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Friday, July 31, 2009

Sonata software and ICRA:-Future growth prospects and outlook

1)Scripscan:Sonata Software Ltd
Traded in:Nse-bse

Story:Overall for the full year, sonata has reported near expected results with an consolidated earnings of Rs 7.28 versus our expectation of Rs. 7.40 per share. The under-performance is mainly reflected in the recent performance, where the earnings have dropped sequentially by 6% on standalone and 13% on consolidated basis. Sonata added 9 new clients during the quarter and 21 clients during the year. The company is looking at acquisitions as a logical attempt to utilize surplus cash and manage growth.A overall trend emerging for IT companies in general is that of significant increase in selling costs and decline in volumes & new business flow. In such case, I would favour companies with low cost structure, higher margins, debt-free & cash surplus balance sheet & low absolute valuations, which limit the de-rating risks.I see Sonata Software fit this bill perfectly.Remains a good buy at dips.

2)Scripscan:ICRA Ltd
Traded in:Nse-bse

Story:ICRA Limited has delivered better than expected results for the quarter and year ended FY09. The quarterly results show a sequential growth of 32% in topline & 40% in PAT. On Y-Y basis there is a phenomenal 50% topline growth & a 39% earnings growth and for the year ended Mar’09, the company’s topline and PAT both increased by 36%. During the period under review, Current Investments have been marked to market as on March 31, 2009 and a provision of Rs 33.43 million has been made to reflect the diminution in the value of the investments. This has been charged to the P&L account and is not on a recurring basis.At CMP of Rs 890/- the stock is trading at 20.2x FY10E earnings of Rs 44/-. Upon factoring the FY09 reported performance,I have increased our EPS estimate for the current fiscal from Rs 38/- to Rs 44/-.A great buy at dips.

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