Sonata Software (SONATSOFTW)

FairStock Score: 73/100 — STEADY

Score breakdown: P/E: 2/3 · ROCE: 2/2 · Growth: 2/2 · Dividend: 0/1

Key Financials

Strengths

• High ROE of 25.88% and ROCE of 29.10% show strong capital efficiency.
• Low debt-to-equity of 0.30 and Altman Z-Score of 4.13 indicate a financially sound balance sheet.
• Piotroski F-Score of 8/9 reflects solid operational health and earnings quality.
• Positive free cash flow of ₹207 Cr and a modest dividend yield of 1.64% provide some shareholder returns.

Concerns

• Profit growth of 4.37% lags sales growth of 9.58%, suggesting margin pressure.
• Price of ₹264.42 is above both DCF intrinsic value of ₹249.94 and Graham Number of ₹146.78, leaving no margin of safety.
• Promoter holding at 28.17% is relatively low, raising corporate governance and alignment questions.
• Latest quarter net margin is thin at roughly 3.4% on sales of ₹3,081 Cr and profit of ₹104 Cr.

AI Analysis

Sonata Software strikes me as a good business, but not a good stock at this price. The numbers show a company earning 25.88% on equity and 29.10% on capital employed—these are excellent returns, and with debt-equity of just 0.30, the balance sheet is conservative. The Piotroski F-score of 8/9 and Altman Z-score of 4.13 confirm financial strength. This is a steady operator in software consulting, not a fad. But I buy businesses only with a margin of safety. Today's price of ₹264.42 sits above the DCF value of ₹249.94 and far above the Graham number of ₹146.78. In fact, the margin of safety is negative at -82.72% when measured against Graham's defensive valuation. That is a red flag for me. The P/E of 16.30 is not unreasonable, but EV/EBITDA of 17.57 suggests the market is not giving me a discount. Growth is moderate: sales grew 9.58%, yet profit grew only 4.37%. That lag bothers me—it hints at pricing pressure or rising costs. Last quarter's net profit of ₹104 Cr on sales of ₹3,081 Cr is a thin margin. Free cash flow of ₹207 Cr is positive, and the dividend yield of 1.64% gives some comfort, but it is not a compounding machine. Promoter holding at 28.17% is lower than I would like. I prefer owners with a larger stake so their interests are tightly aligned with mine. Overall, Sonata is a quality stalwart, but at this price the margin of safety is missing. I would wait for a better price, perhaps near the lower end of its 52-week range, before committing capital.

Data from BSE/NSE filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer