buy - hdfc securities software... · results review 2qfy18. 15 nov 2017. sonata software. buy ....

RESULTS REVIEW 2QFY18 15 NOV 2017

Sonata Software BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

IP-led strategy on trackSonata delivered robust numbers in 2QFY18. International IT services (IITS) revenue grew 11.2% QoQ (+10.3% CC, +6.8% QoQ excl. one-off) to USD 36.4mn, ahead of our estimate of USD 34.0mn. A positive takeaway was sustained recovery in OPD (29% of rev, +7.7% QoQ) and Travel (27% of rev, +7.4% QoQ). Strong growth in Dynamics AX (19% of rev, +25% QOQ) is driven by traction in Retail, while the focus on IPs and Platforms is driving Digital revenue (32% of rev, +15% QoQ). Total revenue stood at Rs 4.27bn, down 32.7% QoQ, led by drop in Domestic Product & Services’ (DPS) revenue (Rs 2.00bn, -53/-32% QoQ/YoY).

IITS’ business strategy is to provide business solutions wrapped with IPs (Rezopia, Halosys, Brick & Click and RETINA). This is a major differentiator for Sonata, and is the base of its Platformation strategy. This is driving IP-led revenue, which grew 19.4% QoQ (15% of IITS rev).

Management is targetting double-growth in IITS business, led by OPD, Retail (Brick & Click Platform) and Travel (SAP Hybrid s and Rezopia) verticals. We expect IITS’ USD revenue to grow 18/14% in FY18/19E, and its

margin will be in the range of 17-18%. We like Sonata’s IP-focussed business model, capability to scale up top accounts, quality balance sheet (net cash of Rs 27/share, ~15% of Mcap), high RoE (~30%), high dividend yield (~5.0%) and reasonable valuations. Maintain BUY with a TP of Rs 230 12x Sep-19 EPS.

Highlights of the quarter AX and E-commerce were outliers: IMS grew 5.2%

QoQ, but growth will slow down owing to a shift to cloud. ADM/AX/e-comm. grew 11/25/34% QoQ. Retail grew 21% QoQ, led by AX and traction in IPs.

Consolidated EBITDA margin expanded 531bps QoQ to 12.8%, owing to higher margins in the DPS (7.0%, +348 bps QoQ) and IITS business (+176bps QoQ to 17.6% vs our exp. of 17.0%). IITS margin expansion was led by a recovery in the IBIS margin (11% vs 5% QoQ).

Near-term outlook: We expect IITS’ revenue growth to be soft in 3Q. IITS’ margins will expand gradually,with recovery in IBIS and higher IP revenue. The stock is available at a decent discount (~30%) to the mid-cap IT average multiple.

Financial Summary YE Mar (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) FY16 FY17 FY18E FY19E FY20E Net Sales 4,269 5,005 (14.7) 6,345 (32.7) 19,405 25,211 25,602 28,873 32,502 EBITDA 547 510 7.3 477 14.8 1,919 1,923 2,036 2,352 2,725 APAT 454 380 19.5 432 5.1 1,586 1,537 1,645 1,880 2,133 Diluted EPS (Rs) 4.3 3.6 19.5 4.1 5.1 15.1 14.6 15.6 17.9 20.3 P/E (x) 12.6 13.0 12.2 10.6 9.4 EV / EBITDA (x) 8.9 9.1 8.6 7.4 6.3 RoE (%) 35.3 31.2 30.5 31.5 31.9 Source: Company, HDFC sec Inst Research # Consolidated

INDUSTRY IT CMP (as on 14 Nov 2017) Rs 190 Target Price Rs 230 Nifty 10,187

Sensex 32,942

KEY STOCK DATA

Bloomberg/Reuters SSOF IN

No. of Shares (mn) 105

MCap (Rs bn) / ($ mn) 20/306

6m avg traded value (Rs mn) 93

STOCK PERFORMANCE (%)

52 Week high / low Rs 225 / 143

3M 6M 12M Absolute (%) 24.1 16.3 25.7 Relative (%) 19.4 7.2 2.9

SHAREHOLDING PATTERN (%)

Promoters 30.95

FIs & Local MFs 2.10

FPIs 11.56

Public & Others 55.39

Source : BSE

Amit Chandra [email protected] +91-22-6171-7345

Apurva Prasad [email protected] +91-22-6171-7327

SONATA SOFTWARE: RESULTS REVIEW 2QFY18

Page | 2

Quarterly Consolidated Financials Snapshot Particulars 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) IITS Net Revenues (US $mn) 36.4 31.2 16.8 32.8 11.2 Net Revenues 4,269 5,005 (14.7) 6,345 (32.7) Inventory Costs 1,873 2,848 (34.2) 4,097 (54.3) Employee Costs 1,321 1,122 17.7 1,217 8.5 Other Operating Expenses 527 525 0.5 554 (4.9) EBITDA 547 510 7.3 477 14.8 Depreciation 32 26 26.5 30 6.5 EBIT 515 484 6.3 446 15.3 Interest Cost 12 14 (12.4) 17 (27.2) Other Income 114 88 29.2 168 (32.0) PBT 617 559 10.4 597 3.3 Tax 163 179 (8.9) 166 (1.5) Minority Interest 0 0 NA 0 NA RPAT 454 380 19.5 432 5.1 E/o (adj for tax) 2 0 NM 9 NM APAT 452 380 19.0 422 7.0 Source: Company, HDFC sec Inst Research Margin Analysis Particulars 2QFY18 2QFY17 YoY (bps) 1QFY18 QoQ (bps) Inventory Cost % Net Revenue 43.9 56.9 (1,302) 64.6 (2,068) Employee Cost % Net Revenue 30.9 22.4 852 19.2 1,175 SG&A and Other Expenses % Net Revenues 12.4 10.5 187 8.7 362 EBITDA Margin (%) 12.8 10.2 263 7.5 531 EBIT Margin (%) 12.1 9.7 239 7.0 503 Tax Rate (%) 26.4 32.0 (560) 27.7 (129) APAT Margin (%) 10.6 7.6 300 6.7 393 Source: Company, HDFC sec Inst Research

IITS’ revenue grew 11.0% QoQ, while DPS revenue declined 53.4% in INR terms. Consolidated EBITDA margin expanded owing to strong DPS (+348bps QoQ to 7.0%) and IITS (+176bps QoQ to 17.6%) margins IITS’ investments are almost complete, and margin expanded with growth and IBIS recovery (IBIS EBITDA margin stood at 11% vs 5% in the last quarter), and higher IP revenue PAT stood at 0.45bn, up 7.0% QoQ, owing to higher EBITDA and lower tax rate


Page | 3

Segment Revenue Particulars (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) IITS Net Revenues 2,346 2,091 12.2 2,113 11.0 DPS Revenue 1,997 2,955 (32.4) 4,281 (53.4) Total Revenue# 4,269 5,005 (14.7) 6,345 (32.7)

EBITDA IITS * 413 414 (0.2) 335 23.3 DPS 140 142 (1.4) 151 (7.3) Total EBITDA 553 556 (0.5) 486 13.8

EBITDA % IITS 17.6 19.8 (218) 15.8 176 DPS 7.0 4.8 221 3.5 348 Total EBITDA % 12.7 11.0 172 7.6 513 Source: Company, HDFC sec Inst Research, IITS EBITDA excludes other income and income tax refunds, #excludes other income, as per company reporting

IITS’ Vertical Revenue Mix (% Contribution) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 OPD 28.0% 30.0% 31.0% 30.0% 29.0% 30.0% 29.0% TTL 31.0% 29.0% 28.0% 26.0% 27.0% 28.0% 27.0% CPG & Retail 24.0% 24.0% 23.0% 27.0% 26.0% 24.0% 26.0% Others 17.0% 17.0% 18.0% 17.0% 18.0% 18.0% 18.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company, HDFC Sec Inst Research IITS’ Vertical-wise Revenue Growth (Change % QoQ; US$ mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 OPD 0.4% 9.8% 10.4% -6.0% -2.1% 10.2% 7.7% TTL -2.3% -4.2% 3.2% -9.8% 5.2% 10.5% 7.4% CPG & Retail 18.9% 2.5% 2.4% 14.0% -2.4% -1.7% 20.7% Others 4.0% 2.5% 13.1% -8.3% 7.3% 6.5% 11.4% Total 4.0% 2.5% 6.8% -2.9% 1.3% 6.5% 11.4% Source: Company, HDFC Sec Inst Research

OPD, the largest vertical for Sonata, has grown strongly in the last two quarters, led by the Microsoft partnership Retail recovered sharply, and will be an important growth driver powered by Microsoft AX and Brick and Click Platform


