Sonata Software tanks 19%, stock hits 52-week low on muted Q3 earnings

Given the ongoing challenges in the Hi-Tech and TMT sectors ICICI Securities said they maintain a cautiously optimistic stance and said they monitor margin recovery in the coming quarters.

Shares of Sonata Software hit a 52-week low of Rs 445.65, as they tanked 19 per cent on the BSE in Friday’s intra-day trade amid heavy volumes after the company reported muted earnings for the quarter ended December 2024 (Q3FY25).  The company reported revenue of $ 87 million, up 2.8 per cent quarter-on-quarter (QoQ) / 3.9 per cent year-on-year (YoY). In constant currency (CC) terms, the company reported revenue growth of 4.4 per cent QoQ and 5.1 per cent on YoY basis.

 

In rupee terms, Sonata reported revenue of Rs 2,843 crore up 31 per cent QoQ and up 14 per cent YoY. The company reported earnings before interest, tax, depreciation and amortization (EBITDA) of Rs 164 crore, down by 7.7 per cent QoQ with an EBITDA margin of 5.8 per cent, down ~240 bps sequentially. The company during the quarter won 2 large deals & added 11 new clients.

 

At 09:28 AM; Sonata was trading 17 per cent lower at Rs 458.60, as compared to 0.08 per cent decline in the BSE Sensex. The stock fell below its previous low of Rs 469.05 touched on June 4, 2024. The average trading volumes at the counter jumped over 10-fold with a combined 2.5 million equity shares changing hands on the NSE and BSE.

 

In Q3FY25, Sonata’s international business delivered 4.4 per cent (CC) QoQ growth and EBIDTA drop due to onetime cost items. During the quarter, the company said they won 2 large deals, its first multi-million-dollar deal on Microsoft Fabric, and for Gen AI modernization. The management said they remain optimistic about the company’s long-term vision and growth prospects.

 

Sonata Software reported a stable quarter in terms of revenue, with continued strength in Banking and Healthcare & Life Sciences. However, its International business faced a significant margin decline due to an unplanned ramp-down of a large TMT (Technology, Media and Telecom) client, a one-time discount to the same client, salary hikes, and a settlement with employees allocated to the project.

 

As a result, the company expects a 2.5-3.5 per cent revenue decline for its International business in Q4, with a recovery anticipated by late Q4 or Q1. While a large part of the margin recovery is expected in Q4, full clarity will emerge only by Q1, once the ramp-down impact is fully absorbed. Given the ongoing challenges in the Hi-Tech and TMT sectors ICICI Securities said they maintain a cautiously optimistic stance as the brokerage firm said they monitor margin recovery in the coming quarters.