Canarys Automations Ltd — Q2 FY26 earnings call

Call held 10 Dec 2025

Management summary

Canarys Automations Limited reported a strong H1 FY26 with total income growing 166% YoY to INR 102 crores, driven by nearly 200% growth in technology solutions. The acquisition of Fortira significantly boosted global presence and revenue. While margins saw a slight dip to 13% EBITDA and 9% PAT due to strategic investments in product development and talent, the company maintains a healthy order book of INR 208 crores and a low debt-to-equity ratio of 0.1x, signaling a focus on future growth and transformation.

Highlights

  • Total income for H1 FY '26 stood at INR 102 crores, reflecting a 166% year-on-year growth.

  • Technology solutions vertical grew almost 200% year-on-year.

  • Order book now stands at a healthy INR 208 crores, with INR 151 crores from technology solutions and INR 57 crores from water resource management.

  • Acquisition of Fortira (51% stake in April 2025) contributed over USD 6.6 million in H1 FY26 revenues and USD 0.5 million in profit before tax, strengthening North American presence.

  • Launched AURYIS, an AI-powered software product, with positive pilot customer feedback and expected commercialization in 6-8 months.

  • Attrition rate dropped to 5% due to focus on skill upgrades, cutting-edge technologies, and company growth.

Concerns

  • EBITDA margin stood at 13%, a 'slight dip' from previous levels, attributed to strategic investments in team expansion, product development, and global scaling.

  • Profit after tax stood at INR 9 crores, reflecting a 9% margin, also impacted by growth-phase investments.

  • The company is currently 'cash flow negative' due to significant investments in product development, which is reflected in debt on the balance sheet.

  • Water resource management projects have longer payment cycles, leading to a more focused approach on opportunities with better commercial outcomes.

Key financials

  1. Total Income ₹102 Cr +166%YoY
  2. EBITDA ₹13 Cr
  3. EBITDA Margin 13%
  4. Profit After Tax ₹9 Cr
  5. PAT Margin 9%
  6. Debt-to-Equity Ratio 0.1×

What they filed

Q4 FY26: revenue up 120.5%, net profit up 20.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY23Q4 FY23Q2 FY24Q4 FY24Q2 FY25Q4 FY25Q2 FY26Q4 FY26
Revenue29 46 31 44 38 +31%52 +13%101 +226%97 +120%
EBITDA3 10 4 7 6 +100%6 −40%12 +200%10 +43%
Net profit2 6 3 5 4 +100%4 −33%9 +200%6 +20%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Technology Solutions
    2 decimal_fraction YoY Growth
  • Water Resource Management
    20% Expected H2 Contribution

Order book

high confidence

Total value

₹208 Cr

as of 2025-09-30 quantified

Execution

WRM contracts are 3-5 years, IT solutions 35-40% multi-year, rest short/mid-term (6, 12, 15 months)

Composition

Mix 2 service lines
  • Technology Solutions 72.6%
  • Water Resource Management 27.4%

Share of order book by service line

The order book is healthy, with a good split between IT solutions and WRM, but the company needs to check the threshold for announcing large orders.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Debt disclosed
    So, any and all amount that we invest in product development that will show up in our debt on the balance sheet.
  • M&A Fortira Acquisition · Closed · Consideration ₹[object Object] (undisclosed)

    Strengthens Canarys presence in North America, enhances capability in artificial intelligence, cybersecurity, cloud, DevOps, and analytics, and opens cross-selling opportunities.

    Contributed over USD 6.6 million in H1 FY26 revenues and profit before tax of US about half a million dollar. Initial valuation for 51% stake was based on 5 million USD, remaining 49% to be acquired based on EBITDA multiple.

    Completed this acquisition in April 2025 for a 51% stake... Fortira brings over 100 skilled professionals... With H1 FY '26 revenues exceeding USD $6.6 million and profit before tax of US about half a million dollar... So, the initial valuation was done at 5 million and 51% acquired on the 5 million valuation. This 49% is on the EBITDA multiple. So, we have to see where we stand at the end of third year.
  • Liquidity Liquidity disclosed Company is cash flow negative due to product development investments.
    So, I will tell you why I am asking this is because as of date, our company is not generating cash flow.

Guidance & targets

Talent

  • Team training in AI, ML, and data skills Talent · FY26 · High confidence 25%
    One of our key goals for FY '26 is to train 25% of our team in AI, ML, and data skills to strengthen our leadership in emerging technologies.

    — Sheshadri Srinivas

Profitability

  • Fortira EBITDA margins Profitability · next 1-2 years · Medium confidence 18%-20%
    So is it fair to assume that 18%-20% is achievable in Fortira in the near term in the next 1-2 years maybe? Should be achievable.

    — Sheshadri Srinivas

  • Sustainable margins Profitability · current and next year · High confidence same amount as today
    So, we continue to deliver the same amount of margins what we are doing today. So that will allow us to sustain and also grow. We don't mean to go down below what we have delivered now. So that is the plan for now.

