Sonata Software Limited

Technology — Information Technology Services · NSE

₹247.30+₹2.25 (+0.92%)

DalalBaazaar Score

63 / 100

🟢 Good

Verdict

REASONABLE

Risk

Low

Driven by small-cap size, which brings sharper price swings, falling profits.

In simple words: Strong business and financial position, though profits are falling even as sales grow. The direction of profits is the main factor to watch.

Decision support, not a buy or sell call.

As of 18 Oct 2026, 7:03 pm

Understanding the Business

Company site ↗

The 60-second version of Sonata Software Limited — what it does, how it earns, and who it competes with, before any of the numbers below.

What does this company do?

Sonata Software Limited, together with its subsidiaries, provides information technology services and solutions in the United States, the United Kingdom, Ireland, rest of Europe, Australia, New Zealand, the Middle East, and the Asia Pacific.

IndustryInformation Technology Services

SectorTechnology

Employees5,948

Annual revenue₹10,676 Cr

How does it make money?

Turns over ₹10,676 Cr a year. Of every ₹100 of sales, about ₹4 reaches shareholders as profit, with ₹9 left at the operating level before interest, tax and depreciation. Each of its 5,948 employees supports ₹1.79 Cr of revenue a year, the signature of a capital- or asset-led business.

Revenue / employee₹1.79 Cr

Who are its competitors?

The closest listed comparisons in its industry are TATA CONSULTANCY SERV LT, INFOSYS LIMITED, HCL TECHNOLOGIES LTD, WIPRO LTD. These are the companies its valuation and returns are measured against elsewhere in this report.

Compared side by side in Peers ↓

What is its competitive advantage?The numbers suggest a real one

ROCE has stayed above 15% in every year available and stands at 27.7%. Returns that high normally get competed away; when they persist, something is protecting them, and its ROE of 24.4% against a peer median of 32.0% is consistent with that. What that something is — brand, scale, switching costs, regulation — the accounts cannot tell you.

Peer median ROE32.0%

What is the outlook?

7 analysts covering the stock expect revenue to grow about 10.5% and earnings to grow about 18.3% in the year to 2028. These are estimates by people who follow the company, not a forecast for the wider industry.

Est. revenue growth+10.5%

Est. earnings growth+18.3%

Analysts7

What has been driving growth?

Growth has come mainly from selling more, rather than from keeping more of each sale. Over 3 years revenue moved +43% while net margin moved -28% relative to itself. What this cannot tell you is which products, customers or geographies did the work — that lives in the segment disclosures of the annual report.

Revenue effect+43%

Margin effect-28%

DalalBaazaar Score

63/ 100

Good

Weighted across six categories. Every point is explained below.

• Revenue CAGR of 12.8% is steady
✗ Profit CAGR of only 0.9%
✗ Profit is compounding slower than revenue — margins are being squeezed as the business grows
✗ Profit fell 0.8% in the latest year

Quality vs. Valuation

Company Quality

60/ 100

Average

How good the business is, ignoring the share price entirely.

Valuation

69/ 100

Cheap

What you are being asked to pay, ignoring how good the business is.

A reasonable business at a reasonable price — neither the quality nor the valuation stands out in either direction.

Historical Valuation

Current P/E

14.8x

3Y Median

32.5x

40 monthly readings · mean 33.2x · range 13.7x–60.0x

Sector Median

16.5x

median of 4 sector peers

🟢Current valuation is approximately 54% below its 3y median of 32.5x. Cheaper than its own history, which is worth a reason too: the market may be pricing in something the backward-looking numbers do not show.

🟡Against its sector it is priced broadly in line with the peer median of 16.5x.

vs. its own history

Cheap

32.5x median over 40 months · -54%

vs. sector peers

Fair

16.5x median of 4 peers · -11%

vs. generic bands

Cheap

Below 15x

EV/EBITDA

7.7x

PEG

16.21

What's Good / What's Bad

🟢 What's Going Well3

Cash generation is improving
Free cash flow is up 87% over 3 years.
High return on capital employed
ROCE of 27.7% is the mark of a business that converts capital into profit efficiently.
Consistently profitable
Profitable in every one of the last 4 reported years.

🔴 What Needs Attention1

Return on equity is falling
ROE has dropped from 34.7% to 24.4% — each rupee of shareholder capital earns less than it did.

Red Flags

1 item require attention · 1 high

🔴Profit up while operating cash flow fallsFinancial
Reported profit rose but cash generated by operations declined — worth checking whether earnings are being supported by non-cash items or working capital.

