free cash flow (FCF) 0.43 2.70 (0.33) 1.99 2.28

Investments 0.00 0.00 0.00 0.00 0.00

Non-operating income 0.47 0.45 0.31 0.34 0.38

INVESTING CASH FLOW ( b ) 0.38 0.38 (0.53) 0.03 0.04

Debt Issuance (1.36) (0.17) 0.00 0.00 0.00

Interest expenses (0.09) (0.05) (0.04) (0.04) (0.04)

FCFE (1.02) 2.49 (0.37) 1.95 2.23

Share capital Issuance (0.00) 0.00 0.00 0.00 0.00

Dividend (1.13) (1.28) (1.59) (1.78) (2.01)

FINANCING CASH FLOW ( c ) (2.58) (1.49) (1.63) (1.82) (2.05)

NET CASH FLOW (a+b+c) (1.68) 1.66 (1.65) 0.51 0.60

Non-operating and EO items 0.60 0.01 (0.02) 0.00 0.00

Closing Cash & Equivalents 3.86 5.53 3.86 4.37 4.97


Key Ratios FY17 FY18 FY19E FY20E FY21E

PROFITABILITY (%)

EBITDA Margin 8.1 9.4 11.9 11.9 12.3

APAT Margin 6.6 7.8 8.8 8.8 9.1

RoE 29.3 31.0 35.4 34.9 34.8

RoIC or Core RoCE 48.4 127.2 60.4 60.3 61.0

RoCE 19.1 24.6 31.5 31.3 31.4

EFFICIENCY

Tax Rate (%) 31.7 26.3 28.5 28.0 28.0

Fixed Asset Turnover (x) 17.3 17.0 12.3 12.1 11.6

Inventory (days) 0 0 0 0 0

Debtors (days) 80 59 70 70 70

Other Current Assets (days) 14 12 11 11 11

Payables (days) 75 71 60 60 60

Other Current Liab & Provns (days) 17 17 16 15 14

Cash Conversion Cycle (days) 3 -17 5 7 8

Net Debt/EBITDA (x) (1.8) (2.3) (1.1) (1.1) (1.1)

Net Debt/Equity (x) (0.6) (0.8) (0.5) (0.5) (0.5)

Interest Coverage (x) 19.5 45.5 84.4 85.6 88.9

PER SHARE DATA

EPS (Rs/sh) 15.1 18.6 23.8 26.6 30.0

CEPS (Rs/sh) 16.1 19.7 25.4 28.4 32.1

DPS (Rs/sh) 9.3 10.5 13.1 14.6 16.5

BV (Rs/sh) 56.9 63.0 71.4 80.8 91.4

VALUATION

P/E 22.1 18.0 14.0 12.6 11.1

P/BV 5.9 5.3 4.7 4.1 3.6

EV/EBITDA 16.8 13.2 9.6 8.5 7.4

OCF/EV (%) 1.6 9.1 1.6 7.3 8.5

FCF/EV (%) 1.3 8.9 (1.0) 6.3 7.4

FCFE/mkt cap (%) (3.0) 7.2 (1.1) 5.6 6.4

Dividend Yield (%) 2.8 3.1 3.9 4.4 4.9



Page | 13

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target

8-Feb-18 291 BUY 335

12-Apr-18 333 BUY 375

23-May-18 338 BUY 380

6-Jul-18 284 BUY 380

16-Aug-18 327 BUY 375

10-Oct-18 334 BUY 421

5-Nov-18 313 BUY 445

30-Nov-18 305 BUY 445

8-Jan-19 308 BUY 440

9-Feb-19 334 BUY 466

RECOMMENDATION HISTORY

200

250

300

350

400

450

500

Feb

-18

Mar

-18

Ap

r-18

May

-18

Jun

-18

Jul-

18

Au

g-18

Sep

-18

Oct

-18

No

v-18

De

c-18

Jan

-19

Feb

-19

Sonata Software TP


Page | 14

Disclosure: We, Amit Chandra, MBA, Apurva Prasad, MBA & Akshay Ramnani, CA 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/her 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. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]


Page | 15

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171-7330 www.hdfcsec.com

results review 3qfy19 09 feb 2019 sonata software · results review 3qfy19 09 feb 2019 sonata...

Documents