    — Sheshadri Srinivas

Product Development

  • AURYIS commercialization Product Development · next 6-8 months · High confidence 6-8 months
    It will take another at least 6-8 months to start the first commercial engagement.

    — Sheshadri Srinivas

Revenue Mix

  • Water Resource Management contribution Revenue Mix · H2 · High confidence 20%
    No, definitely, there is some traction in the H2. So, we are looking at 80-20 ratio, 80% coming from the IT solutions and 20% from the water resource management. And that 20%, yes, we target to complete in the H2.

    — Sheshadri Srinivas

Growth

  • Overall growth rate Growth · going forward · Low confidence extrapolate past 2 years' 20% growth
    If you look at the last 2 years of history, 20% we are growing. And this year, the H1 results are pretty much above the last 2 years' results as well. So maybe you should extrapolate this and then arrive at some kind of a calculation.

    — Sheshadri Srinivas

What to watch in Q3 FY26

Fortira EBITDA margin improvement

next 1-2 years
Current less than 9% (FY24)
Target progress towards 18%-20%

Why it matters

Indicates successful integration and profitability enhancement of the acquired entity.

So is it fair to assume that 18%-20% is achievable in Fortira in the near term in the next 1-2 years maybe? Should be achievable.

Risks & concerns

  • Margin compression due to strategic investments

    medium

    EBITDA margin dipped to 13% and PAT margin to 9% due to investments in people (senior leaders), product development, and global scaling, which is expected to continue for a few more quarters.

    Management acknowledged

  • Cash flow negative due to product development

    medium

    The company is currently not generating positive cash flow, with product development investments showing up as debt on the balance sheet.

    Management acknowledged

  • Longer payment cycles in Water Resource Management (WRM)

    low

    WRM projects have longer payment cycles, leading the company to adopt a more focused approach on opportunities offering speed, scale, and better commercial outcomes.

    Management acknowledged

  • Integration and cross-selling challenges for Fortira

    low

    Integrating Fortira's solutions and cross-selling Canarys' offerings to its existing enterprise customers takes time, as these customers need to digest new solutions before placing new work orders.

    Acknowledged

Q&A highlights

5 direct, 1 evasive
Fortira margins and potential to reach Indian business margins Direct
The objective is to invest and grow Fortira as well. We are also taking our solutions into Fortira's customer, and we are also trying to build these similar margins there. Yes, it takes some time because we need to integrate and take our solutions and get new business delivered and also consolidate. But the objective is definitely to improve the margins of both Fortira and Canarys. And I think that is quite possible. Should be achievable.

Analyst questioned if Fortira's margins could reach Indian levels (20%) in 1-2 years, and management confirmed it's achievable, indicating future profitability targets for the acquired entity.

Asked by Rahil Dasani

Cash flow negative due to product development spend Direct
So, I will tell you why I am asking this is because as of date, our company is not generating cash flow. So, any and all amount that we invest in product development that will show up in our debt on the balance sheet. So that is how I was trying to understand how much more are we planning to spend on product development in the next 1-2 years, because that is the exact number that will add to our debt, because as of date, we are cash flow negative. Correct. So, we are working towards it. Yes. Thanks for that.

Analyst highlighted the company's cash flow negative status and its impact on debt, prompting management to acknowledge the situation and state they are working towards improvement.

Asked by Rahil Dasani

Order book growth and lack of large wins Partial
One observation that I had was that our order book has not been growing as much. We had one large order in May 24 last year of approximately $13 million, close to INR 120 Cr. And post that, we haven't been able to win any significant order. There are a few smaller INR 2-INR 3 crores order, but there has not been any large significant win, which is helping scale up our order book. So how should we think about this? If you look at the current order book, it is also pretty much healthy. It is over INR 200 crores.

Analyst questioned the perceived lack of significant large order wins despite overall order book growth, indicating a concern about the quality or scale of new business.

Asked by Rahil Dasani

Order announcement threshold Partial
One other thing is with regards to the order announcement, while I see the order book increasing there, but under the SEBI rules, you have to announce any large order. So, what is the threshold of the order that you have kept on which you have to make those announcements? Because I don't see any order announcement coming up from the company's website, but when the quarterly or half yearly numbers come, that time only we see the growth in the order book? I will have to check on the threshold. It is not on top of my head, but I can definitely check and maybe in Steller Group Investor Relation.

Analyst raised a regulatory compliance question regarding the threshold for announcing large orders, which management could not immediately answer, indicating a potential disclosure gap.

Asked by Niraj Chhajer

Main board migration timeline Evasive
That is great, sir. Sir, when do we expect to migrate to the main board? Like is there something pending from our side to complete the transition? Plans are on the cards. But I don't know, like, may not be a good time to reveal the timeline at the moment because we are also evaluating both, one is on the preparedness and the eligibility and benefits. All of that are getting discussed internally. Once things are finalized and once, we decide, yes, definitely announcements will be done.

Analyst inquired about a significant corporate action (main board migration), but management deferred providing a timeline, suggesting internal discussions are ongoing or they are not ready to disclose.

