Sonata Software Limited

Sonata Software reported consolidated revenue of INR 2,965.2 crores in Q1 FY26, marking a 13.3% QoQ and 17.3% YoY growth. Consolidated PAT stood at INR 109.3 crores, growing 1.7% QoQ and 3.5% YoY, with EPS at INR 3.94 per share. International Services revenue reached $81.8 million, showing a 0.6% QoQ growth but a 1.1% YoY degrowth, with an EBITDA margin of 16.6%. The Domestic Business segment recorded INR 2,274.7 crores in revenue, growing 18.6% QoQ and 23% YoY, though its gross contribution declined 12.6% QoQ.

The company secured 3 large deals in Q1, including a multi-year contract for a BFSI client and an expanded partnership with a global TMT leader. Sonata also added 7 new enterprise-grade logos, leveraging partnerships with Microsoft, AWS, and Oracle. The Health Care, Life Sciences, and Banking Financial Services verticals now contribute over 30% of total revenue, a significant increase from 13% three years ago, reflecting successful strategic execution. The AI-led order booking grew significantly, with a pipeline of $46 million in Q1.

Sonata is navigating significant headwinds, particularly in the Retail and Manufacturing verticals, which are experiencing softness due to tariffs and client uncertainty. Two large clients, one in BFSI and one in High-Tech, are undergoing budget rationalizations and discretionary spend cuts, impacting revenue. The SITL business also faces a slowdown in the IT and ITES sectors, with a potential risk from Microsoft directly engaging with customers, a decision that is still pending.

Sonata is deeply embedding AI into its strategy, with AI-enabled services projected to contribute 20% of revenue over the next three years. The company launched AgentBridge for enterprise-grade agentic AI workflows and rolled out Sonata GPT internally for HR and support functions. Talent development remains a priority, with 93.5% of the workforce now trained on AI, and headcount increasing to 6,859. LTM attrition stood at 16%.

Cash and cash equivalents decreased to INR 600 crores from INR 707 crores QoQ, primarily due to the final tranche payment for the Quant earnout and loan repayment instalments. The net cash balance was negative INR 62.5 crores, and an additional $35 million loan was taken. The company declared an interim dividend of INR 1.25 per share and expects to pay quarterly interim dividends going forward^⏳. The earnout agreement with Quant was renewed for three more years, following the team exceeding its original performance estimates.

Management aims to achieve an EBITDA margin closer to 20% by the end of the year, driven by the ramp-up of large deals, an improved on-site/offshore mix (currently 47:53), and better utilization. Wage hikes for junior and middle management will be implemented from August 1 (Q2), with senior management hikes effective from October 1. The company anticipates the margin impact from these hikes to be similar to previous years.