Page | 4

IITS Service Line Break-up (% Contribution) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 ADM 23.0% 25.0% 25.0% 24.0% 25.0% 23.0% 23.0% Testing 18.0% 15.0% 16.0% 17.0% 17.0% 19.0% 18.0% IMS 15.0% 16.0% 18.0% 19.0% 19.0% 18.0% 17.0% AX 15.0% 16.0% 15.0% 15.0% 15.0% 17.0% 19.0% BI 9.0% 9.0% 9.0% 9.0% 8.0% 8.0% 7.0% E-commerce 9.0% 7.0% 6.0% 6.0% 6.0% 5.0% 6.0% ERP 4.0% 4.0% 4.0% 5.0% 5.0% 5.0% 5.0% Rezopia/Mobility/Cloud 7.0% 8.0% 7.0% 5.0% 5.0% 5.0% 5.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company, HDFC Sec Inst Research IITS’ Service Line Growth (Growth %, QoQ; US$ mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 ADM -0.3% 11.4% 6.8% -6.8% 5.5% -2.0% 11.4% Testing 4.0% -14.6% 14.0% 3.2% 1.3% 19.0% 5.5% IMS 30.0% 9.3% 20.2% 2.5% 1.3% 0.9% 5.2% AX 20.0% 9.3% 0.2% -2.9% 1.3% 20.7% 24.5% BI 4.0% 2.5% 6.8% -2.9% -9.9% 6.5% -2.5% E-commerce -6.4% -20.3% -8.4% -2.9% 1.3% -11.2% 33.7% ERP -16.8% 2.5% 6.8% 21.4% 1.3% 6.5% 11.4% Rezopia -19.1% 17.1% -6.5% -30.6% 1.3% 6.5% 11.4% Total 4.0% 2.5% 6.8% -2.9% 1.3% 6.5% 11.4% Source: Company, HDFC Sec Inst Research

Microsoft AX has registered strong growth for the second consecutive quarter, driven by the Retail vertical Sonata’s digital revenue stood at 32% of IITS’ revenue (vs 31% in last quarter)


Page | 5

IITS’ Geographic Revenue Mix (% Contribution) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 USA 60.0% 61.0% 59.0% 60.0% 60.0% 60.0% 59.0% Europe 26.0% 26.0% 26.0% 24.0% 24.0% 26.0% 27.0% RoW 14.0% 13.0% 15.0% 16.0% 16.0% 14.0% 14.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company, HDFC Sec Inst Research IITS’ Geographic Revenue Growth (% QoQ) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 USA 11.4% 4.2% 3.3% -1.2% 1.3% 6.5% 9.5% Europe -12.8% 2.5% 6.8% -10.4% 1.3% 15.4% 15.7% RoW 12.0% -4.9% 23.3% 3.6% 1.3% -6.8% 11.4% Total 4.0% 2.5% 6.8% -2.9% 1.3% 6.5% 11.4% Source: Company, HDFC Sec Inst Research IITS’ Onsite-Offshore Split IT services revenue break-up (%) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Offshore 57.0% 58.0% 55.0% 60.0% 57.0% 57.0% 55.0% Onsite 43.0% 42.0% 45.0% 40.0% 43.0% 43.0% 45.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company, HDFC Sec Inst Research IITS’ Onsite-Offshore Growth IT services revenue growth (% QoQ) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Offshore 2.2% 4.3% 1.3% 5.9% -3.7% 6.5% 7.5% Onsite 6.5% 0.1% 14.5% -13.7% 8.9% 6.5% 16.6% Total 4.0% 2.5% 6.8% -2.9% 1.3% 6.5% 11.4% Source: Company, HDFC Sec Inst Research

Europe has been growing strongly in the last two quarters ,led by Travel and Retail Onsite growth is high, owing to IBIS, which is largely onsite


Page | 6

IITS’ Client Concentration Client concentration (%) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Top 5 58% 58% 60% 59% 59% 61% 60% Top-10 67.0% 70.0% 71.0% 70.0% 70.0% 70.0% 69.0% Non-top 10 33.0% 30.0% 29.0% 30.0% 30.0% 30.0% 31.0% Top 20 80.0% 76.0% 78.0% 80.0% 81.0% 79.0% 78.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company, HDFC Sec Inst Research IITS’ Client Concentration Growth Client concentration (%, QoQ; US$ mn) 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Top 5 2.5% 10.5% -4.5% 1.3% 10.1% 9.6% Top-10 -3.2% 7.0% 8.4% -4.3% 1.3% 6.5% 9.8% Non-top 10 22.6% -6.9% 3.3% 0.5% 1.3% 6.5% 15.1% Top 20 -2.7% 9.7% -0.4% 2.6% 3.9% 10.0% Total 4.0% 2.5% 6.8% -2.9% 1.3% 6.5% 11.4% Source: Company, HDFC Sec Inst Research

