Reviews

In this edition, we have reviewed Sonata Software Limited and Indraprastha Gas Limited. We suggest our reader investors to HOLD Sonata Software Limited and Indraprastha Gas Limited . 

 

We had previously recommended Sonata Software in Volume No. 35, Issue No. 02, dated December 23 – January 06, 2020, in the ‘Cover Story’. The stock was then trading at Rs301.9 and was recommended based on the company’s positive business growth trend. Sonata Software is an IT servicing and solutions company providing solutions for travel, retail and distribution, and software product companies. Its operations include software development, technical services and product marketing. On a consolidated basis, the net sales for Q1FY21 increased by 8.9 per cent to Rs952.44 crore from Rs874.63 crore reported for Q1FY20.

It reported an operating profit of Rs81.21 crore for Q1FY21, thus contracting by 23.67 per cent compared to the operating profit of Rs106.39 crore posted for Q1FY20. It gained a net profit of Rs49.92 crore in Q1FY21, contracting by 25.55 per cent compared to the net profit of Rs67.05 crore gained in Q1FY20. Net sales for FY20 increased by 26.42 per cent to Rs3,743.26 crore from Rs2,960.90 crore reported for FY19. PBDT for FY20 came in at Rs416.03 per cent, expanding by 14.85 per cent compared to Rs362.23 crore in FY19. The company’s net profit gained in FY20 rose by 11.27 per cent to Rs276.93 crore from Rs248.88 crore gained in FY19.

Sonata Software has been undertaking various measures for cost rationalisation so as to improve margins going forward. The company’s revenues for Q1FY21, mainly in the travel segment, were dented due to the pandemic but in the coming quarters verticals such as independent software vendor (ISV), essential retail, utility and commodity service are expected to contribute towards improving the revenues. Hence, we recommend HOLD.

We had previously recommended Indraprastha Gas in Volume No. 35, Issue No. 10, dated April 13 – April 27, 2020, under the ‘Analysis’ segment. The stock was then trading at Rs435.45 and was recommended based on favourable demand for the company’s CNG and PNG segments. Indraprastha Gas, a joint venture by GAIL and BPCL, is a city gas distribution company. Looking at the quarterly financial trends, on a consolidated basis, the company reported a decline of 60.29 per cent in net sales for Q1FY21 at Rs692.53 crore compared to Rs1,744.47 crore posted in Q1FY20.

For Q1FY21 and Q1FY20 its PBDT stood at Rs111.70 crore and Rs392.23 crore respectively, thus decreasing by 71.52 per cent in Q1FY21 compared to Q1FY20. The company gained net profit of Rs29.26 crore in Q1FY21, contracting by 86.16 per cent from net profit of Rs211.45 crore gained in Q1FY20. Net sales for FY20 increased by 12.63 per cent to Rs7,165.49 crore from Rs6,361.87 crore reported for FY19. The company gained operating profit of Rs1,662.82 crore for FY20, thus expanding by 20.02 per cent as compared to operating profit of Rs1,385.43 crore posted for FY19.

The net profit gained in FY20 increased by 45 per cent to Rs1,094.94 crore from Rs755.14 crore posted in FY19. The company expects a significant revival in the gas demand outlook as it plans to make investments in city gas distribution (CGD) networks. The management of Indraprastha Gas intends to look for inorganic growth opportunities through buyouts or taking equity stakes in other CGD companies. Looking ahead, this will positively benefit the company’s business and long-term growth. Hence, we recommend HOLD

(Closing price as of October 16, 2020)