Outlook & Valuation
We like Sonata’s differentiated business, high dividend yield, quality balance sheet, high RoE and lack of equity dilution in last 17 years. Notwithstanding sharp run-up in stock price in last couple of months, we envisage enough legroom for further upside on the back of Sonata’s platform focus, investments made in IP and S&M, decent cash generation and reasonable valuation coupled with healthy growth (18.3% EPS CAGR over FY17-FY20E). We raise our EPS estimates 4-6% for FY18E and FY19E. Upgrading our PE multiple to 14x from 12x on higher growth, we maintain our BUY recommendation on the stock with a revised Target Price of Rs340 (from Rs234 earlier).