Good traction in Non-top 10 clients; added 10 clients in the quarter Top-10 client concentration has been coming down


Page | 7

IITS’ Rev Growth Trend IITS’ EBITDA, Margin Trend

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

IITS’ Top-10 Clients’ Contribution IITS’ Headcount


25.9 25.9 26.0 27.4 28.5 29.2 31.2 30.3 30.7

32.7 36.4

(5)

(1)

3

7

11

15

0 5

10 15 20 25 30 35 40

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

Revenue (US$ mn) QoQ growth (RHS)(US$ mn) (%, QoQ)

346 379 392

423

320 342

414 394 366

335

413

9

11

13

15

17

19

21

23

25

50

100

150

200

250

300

350

400

450

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

EBITDA EBITDA margin (RHS)(Rs mn) (%)

72%

72% 73

%

72%

67%

70%

71%

70%

70%

70%

69%64.0%65.0%66.0%67.0%68.0%69.0%70.0%71.0%72.0%73.0%74.0%

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

2,89

6

2,88

9

2,90

8

3,13

9

3,11

1

3,14

4

3,14

7

3,16

1

3,21

3

3,41

8

3,46

4

2,600 2,700 2,800 2,900 3,000 3,100 3,200 3,300 3,400 3,500 3,600

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

Nos


Page | 8

DPS’ Quarterly Revenue Trend DPS’ EBITDA Margin Trend


DPS’ Headcount DPS’ Debtor Days


DPS’ debtors days, which increased sharply in the quarter will normalise, and will remain in the 75-80 days range

2,34

0 3,19

1

2,31

6

3,43

8

3,55

6

4,89

3

2,95

5 4,15

7 5,11

8

4,28

1

1,99

7

0

1,000

2,000

3,000

4,000

5,000

6,000

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

(Rs mn)

116 117

132

150 149 142 142

149 140

151 140

0

1

2

3

4

5

6

7

8

50

70

90

110

130

150

170

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

EBITDA EBITDA margin (RHS)(Rs mn) (%)

122 13

0 142

140 14

8

147 15

6

153

153

157 16

4

0

20

40

60

80

100

120

140

160

180

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18

(Nos)

79 76

101

65 62

69

110

95

76 81

135

0

20

40

60

80

100

120

140

160

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

1QFY

18

2QFY

18


Page | 9

IITS’ Segment Estimates IITS (Rs million) FY16 FY17 FY18E FY19E FY20E Revenue (US$ million) 107.8 121.4 141.9 161.7 183.6 % Growth 9.7 12.6 16.9 14.0 13.5 Revenue 7,068 8,153 9,187 10,512 11,931 % Growth 16.4 15.4 12.7 14.4 13.5 EBITDA 1,514 1,516 1,611 1,892 2,207 EBITDA Margin (%) 21.4 18.6 17.5 18.0 18.5 Source: Company, HDFC sec Inst Research

DPS’ Segment Estimates DPS (Rs million) FY16 FY17 FY18E FY19E FY20E Revenue 12,501 17,123 16,481 18,435 20,654 % Growth 14.4 37.0 (3.8) 11.9 12.0 EBITDA 548 573 602 664 754 EBITDA Margin (%) 4.4 3.3 3.7 3.6 3.7 Source: Company, HDFC sec Inst Research

Change In Estimates Particulars Earlier estimates Revised estimates % change FY18E Revenue (Rs mn) 27,976 25,602 (8.5) EBITDA (Rs mn) 1,977 2,036 3.0 EBITDA margin (%) 7.1 8.0 88 bps APAT 1,604 1,645 2.6 FY19E Revenue (Rs mn) 31,889 28,873 (9.5) EBITDA (Rs mn) 2,389 2,352 (1.5) EBITDA margin (%) 7.5 8.1 66 bps APAT 1,903 1,880 (1.2) Source: Company, HDFC sec Inst Research


Page | 10

Peer Valuation

Company Mcap (Rs bn)

CMP (Rs) Rating TP

(Rs) EPS (Rs) P/E (x) RoE (%)

FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E L&T Info 161 945 BUY 910 56.9 59.8 66.7 72.8 16.6 15.8 14.2 13.0 36.9 29.7 28.3 26.7 Mphasis 137 712 BUY 750 38.8 41.3 47.1 53.3 18.4 17.2 15.1 13.4 13.4 13.8 16.1 16.8 Hexaware * 101 343 BUY 315 13.9 16.9 18.2 21.7 24.7 20.3 18.8 15.8 26.7 26.6 24.5 25.4 L&T Tech 96 940 NEU 805 41.8 41.0 49.6 57.1 22.5 22.9 19.0 16.5 33.3 26.0 25.3 24.6 Mindtree 84 498 NEU 465 24.9 24.5 32.3 40.5 20.0 20.3 15.4 12.3 16.8 18.2 20.8 23.6 Cyient 61 541 BUY 587 30.6 36.3 42.0 48.3 17.7 14.9 12.9 11.2 17.4 18.2 19.0 19.7 Tata Elxsi 56 896 NR 935 28.1 35.6 42.1 49.0 31.9 25.2 21.3 18.3 37.0 35.7 34.2 32.2 Persistent 52 644 BUY 715 38.8 41.0 46.1 55.5 16.6 15.7 14.0 11.6 17.0 16.3 16.3 17.5 eClerx 51 1,275 SELL 1,085 87.8 76.5 85.0 97.2 14.5 16.7 15.0 13.1 30.8 23.7 23.7 24.5 Zensar 40 877 BUY 930 51.6 55.5 65.7 77.5 15.5 14.4 12.2 11.3 16.7 15.7 16.4 17.0 KPIT Tech 32 163 NEU 140 11.1 10.8 12.5 15.5 14.7 15.1 13.0 10.5 14.8 13.0 13.6 15.3 Sonata 20 190 BUY 230 14.6 15.6 17.9 20.3 13.0 12.2 10.6 9.4 31.2 30.5 31.5 31.9 Source: HDFC sec Inst Research * YE Dec


Page | 11

Consolidated Income Statement YE March (Rs mn) FY16 FY17 FY18E FY19E FY20E IITS US$ Revenue 107.8 121.4 141.9 161.7 183.6 Growth (%) 9.7 12.6 16.9 14.0 13.5 Net Revenues 19,405 25,211 25,602 28,873 32,502 Growth (%) 15.4 29.9 1.5 12.8 12.6 Total Operating Expenses 17,486 23,289 23,566 26,521 29,777 EBITDA 1,919 1,923 2,036 2,352 2,725 EBITDA (%) 9.9 7.6 8.0 8.1 8.4 EBITDA Growth (%) 14.5 0.2 5.9 15.5 15.9 Depreciation 62 93 113 136 162 EBIT 1,857 1,830 1,923 2,216 2,563 Other Income 475 480 530 570 590 Interest 79 91 69 62 62 PBT 2,252 2,219 2,384 2,725 3,091 Tax (incl deferred) 667 682 739 845 958 RPAT 1,549 1,460 1,645 1,880 2,133 Minority Int. and associate profit 0 0 0 0 0 EO (Loss) / Profit (Net Of Tax) 37 77 0 0 0 APAT 1,586 1,537 1,645 1,880 2,133 APAT Growth (%) 18.6 (3.1) 7.0 14.3 13.4 EPS 15.1 14.6 15.6 17.9 20.3 EPS Growth (%) 18.6 (3.1) 7.0 14.3 13.4 Source: Company, HDFC sec Inst Research

Consolidated Balance Sheet Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital - Equity 105 105 105 105 105 Reserves 4,605 5,045 5,531 6,197 6,953 Total Shareholders' Funds 4,710 5,150 5,636 6,302 7,058 Minority Interest - - - - - Total Debt 1,713 343 343 343 343 Net Deferred Taxes (129) (127) (127) (127) (127) Long-term Provisions & Others 162 187 187 187 187 TOTAL SOURCES OF FUNDS 6,455 5,552 6,039 6,705 7,460 APPLICATION OF FUNDS Net Block 292 287 430 582 745 CWIP - - - - - Goodwill & Other Intangible Assets 910 909 909 909 909 Investments 0 0 0 0 0 LT Loans & Advances, Others 658 801 880 966 1,061 Total Non Current Assets 1,860 1,997 2,219 2,458 2,716 Inventories 100 - - - - Debtors 3,544 5,232 5,261 6,170 7,124 Cash & Equivalents 3,475 3,655 3,599 3,754 4,000 Other Current Assets 810 941 1,035 1,139 1,253 Total Current Assets 7,930 9,829 9,895 11,063 12,377 Creditors 2,655 4,482 4,197 4,723 5,303 Other Current Liabilities & Provns 680 1,791 1,879 2,093 2,329 Total Current Liabilities 3,334 6,274 6,075 6,816 7,632 Net Current Assets 4,595 3,555 3,820 4,247 4,745 TOTAL APPLICATION OF FUNDS 6,455 5,552 6,039 6,705 7,460 Source: Company, HDFC sec Inst Research


