Multibagger IT stock falls 12% in a year; buy, sell or hold?

Shares of multibagger Sonata Software Ltd have seen a correction of 12.39% in a year. However, the IT stock has delivered 114% returns in two years and risen 428% in five years. On the other hand, the benchmark BSE 500 index has risen 16% during the same period. In the current session, Sonata Software stock climbed 3.42% to Rs 629 against the previous close of Rs 606.05 on BSE. Total 0.16 lakh shares of the firm changed hands amounting to a turnover of Rs 98.67 lakh on BSE. Market cap of the firm climbed to Rs 17,534 crore on BSE.

The multibagger IT stock fell to a 52-week low of Rs 469.05 on June 4, 2024 and a 52 week high of Rs 867.10 on February 27, 2024.

In terms of technicals, the relative strength index (RSI) of the stock stands at 40.2, signaling it's trading neither in the overbought nor in the oversold zone. Sonata Software stock is trading higher than the 5 day, 10 day, 50 day, 150 day and lower than 20 day, 30 day, 100 day and 200 moving averages.

The stock has a beta of 0.8, signaling low volatility in a year.

Systematix has a buy call on the stock with a target of Rs 742.

HDFC Securities has a price target of Rs 780 on the IT stock.

"In its International IT Services business, Sonata Software delivered 26% revenue CAGR over FY21-24 and ~4.3% CQGR over the last 10 quarters which remain among the top quartile revenue growth performances. Revenue growth moderating in the last 3 quarters is, we believe, just a temporary blip and growth is likely to rebound strongly with improvement in the spending environment.Anticipated uptick in demand, particularly discretionary spending in CY25, should augur well for SSOF's growth acceleration; we remain positive on its medium-term growth prospects," said the brokerage.

KRChoksey Research has a price target of Rs 679 on the IT sector stock.

The brokerage has lowered its FY26 EPS estimate for Sonata to Rs 26.1 (from Rs 26.7), reflecting anticipated margin pressures from upfront costs tied to large deals. The target price of Rs 679 is based on a 26x P/E multiple for FY26.

"Potential risks to the brokerage's projections are the company's earnings may face short-term headwinds from macroeconomic factors, particularly inflation in the U.S., impacting client spending. Additionally, any delays in margin recovery due to ongoing investments in large deals could impact profitability projections, said KRChoksey Research.

It has an accunulate rating on the stock.

The IT firm reported a 10% year-on-year (YoY) rise in net profit at Rs 124.2 crore in September 2024 quarter against a profit of Rs 112.7 crore. Revenue climbed 28% to Rs 1,912.6 crore in Q2 from Rs 1,496.0 crore in the corresponding period of the preceding fiscal.

EBITDA rose 33% to Rs 220.5 crore in the second quarter against Rs 165.7 crore in the corresponding period of the previous fiscal. EBITDA is earnings before interest, tax, depreciation, and amortisation.

Sonata Software specialises in cloud and data modernisation, Microsoft Dynamics Modernization, digital contact center setup and management, managed cloud services and digital transformation services.