Posted on February 7, 2025, by Niftynews
Shares of Sonata Software experienced a significant decline on February 7, 2025, following the company’s disappointing performance in its Q3 results. The company reported a 1.4% drop in profit after tax (PAT) and a 7.8% decline in EBITDA for the third quarter of fiscal 2025, which led to a 16% fall in Sonata Software share price during morning trading, with shares trading at ₹460.7 per unit on the BSE.
This sharp drop in the Sonata Software share price raised concerns about the company’s ability to sustain growth, both in its domestic and international markets. The stock’s poor performance reflects how deeply the market is impacted by underwhelming quarterly results, particularly after a period of optimistic growth expectations.
Declining Profit After Tax and EBITDA Impacting Sonata Software Financials
The company’s PAT for Q3FY25 stood at ₹105 crore, which represented a 1.4% quarter-on-quarter (QoQ) decline compared to the ₹106.49 crore reported in the previous quarter. Similarly, EBITDA fell by 7.8% QoQ, amounting to ₹163.6 crore. This underperformance was largely driven by several factors, including declines in international IT services revenue and operational challenges in key markets.
One of the key issues that led to this poor performance was a notable decline in the EBITDA of Sonata Software international business. Despite showing some sequential growth in revenue for this segment, EBITDA for international IT services fell by 16.9% QoQ to ₹107.1 crore, which was a major concern for analysts. This decline, along with an 8.4% drop in PAT for the international segment, significantly impacted investor confidence and led to a sharp fall in Sonata Software share price.
The International Market and Revenue Growth Struggles
Sonata Software’s international revenue stood at ₹731.7 crore for the quarter, showing a 3.4% sequential growth. In dollar terms, the company posted revenue of $87 million, which marked a 2.8% QoQ and 3.9% YoY growth. While revenue growth in dollar terms was a positive sign, it wasn’t enough to offset the major challenges the company faced in managing costs and improving profitability.
For the international segment, the decline in EBITDA raised concerns over Sonata Software’s ability to manage margins effectively, especially as demand for IT services remains competitive globally. This, in turn, has heightened investor uncertainty about Sonata Software’s growth trajectory in international markets, contributing to the sharp decline in share price.
Domestic Business Shows Mixed Performance
On a more positive note, Sonata Software domestic business exhibited a gross contribution growth of 16.7% QoQ, highlighting that the company’s Indian operations remain stable amid challenges in its international markets. However, domestic growth alone wasn’t sufficient to offset the weaknesses in international business, which continues to be a major part of the company’s revenue stream.
Investor Sentiment and the Sonata Software Share Price
The disappointing Q3 results led analysts to reassess their outlook for the company. The decline in Sonata Software’s share price can be attributed to the market’s reaction to its inability to meet revenue and profitability expectations for the quarter. In addition, the fall in Sonata Software share price is indicative of broader investor concerns regarding the company’s ability to sustain growth, especially as its international business faces increasing headwinds.
This decline in stock price came after a period of positive expectations regarding Sonata Software future growth and its ability to expand its footprint in international markets. Despite Sonata Software strategic wins, including two large deals—one focused on Microsoft Fabric and the other on Gen AI modernization—investors were disappointed by the company’s lack of consistent performance across its core businesses.
Strategic Moves and Company Outlook
In an effort to reassure investors, Samir Dhir, MD & CEO of Sonata Software, expressed optimism about the company’s long-term growth prospects. Dhir highlighted the company’s new multi-million-dollar deals in Microsoft Fabric and Gen AI modernization, areas expected to drive growth in the future. The company remains focused on expanding its presence across global markets, particularly in key regions such as the US, UK, Europe, APAC, and ANZ.
Despite the weak quarter, Dhir emphasized that Sonata Software remains confident in its long-term vision and the potential for its IT services business to grow as demand for AI-driven solutions and cloud infrastructure continues to rise globally.
Conclusion: Should You Consider Buying Sonata Software Shares?
The significant decline in Sonata Software share price after the company reported disappointing Q3 results raises important questions about its growth trajectory and its ability to manage costs effectively. While the company faces challenges, particularly in its international IT services, its long-term strategy focusing on high-growth areas like Gen AI and Microsoft Fabric may offer opportunities for rebound.
Investors should carefully monitor the company’s ability to improve its profitability, manage costs in a competitive global market, and deliver on its strategic goals. For those considering investing in Sonata Software shares, it may be worth waiting to see how the company responds to these challenges in the coming quarters.
