Sonata Software (NS:SOFT): Sonata posted a good quarter with revenue growth of 1.5% QoQ CC and a margin decline of ~50bps QoQ, which were in line with our estimates. The revenue growth was led by BFSI (retail banking) and TMT verticals (Microsoft (NASDAQ:MSFT) sell-to and Fabric). We expect IITS to be back on the growth trajectory based on healthy deal wins and a strong book-to-bill of 1.23 (TCV of USD 104mn). The deal pipeline has increased ~5% QoQ, and ~49% of the active pipeline consists of large deals, with over 36% of the large deal pipeline involving Fortune 500 clients. The company won three large deals from (1) a TMT client in the US for consumer experience modernisation, (2) a data modernisation deal with a large US commercial bank, and (3) a cloud modernisation deal from a retail client in the US. The key growth bets for the future are Microsoft Fabric (USD 91mn pipeline) and Gen AI (USD 67mn pipeline), along with investment in the BFSI and healthcare verticals. The company maintains its FY27 revenue aspiration of USD 1.5bn (USD 500mn for IITS) and an EBITDA margin in the low 20s for the IITS business. We cut our EPS estimate for FY26/27E by 1.8/1.2%, factoring in near-term margin challenges. We maintain our ADD rating with a target price of INR 690, based on 26x Dec-26E EPS. The stock is trading at a P/E of 27/23x FY26/27E EPS and generates an RoE of ~36%.
Aptus Value Housing Finance India (NS:APTS): APTUS’s earnings were in line with our estimates with steady loan growth (+27% YoY) and P&L outcomes. Core spreads remained steady (8.7%), driven by marginal reflation in asset yields as well as cost of funds while NIMs (11.2%) moderated marginally due to increasing leverage and higher negative carry. Disbursements picked up pace during Q2 (+26% YoY) post a muted Q1 due to the transition to new LOS during Apr-24. APTUS continues to focus on the LIG, self-employed, rural-based customers in its core markets, with gradual geographical expansion. However, the geographical expansion in Odisha and Maharashtra has been protracted and APTUS’s ability to deliver superior profitability and growth in these markets remains a key monitorable. Further, the current valuation (3.4x Mar-26 ABVPS) provides limited upside. We introduce FY27 earnings estimates and maintain REDUCE with a revised RI-based TP of INR 315 (implying 2.9x Sep-26 ABVPS).
Alkyl Amines (NS:ALKY): We maintain SELL on Alkyl Amines (AACL) with a price target of INR 1,793 owing to (1) capacity addition in methylamines and its derivatives by domestic players, (2) continued aggressive dumping by Chinese manufacturers in ethyl amines, which shall limit volume growth and expansion in margins. We expect EBITDA/APAT to grow at a CAGR of 19/22% over FY24-27E and RoE/RoCE to improve from 12.2/11.4% in FY24 to 15.6/14.8% in FY27. Currently, the stock is trading at 56.2/46.5x FY25/26 which we believe is contextually high. EBITDA/APAT were 9/5% below our estimates owing to higher than expected raw material cost and other expenses.
Teamlease Services (NS:TLSV): Teamlease reported revenue growth of 8.4% QoQ, led by strong volume growth in general staffing and a sharp recovery in HR services, offset by continued weakness in specialised staffing. Margins improved by 33bps QoQ to 1.2% (in line with our estimate), led by (1) operational efficiency in general staffing, (2) positive contribution from HR services, (3) higher margin in specialised staffing led by GCCs, and (4) recovery in the higher-margin DA segment. The general staffing PAPM declined sequentially, while the volume growth was strong (+18.8% YoY), led by consumer, manufacturing, and BFSI verticals. The DA headcount registered strong growth for the second consecutive quarter and supported margin expansion. We continue to remain positive on the growth story, underpinned by (1) volume growth in general staffing and the DA segment, (2) new logo addition with variable markup, (3) growth in HR services, and (4) government focus on employment generation. The EBITDA margin will gradually improve to ~1.5%, led by a change in revenue mix to higher margin segments (HR and specialised staffing), lower wage inflation, stable core cost, and reduced sourcing cost from the implementation of the hire tech platform. We lower our EPS estimates for FY26/27E by ~8/3% due to slower margin expansion and an increase in the effective tax rate. We maintain our ADD rating with a TP of INR 3,500, based on 26x Dec-26E EPS. The stock is trading at a P/E of 36/27x FY25/26E EPS.
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