Multibagger Stock: Sonata Software advanced nearly 8000% in 11 years; should you buy now?

Four years ago, Sonata Software shares were trading at ₹89 each. Since then, they have surged by 630%, reaching the current level of ₹724 per share. Looking back over a longer period, the company's shares have seen significant growth, rising by 7950% over the past 11 years.

The year 2023 was particularly notable for Sonata Software, with the stock finishing 11 out of 12 months in positive territory, resulting in a cumulative gain of 163%. However, the stock underwent a decline from March to May 2024, resulting in a total decrease of 36%.

Despite this, the stock quickly rebounded, now trading 25.66% higher than its March lows. According to projections by domestic brokerage firm Dalal& Brocha Stock Broking, the stock is likely to maintain its upward momentum.

In its latest report, the brokerage has initiated coverage on the stock with a 'buy' rating, setting a target price of ₹919. This target suggests a potential upside of 47% from the stock's closing price of ₹624 per share on Thursday.

The brokerage's optimistic outlook is based on Sonata Software's strong relationship with Microsoft and a robust deal pipeline. It highlighted that the company's focus on two significant areas this year—Gen AI and Microsoft Fabric—accounts for about 10% of its pipeline and is poised for growth.

The brokerage said the company's focus on platform-related services, particularly those based on Microsoft Dynamics, demonstrates a strategic alignment with industry needs.

Microsoft partnership generates over 50% revenues

The brokerage highlighted that Sonata has solidified its position as one of Microsoft's top implementation partners worldwide, showcasing its expertise and reliability through a robust partnership spanning two decades. This alliance not only drives significant revenue through license sales but also provides a strong foundation for Sonata's continued growth.

Microsoft is poised to drive substantial expansion for Sonata. By closely collaborating with Microsoft, Sonata has been at the forefront of initiatives like Microsoft Fabric, being one of the seven global launch partners. These advanced technologies have been pivotal in securing key deals for Sonata.

The brokerage emphasised that Microsoft plays a dual role: as a direct customer, contributing 20% of revenue, and as a strategic partner for implementation services, making up roughly 30% of the business.

Overall, Microsoft's involvement accounts for a significant 50% of Sonata's international operations, underscoring the profound impact of this partnership on Sonata's global presence.

Large deal pipeline

In addition to Microsoft Fabric, Sonata has a substantial pipeline of approximately $65 million in artificial intelligence (AI) projects. The company anticipates that AI services will contribute 20% of its revenue within three years. Actively developing solutions using Microsoft Fabric, Sonata has over 300 data engineers dedicated to this effort.

As a featured launch partner for Microsoft Fabric, the brokerage pointed out that Sonata has built a pipeline worth about $42 million across 75+ clients since the platform's launch three quarters ago.

The brokerage noted that the company's large deal pipeline increased by 34% quarter-over-quarter in Q4 FY24, witnessing a 3.2x jump during FY24 and closing 14 large deals throughout the year.

In the most recent quarter, Sonata secured a significant deal with a major U.S. banking firm. This project involves developing a customer 360 platform across all lines of business (LOBs) for the client, consolidating and aggregating customer data to create a unified platform. The banking client is among the top 10 asset management banks in the United States, according to the brokerage.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.