Multibagger Stock: After the first wave of Covid-19 in India, the Indian stock market has seen a large number of multibagger stocks. However, the interesting fact for the time being is the high number of small-cap and mid-cap stocks entering the multi-bagger stocks in the 2021 list. Sonata Software is one such stock which has gained more than 100 per cent year-on-year i.e. in 2021. If we look at the share price history of Sonata Software shares from April 2020 onwards, we will find that the IT stock has gained over 400 per cent post-Covid-19. However, HDFC Securities is still bullish on the IT counter.
According to HDFC Securities, despite multibagger returns in 2021, Sonata Software shares are still likely to rise further. The brokerage says that the IT sector company has registered strong QoQ growth in Q2FY22 and hence its share price may go up ₹1050 in the long term. Sonata Software share price is around today ₹800 per share level. Therefore, the brokerage expects a rise of around 30 per cent in the counter.
Highlighting the reasons for the rally on Multibagger stock, HDFC Securities report says, “After strong growth of 11 per cent QoQ (almost 5 per cent organic) in IT Services segment (IITS) and better margins, we are increasing our buy rating on Sonata. Maintaining. Performance. Microsoft-related services (around 50 per cent of IITs) are driving revenue growth (+10.6 per cent QoQ), which is further expected to hit the high teens.”
The Microsoft Dynamics modernization program is a multi-year opportunity and Sonata continues to invest in this area, the brokerage report said. The travel vertical has recovered, but will accelerate with the rise in leisure travel (currently around 50 per cent of pre-Covid levels).
IITS EBITDA margin expanded 365 bps QoQ, despite supply side concerns due to off shoring (around 69 per cent), higher utilization (89 per cent), and lower sub-contracting cost. The company has accelerated the recruitment of freshers. ’ and attrition has touched 23-24 per cent; The target margin range for IITs is around 23-24 per cent. DPS was weak (seasonal), but growth in DPS will be driven by higher cloud adoption. Sonata’s growth profile is robust, led by the Microsoft ecosystem, improving travel, and strong DPS business,” the brokerage report stated.
On its suggestion to stock market investors with regard to the shares of Sonata Software, HDFC Securities’ report said, “We revise our EPS (earnings per share) estimates for FY22/23E at +3.6 per cent as against 3.3 per cent.” Increase Our Target Value ₹1,050 based on 22x Dec-23E EPS.”
Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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