Sonata Software stock plunges 10% on weak Q1 earnings, worst intraday fall in 2 months

Sonata Software saw its shares tumble 10% in today's intraday trade to reach ₹664 apiece after the company reported a 12% YoY drop in its consolidated net profit at ₹106 crore for the June ending quarter (Q1FY25). This was the stock's largest intraday drop in two months.

The revenue from operations during the reporting quarter stood at ₹2,527 crore, an increase of 25% YoY, while EBITDA came in flat on a YoY basis at ₹176.2 crore.

The company's revenues from international IT services stood at ₹687.8 crore, reflecting a QoQ growth of 1.3%. EBITDA for the same period reached ₹128.8 crores, with a QoQ growth of 9.5%.

However, PAT decreased to ₹65.1 crore, showing a QoQ decline of 7.3%. The company added 14 new customers during the quarter.

In comparison, the revenue from domestic products & services for Q1'25 were ₹1,849.4 crores, which represents a QoQ growth of 22.1%. The gross contribution for the quarter was ₹68.5 crore, showing a QoQ increase of 5.8%. PAT for the quarter stood at ₹40.5 crores, marking a modest QoQ growth of 0.9%, according to the company's earnings report. 

Speaking on the quarterly results, Samir Dhir, MD & CEO of the company, said, "In Q1 25, our international business delivered 1.3% QoQ growth. We won three large deals during the quarter, including a healthcare deal. Our "responsible first" differentiated Harmoni.AI offering is enabling growth for Sonata, resulting in new logo wins within the quarter. We remain optimistic about our long-term vision and growth prospects."

Commenting on the results, Sujit Mohanty, MD & CEO of the company, said, "We continue to make progress and renewed multiple existing client contracts with enhanced contract values, despite industry headwinds in the ITeS sector. Our consistent focus on SI business is enabling us to deliver better gross contribution YoY."

Meanwhile. in July, Dalal & Brocha Stock Broking initiated coverage of the stock with a 'buy' rating and set a target price of ₹919. 

The brokerage's positive stance is attributed to Sonata Software's strong partnership with Microsoft and a solid pipeline of deals. They emphasized that the company’s emphasis on key areas like generative AI and Microsoft Fabric—representing approximately 10% of its pipeline—is expected to drive growth.

Additionally, the brokerage noted that the company’s focus on platform-based services, especially those utilizing Microsoft Dynamics, aligns well with current industry trends.

Despite a notable decline in today’s trading session, the company's shares have delivered a 151% gain over the past two years and a 451% return over five years.

In 2024, IT services will continue to grow and will emerge as the largest segment of IT spending for the first time. It is anticipated that spending on IT services will increase by 8.7%, reaching a significant milestone of USD 1.5 trillion, as per the recent estimates. 

Enterprises will continue to find more uses for technology. IT services have moved from the back office to the front office and are now revenue-producing activities. As the demand for IT spending is expected to remain strong in various sectors, there is no plateau in enterprise IT spending.

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.