Asked by Divyansh Thakur

Reasons for margin decline and return to historic levels Direct
The margin decline, as I read out during my presentation as well, we are constantly investing on people, products and the expansion. So, when you are at the growth phase, two things can happen, right? So, one, whatever the profits we generate, you can invest back into the system and then grow or you can raise money through other systems, meaning it can be debt or equity or any other means. I am not taking the later route. So, we are investing some of our profit margins and then growing for now. And this will continue for at least next few quarters and then once we get into the autopilot mode, then we can see there will be a change in the margin as well.

Analyst sought clarification on margin compression, and management explicitly linked it to strategic investments for growth, indicating a trade-off between short-term profitability and long-term expansion.

Asked by Divyansh Thakur

Attrition rate drop and sustainability Direct
I saw in H1, our attrition rate has dropped to 5%, which is kind of very low for the sector, as well as our past experience in our company as well. So, like, is it due to the shift on-site and off-site mix or maybe some other initiatives we have taken? Like, how sustainable is the rate? Yes, as I mentioned, we have given a lot of importance on the skill upgrade capabilities, and we opened quite a lot of training programs for our employees, especially on the AI, ML, and data. And they are all working on the cutting-edge technologies, delivering quite a lot of good projects. So that has really affected the attrition rate.

Analyst noted the significantly low attrition rate and questioned its sustainability, to which management attributed it to strategic investments in employee skill development and growth opportunities, a key factor for IT services.

Asked by Murtaza

AI disruption and strategy for products/services Direct
AI, it is a disruption happening in the market and any new customer the first thing they ask is do you have Al practice and if yes, what kind of practice, right? So even if you have gone through my presentation, 25% of the Canarians have really upgraded the capabilities into AI, ML and data. So how cloud interrupted the entire business and the infrastructure side, right, so, the scaling part, AI is interrupting the automation and early to market. So, the customer preferred to be on Al because you can deliver much faster, pre-tested and quality is much better and the cost wise is also optimized. So, it is inevitable. At least for now, it is difficult to sustain without the Al capabilities. So, we are investing constantly on the AI skills, upgrading our staff, upgrading our solution.

Analyst asked about the impact of AI as a disruptor and the company's strategy, revealing management's view of AI as inevitable and their significant investment in AI capabilities and staff training.

Asked by Akshay Thakur

2 min read 6 chapters

Detailed narrative

H1 FY26 Performance Overview

Canarys Automations Limited reported a robust H1 FY26, with total income reaching INR 102 crores, marking a significant 166% year-on-year growth. This performance was primarily fueled by the technology solutions vertical, which saw an impressive nearly 200% year-on-year growth. Despite this strong top-line expansion, the company's EBITDA margin stood at 13% and Profit After Tax margin at 9%, reflecting a slight dip attributed to strategic investments in growth initiatives.

Strategic Acquisition: Fortira

A key milestone in H1 FY26 was the strategic acquisition of a 51% stake in Fortira, a U.S.-based AI, data, digital engineering, and IT consulting firm, completed in April 2025. This acquisition significantly bolstered Canarys' global presence, particularly in North America, and contributed over USD 6.6 million in revenues and approximately USD 0.5 million in profit before tax during H1 FY26. Management aims to improve Fortira's EBITDA margins from less than 9% (FY24) to 18-20% within the next 1-2 years through integration and cross-selling Canarys' solutions.

Product Innovation: AURYIS

Advancing its innovation agenda, Canarys launched AURYIS, its first AI-powered software product, on August 20, 2025. Designed for the pharmaceutical and life science sector, AURYIS is an intelligent compliance assessment platform. Pilot customer feedback has been positive, and the company anticipates its first commercial engagement within the next 6-8 months. This product is a testament to Canarys' investment in AI and proprietary language models to drive flexibility and scalability.

Business Strategy & Growth Drivers

Canarys' growth strategy is built on three pillars: proprietary software tools, strong alliances with global technology leaders (e.g., Microsoft, GitHub), and a talented team with expertise in AI, ML, data automation, and cloud. The company focuses on sectors like Banking, Retail, Insurance, Manufacturing, Pharmaceutical, and Healthcare (BRIMPH). A key goal for FY26 is to train 25% of its team in AI, ML, and data skills. The order book stands at INR 208 crores, with INR 151 crores from technology solutions and INR 57 crores from water resource management.

Financial Health & Investments

While the company reported strong revenue growth, its profitability margins (13% EBITDA, 9% PAT) saw a slight decline due to ongoing strategic investments. These investments are directed towards team expansion, product development, and global scaling, including bringing in senior leaders. Management acknowledged that the company is currently 'cash flow negative' due to these product development investments, which are reflected as debt on the balance sheet. The debt-to-equity ratio remains low at 0.1x, indicating a conservative capital structure.

Talent & Attrition Management

Canarys successfully reduced its attrition rate to a low 5% in H1 FY26, which is significantly below sector averages. Management attributed this success to a strong focus on skill upgrade capabilities, extensive training programs for employees in AI, ML, and data, and the overall growth trajectory of the company. The positive work culture and engagement in cutting-edge technologies have motivated employees, contributing to talent retention.

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