Detailed Narrative
Strong Q4 and Full-Year FY26 Financial Performance
Capillary Technologies reported robust financial results for Q4 FY26, with revenue growing 26% year-on-year to INR 191 crores. For the full fiscal year 2026, revenue increased by 23% to INR 734 crores. Adjusted EBITDA for Q4 stood at INR 35.7 crores, a 28% YoY increase, resulting in a 19% margin. The full-year adjusted EBITDA reached INR 107 crores, up 43% YoY, with a 15% margin, demonstrating significant profitability improvements.
Strategic Acquisition of SessionM and Integration Outlook
The company successfully closed the acquisition of SessionM, Mastercard's merchant loyalty business, on May 1st, 2026. This acquisition brings a sizeable $35 million business with over 40 logos, including five Fortune 500 companies, acquired at approximately 0.5x revenue. Management expects SessionM to be break-even in year one, achieve positive margins in year two, and contribute around INR 15 million in EBITDA over the next few years, although it currently contributes zero.
Robust Net Retention Rates and Organic Growth Drivers
Capillary achieved an impressive overall Net Retention Rate (NRR) of 110% for FY26, with organic NRR at 114% and inorganic NRR at 94%. Organic growth is driven by platform usage, overages, inflationary increases (3-8% depending on geography), and product upgrades like the AI stack. The company aims to maintain a 115% organic NRR, translating to 10-11% growth from existing customers.
Future Profitability Targets and Cost Management
Management outlined a long-term target of 70% gross margin and a 25-30% steady-state EBITDA margin. While Q1 FY27 may see a slight dip in margins due to salary increments and initial SessionM integration, the core organic business is expected to continue its margin expansion. Overall cost growth was 14% against 23% revenue growth in FY26, indicating effective cost leverage, partly due to strategic investments in higher-cost US sales teams.
AI Stack Development and Usage-Based Pricing Model
The company's AI stack, aiRA, is gaining traction, with about a fourth of customers piloting it and contributing 4-5% of current revenues. Capillary is moving towards a usage-based pricing model for its AI stack, combining a fixed fee for the base loyalty license with additional revenues from AI usage. This AI-native approach is seen as a key differentiator and a significant growth driver for the future.
FY27 Revenue Outlook and New ACV Generation
With the SessionM acquisition now closed, Capillary is confident in achieving a revenue target of INR 1,000-1,050 crores for FY27. The company generated INR 121 crores in new Annual Contract Value (ACV) in FY26 and expects to add INR 70-80 crores in new ACV from new customers in the coming year, further bolstering its growth trajectory.