Page | 12

Consolidated Cash Flow Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Reported PBT 2,252 2,219 2,384 2,725 3,091 Non-operating & EO items (438) (403) (530) (570) (590) Interest expenses 79 91 69 62 62 Depreciation 62 93 113 136 162 Working Capital Change 513 (52) (399) (359) (346) Tax paid (667) (682) (739) (845) (958) OPERATING CASH FLOW ( a ) 1,802 1,265 898 1,149 1,421 Capex (101) (88) (256) (289) (325) Free cash flow (FCF) 1,701 1,177 642 860 1,096 Investments 0 0 0 0 0 Non-operating income 438 403 530 570 590 INVESTING CASH FLOW ( b ) 337 315 274 282 265 Debt Issuance 1,469 (1,370) 0 0 0 Interest expenses (79) (91) (69) (62) (62) FCFE 3,090 (283) 573 799 1,034 Share capital Issuance 0 0 0 0 0 Dividend (866) (1,110) (1,159) (1,214) (1,377) FINANCING CASH FLOW ( c ) 523 (2,570) (1,227) (1,276) (1,439) NET CASH FLOW (a+b+c) 2,662 (990) (56) 155 246 Non-operating and EO items (1,826) 1,170 0 0 0 Closing Cash & Equivalents 3,475 3,655 3,599 3,754 4,000 Source: Company, HDFC sec Inst Research

Key Ratios FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) EBITDA Margin 9.9 7.6 8.0 8.1 8.4 APAT Margin 8.2 6.1 6.4 6.5 6.6 RoE 35.3 31.2 30.5 31.5 31.9 RoIC or Core RoCE 43.6 65.7 54.4 51.8 51.1 RoCE 23.8 20.8 22.9 24.0 25.0 EFFICIENCY Tax Rate (%) 30.1 31.8 31.0 31.0 31.0 Fixed Asset Turnover (x) 18.2 21.8 18.1 17.0 16.0 Inventory (days) 2 0 0 0 0 Debtors (days) 67 76 75 78 80 Other Current Assets (days) 15 14 15 14 14 Payables (days) 55 70 65 65 65 Other Current Liab & Provns (days) 13 26 27 26 26

Inventory (days) 16 (7) (2) 1 3 Net Debt/EBITDA (x) (0.9) (1.7) (1.6) (1.5) (1.3) Net Debt/Equity (x) (0.4) (0.6) (0.6) (0.5) (0.5) Interest Coverage (x) 23.4 20.2 28.0 35.9 41.5 PER SHARE DATA EPS (Rs/sh) 15.1 14.6 15.6 17.9 20.3 CEPS (Rs/sh) 15.7 15.5 16.7 19.2 21.8 DPS (Rs/sh) 7.0 9.0 9.4 9.8 11.2 BV (Rs/sh) 44.8 49.0 53.6 59.9 67.1 VALUATION P/E 12.6 13.0 12.2 10.6 9.4 P/BV 4.2 3.9 3.6 3.2 2.8 EV/EBITDA 8.9 9.1 8.6 7.4 6.3 OCF/EV (%) 10.6 7.2 5.1 6.6 8.3 FCF/EV (%) 10.0 6.7 3.6 4.9 6.4 FCFE/mkt cap (%) 15.4 (1.4) 2.9 4.0 5.2 Dividend Yield (%) 3.7 4.7 4.9 5.2 5.9

Source: Company, HDFC sec Inst Research


Page | 13

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 4-Nov-16 163 BUY 192 9-Jan-17 196 BUY 231 7-Feb-17 194 BUY 237

13-Feb-17 197 BUY 244 1-Jun-17 149 BUY 207

16-Aug-17 160 BUY 200 4-Oct-17 150 BUY 214

15-Nov-17 190 BUY 230

RECOMMENDATION HISTORY

100120140160180200220240

Nov

-16

Dec-

16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

Aug-

17

Sep-

17

Oct

-17

Nov

-17

Sonata Software TP


Page | 14

Disclosure: We, Amit Chandra, MBA & Apurva Prasad, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]


Page | 15

HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,Mumbai - 400 013 Board : +91-22-6171-7330 www.hdfcsec.com

buy - hdfc securities software... · results review 2qfy18. 15 nov 2017. sonata software. buy ....

Documents