Slowing momentum in the first half of the year led analysts to lower their full-year profit growth estimates.
Sonata provides solutions to modernize the technology infrastructure used by clients across various verticals such as banking, financial services and insurance (BFSI), healthcare, retail, manufacturing, travel, media and telecommunications across the globe. In its international business, the company has high customer concentration with its top 10 clients accounting for half of the segment revenue.
Of total revenues in FY2024, revenues from domestic operations accounted for approximately 57% but this proportion increased to 64% in FY2024 due to slower growth in overseas revenues.
Total revenues grew 15.3% quarter-on-quarter to Rs 252.74 billion in the June quarter, driven by India operations, while international services revenues grew modestly by 1.3% to $82.7 million. The company’s EBITDA margin improved 40 basis points quarter-on-quarter to 7%. Consolidated net profit declined 4.3% to Rs 10.56 billion due to lower other income. The company had previously targeted revenues of $1.5 billion by FY2026 against $1 billion in FY2024, with EBITDA margin in the low 20s. However, current circumstances of delays in project ramp-ups are likely to push the target date to FY2027. In a conference call with analysts after the quarterly results, the company’s management said that customer deal decisions and project completions in the UK, Europe and retail manufacturing are expected to remain subdued in the coming quarters. Additionally, a major healthcare contract won in the June quarter is expected to have lower margins for the first two to three quarters due to upfront investments in artificial intelligence (AI) related technologies. The company expects 20% of revenues to come from AI-related projects over the next three years. The company won three major contracts in the June quarter, and has 49 more such contracts in the pipeline.
IDBI Capital Markets and Securities has cut its earnings per share (EPS) forecast for FY25 by 10 per cent, considering near-term challenges such as margin dilution and higher finance costs. The firm downgraded its rating on the stock to ‘hold’ from ‘buy’ while maintaining a target price of Rs 770, implying a price-to-earnings multiple of 28 times for FY26. The stock closed 3.4 per cent higher at Rs 603.3 on the BSE on Wednesday.
