I am homeschooled and recently, my father gave me a task to analyze a company. I was to understand and analyze whether investing in Sonata Software Ltd would be a good choice or not. So I researched and learnt about Fundamental Analysis and proceeded to apply it. This is the result and conclusion of my analysis.
Understanding the Company.
This is a brief overview of the company; we will be understanding it’s products, its business and general information to know before analyzing this company.
Sonata Software Ltd is in the IT Industry particularly they are a “Modernization Engineering company”. A company (in the service sector) that offers to help organizations to update and transform their existing infrastructure, applications, and processes to take advantage of new technologies and innovations. It operates globally and serves industries such as retail, manufacturing, travel, software, and healthcare.
Industry Overview
The IT sector is poised for significant growth given by the latest technologies and transformations. So I’d say that investing in IT is promising.
Analysis
Does it have any Moat?
Looking through screener.in, we can see Sonata perform well in two categories compared to it’s peers.
Sonata P/E: 23.15
Median: 28.3
Sonata ROCE: 29.10
Median: 20.66
Statistically speaking It could mean that the price is undervalued or less growth potential. That and the fact that the company is very efficient compared to it’s peers at utilizing money.
According to screener.in it has no red flags.
In conclusion, Sonata seems to be safe and actually a very good investment right now in comparison to it’s peers.
Reading Financial Statements
Consolidated Cash Flow Statements
Cash flow statement 23-24
Total net operating cash flow: 28,054L
Total net investing cash flow: -5431L
Total net financing cash flow: -10,850L
Cash flow statement 24-25
Total net operating cash flow: 64,433L
Total net investing cash flow: -43,560
Total financing cash flow: -43,330
My interpretation: Although there is a big jump in the net cash flow decrease, the operating cash flow has grown significantly meaning that Sonata’s investment’s are paying off. They have also borrowed only 1,694L (as short-term borrowing) wherein the operating cash covers over 2.5 times of it.
Sonata also shows more investments compared to last year so we could say that the company is ready for more growth.
Reading the P&L Statement and Balance sheet, I couldn’t gleam much information (due to my lack of expertise) and so onto my conclusion.
Conclusion
Sonata software’s price seems to be undervalued at the moment and is also really efficient at utilizing it’s capital. From Cash flow statements we read that Sonata software is primed to grow and is also quite safe.
I also attempted to analyze a company 3 years ago. You can view the video below: