Brokerage firm IDBI Capital is bullish on software and consulting company Sonata Software on the back of strong financial performance over the past few quarters under the leadership of new chief executive officer (CEO), Samir Dhir. It sees over 19 per cent more upside in the stock, despite the shares giving 163 per cent returns in a year.

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As per the brokerage, Sonata Software's alliances with technology leaders like Microsoft, Oracle, and IBM; and involvement in several early adoption partnerships provide the company with an early-mover advantage on newer technology and releases.

Not just that, as per the brokerage, the company has also outperformed its peers in terms of revenues by 70 to 200 basis points (bps) on a quarter-on-quarter (QoQ) basis and has better earnings before interest, tax, depreciation, and amortisation (EBITDA) margins than peers that are 200–500 basis points higher. IDBI Capital expects the outperformance to continue in the medium term.

Additionally, the brokerage believes that Sonata’s focus on investing in sales and marketing, account mining, hunting, and a strong platformation framework will be key long-term growth drivers, which may lead to the company aspiring to double its international service revenues by FY27E from FY23.

"We believe the company could achieve the same by FY26E (implying a service revenue CAGR of 27 per cent over FY23-FY26E). Considering this, we expect overall revenue (including domestic sales) and profit after tax (PAT) to grow at a CAGR of 23 per cent and 24 per cent over FY23–FY26E," IDBI Capital's report read.

The brokerage also expects large deals to drive robust growth. While touching on the valuations, the brokerage expects the growth to be better than the average of its peers, which should result in the stock commanding premium valuations in the medium to long term.

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