Investment Thesis

🟢 Bull CaseWhat could make this work?

Capital compounds at a high rate
ROCE of 27.7% means each rupee reinvested earns well above what capital costs. If the company can keep deploying at this rate, growth creates value rather than just consuming cash.
Priced below its own history
The stock trades 54% below its own median multiple. If the business performs as it has and simply re-rates back to normal, that gap is return on its own.
Self-funding with balance-sheet headroom
Positive free cash flow of ₹424 Cr alongside low debt means growth, buybacks or dividends need no outside money — and a downturn can be absorbed rather than refinanced.
Earnings have proved durable
Profitable in every one of the last 4 reported years. Consistency lowers the risk that any single bad year is structural rather than cyclical.

🔴 Bear CaseWhat could go wrong?

Returns on shareholder capital are falling
ROE has dropped from 34.7% to 24.4%. Each rupee of equity earns less than it did, so profit growth increasingly depends on raising more capital rather than on the existing base working harder.
Size brings its own risk
Small Cap businesses are thinly traded, so exits are harder in a falling market and single events move the price more than they would for a larger company.

🟡 Key Things to WatchMeasurable tripwires, set against where this company stands today

1Revenue growth stays above 10% a year✓ 12.8% CAGR
Latest reported year was 10.6%. The bar is set below the established compounding rate, so ordinary variation does not trip it.
2EBITDA margin holds above 7%✓ 8.7%
Two points below today's level — enough room for noise, tight enough to catch real compression.
3Free cash flow remains positive✓ ₹424 Cr
Profit that never becomes cash eventually stops being profit.
4Debt / EBITDA stays below 2x✓ 0.8x
The ratio lenders write covenants against; it survives a small or negative equity base, unlike Debt/Equity.
5ROCE stays above 25%✓ 27.7%
Falling returns on capital are usually competition arriving, and show up here before they reach the margin.

Investment Checklist

9 / 12 checks passed

✓ Strong return on equity (ROE ≥ 15%)
✓ Strong return on capital employed (ROCE ≥ 15%)
✗ Healthy net margin (≥ 10%)
✓ Generates positive free cash flow
✓ Manageable leverage (Debt/Equity < 1.0)
✓ Adequate short-term liquidity (Current Ratio ≥ 1.0)
✓ Revenue growing year-over-year
✗ Profit growing year-over-year
✓ Not trading at an extreme valuation (P/E < 40x)
✓ Not buying right at the 52-week high
✓ Analyst consensus isn't majority-sell
✗ Short-term technical trend isn't bearish

Price history

Quick Metrics

8 good · 2 neutral · 1 weak

Market Cap

₹6,845 Cr

Small Cap

Smaller company — thin liquidity and deep drawdowns are normal here

P/E (Trailing)

14.8x

Cheap

Cheap against the generic band

P/B Ratio

3.59x

Fair

Moderate premium to the company's book value

EPS (TTM)

₹16.71

Profitable

Profitable on a per-share basis

ROE

24.4%

Strong

Strong capital efficiency

ROCE

27.7%

Strong

Earns comfortably above its likely cost of capital

Debt/Equity

0.38x

Low

Conservative leverage

Revenue Growth (YoY)

10.6%

Healthy

Healthy top-line growth

Profit Growth (YoY)

-0.8%

Falling

Profits are shrinking

Dividend Yield

3.19%

Healthy

Meaningful cash return while you hold the stock

Free Cash Flow

₹424 Cr

Cash generative

Generates cash even after funding its capex

More Metrics

P/E (Forward)

11.9x

Improving

Below the trailing multiple — the street expects earnings to grow into the price

Operating Margin

4.3%

Weak

Thin margins leave little room for error

Net Margin

4.2%

Average

Average bottom-line conversion

Current Ratio

1.05

Adequate

Adequate, but no real cushion

Beta (vs Nifty)

0.41

Defensive

Steadier than the market

52W Range Position

21%

Mid-range

Technical Snapshot

SMA 20 / SMA 50

259.3 / 282.9

Bearish alignment (short < long)

Price vs SMA 200

Below

Long-term downtrend

RSI (14)

22.8

Oversold zone

Financial Trend (4-Year)

Metric	FY23	FY24	FY25	FY26	3Y CAGR
Revenue	₹7,447 Cr	₹8,610 Cr	₹10,134 Cr	₹10,676 Cr	+12.8%
EBITDA	₹663 Cr	₹847 Cr	₹764 Cr	₹929 Cr	+11.9%
EBITDA Margin	8.9%	9.8%	7.5%	8.7%	—
PAT (Net Profit)	₹452 Cr	₹309 Cr	₹425 Cr	₹464 Cr	+0.9%
EPS	₹16.29	₹11.1	₹15.28	₹16.74	+0.9%
ROE	34.7%	21.9%	24.9%	24.4%	—
ROCE	28.0%	26.5%	30.1%	27.7%	—
Total Debt	₹591 Cr	₹765 Cr	₹516 Cr	₹723 Cr	+7.0%
Free Cash Flow	₹227 Cr	₹255 Cr	₹576 Cr	₹424 Cr	+23.1%

🟢 Revenue has grown at 12.8% a year over 3 years.

🟢 EBITDA has grown at 11.9% a year over 3 years.

🟡 EBITDA Margin has held roughly flat at 8.7% over 3 years.

🟡 PAT (Net Profit) has been broadly flat over 3 years (0.9% a year).

🟡 EPS has been broadly flat over 3 years (0.9% a year).

🔴 ROE has fallen from 34.7% to 24.4% over 3 years (-10.4 pts).

🟡 ROCE has held roughly flat at 27.7% over 3 years.

🔴 Total Debt has grown at 7.0% a year over 3 years.

🟢 Free Cash Flow has grown at 23.1% a year over 3 years.

Balance Sheet & Cash Flow — FY2026

Total Assets

₹5,091 Cr

Total Liabilities

₹3,187 Cr

Cash & Equivalents

₹373 Cr

Operating Cash Flow

₹538 Cr

Capex

-₹114 Cr

Shareholding (proxy)

Institutional Holding

31.3%

Insider Holding

41.9%

Corporate Actions

Next Earnings

12 Nov 2026

Dividend Rate

₹7.9

Ex-Dividend Date

14 Aug 2026

Analyst Consensus

Recommendations

3 Buy · 2 Hold · 2 Sell

Target Price (Mean)

₹310.57

+25.6% vs CMP

Target Range

₹260 – ₹340

Peer Comparison

Company	P/E	ROE
TATA CONSULTANCY SERV LT	17.3x	45.6%
INFOSYS LIMITED	15.8x	32.0%
HCL TECHNOLOGIES LTD	20.4x	24.6%
WIPRO LTD	14.5x	15.9%

Recent News

2 positive4 mixed

Sonata Software (NSEI:SONATSOFTW) Stock Forecast & Analyst Predictions

Simply Wall Street, 09 OctAnalyst view

🟡Mixed / dependsBroker commentary — an opinion about the price rather than new information about the business.

Sonata Software Share Price rises 7.02%: valuation view

Univest, 15 SeptPrice move

🟡Mixed / dependsA price move, which is not by itself a change in the business. Worth finding the cause before reading it as either good or bad.

Sonata Software shareholders approve ₹4.15 dividend and FY26 financials

scanx.trade, 01 AugCapital return

🟢Potentially positiveCash or shares returned to holders. A buyback is only good value if the shares were cheap when bought.

SONATSOFTW Forecast — Price Target — Prediction for 2027

TradingView, 27 JunAnalyst view

🟡Mixed / dependsBroker commentary — an opinion about the price rather than new information about the business.

Sonata Software Ltd. Forms Death Cross, Signalling Potential Bearish Trend

MarketsMojo, 15 OctAnalyst view

🟡Mixed / dependsBroker commentary — an opinion about the price rather than new information about the business.

Sonata Software shares rally 10% as Q4 net profit rises 21% despite revenue contraction; firm announces di

The Economic Times, 08 MayResults

🟢Potentially positiveReported improvement. Check whether it came from volume, price or a one-off item before treating it as a trend.

Watch Items

Cross-check against the company's latest quarterly filing / investor presentation before acting.
RSI is in oversold territory — could mean either a bargain or a stock still falling for good reason. Check the 'why' before assuming reversal.

DalalBaazaar Thesis

StrongFinancial Health · Valuation

MiddlingBusiness Quality · Growth · Profitability · Risk

Points for each in the Score ↑

Unremarkable in both directions

A reasonable business at a reasonable price. Nothing here is alarming and nothing is compelling, which usually means the decision rests on things this data cannot see — the industry's direction, management's intent, and what else is available to you. 1 high-severity red flag sits above this conclusion and should be read first.

All 5 tripwires holding · see Key things to watch ↑