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    Sonata Software Limited

    SONATSOFTW
    Information Technology·14 Nov 2025
    Management Summary

    Sonata Software delivered a resilient Q2 FY26 performance, marked by strong growth in its AI order book (now 10% of total) and significant expansion in BFSI and Healthcare verticals, which now comprise 33% of total revenue. International Services revenue grew 1% QoQ in constant currency, and consolidated PAT increased by 10% QoQ to ₹120.2 crores, driven by operational efficiencies and improved utilization. However, the quarter faced headwinds from a major BFSI client ramp-down and TMT client decision delays, contributing to a 38.8% QoQ degrowth in the domestic business and a decline in cash reserves.

    Highlights

    7

    • AI order book grew from 8% in Q1 to 10% in Q2 FY26, with TMT showing highest adoption.

    • Won one large deal with a leading US healthcare provider and several mid-sized AI deals.

    • BFSI and Healthcare verticals now contribute 33% of total revenue, up from 13% three years ago.

    • International Services revenue grew 1% QoQ in constant currency to $82 million.

    • International Services EBITDA (before other income and forex) improved to 17.3%, up 70 bps sequentially from 16.6% in Q1.

    • Consolidated PAT grew 10% QoQ to ₹120.2 crores, and EPS grew 9.9% QoQ to ₹4.33 per share.

    • Utilization rate improved to 87.3% from 86.6% in Q1, and offshoring mix improved to 57% from 53% in Q1.

    Concerns

    5

    • Largest BFSI client underwent organizational changes and budget constraints, leading to significant ramp down.

    • Decision delays observed in the largest TMT customer and global R&D.

    • Domestic business revenue degrew 38.8% QoQ and 4.8% YoY to ₹1391.3 crores.

    • Cash and cash equivalents decreased to ₹323 crores from ₹600 crores in Q1 FY26.

    • Headcount decreased to 6,649 in Q2 FY26 from 6,859 in Q1 FY26.

    What Changed1

    vs Q3 FY26

    Risks discussed4 → 5 (+1)

    Key financials

    Single quarter

    10 metrics
    1. 01Consolidated Revenue₹2,119.3 Cr-2.3%YoY
    2. 02Consolidated PAT₹120.2 Cr+12.9%YoY
    3. 03Consolidated EPS₹4.33+9.9%QoQ
    4. 04International Services USD Revenue82 Mn+0.2%QoQ
    5. 05International Services CC Growth1%+1%QoQ

    Segment breakdown

    • International Services₹78 Cr64.9%
    • Domestic Business₹42.2 Cr35.1%
    Donut· Share of PAT

    Order Book

    high confidence

    Total Value

    USD 105 million

    as of 2025-09-30

    quantified

    Inflow this qtr

    USD 105 million

    Execution

    multi-year deals (3, 5, 10+ years)

    Composition

    AI-driven wins(service line)
    10.0%
    Large deals pipeline(deal size)
    40.0%

    Pipeline

    deal pipeline tcv

    Cloud and data opportunities now account for 55% of our total pipeline

    "The 1.28 book-to-bill ratio for new business was tempered by runoffs in two large accounts, with the desired state being 1.2-1.3 for overall business."

    Source:
    Prepared remarks

    Capital allocation

    2
    high confidence
    CategoryHeadline
    Dividend

    ₹1.25/share (interim)

    Liquidity

    Cash ₹323 crores

    Cash and cash equivalent stood at 323 crores at the end of Q2 FY26, compared to 600 crores in Q1 FY26.

    Guidance & targets

    6
    CategoryTargetPriority
    Profitability
    PAT accretion
    further accrete
    		Medium
    Profitability
    EBITDA accretion in Q3
    EBITDA accretive
    		High
    Revenue
    BFSI & Healthcare verticals revenue scale
    $250 million
    		High
    Margin
    EBITDA company aspiration
    high-teens EBITDA company
    		High
    Revenue Growth
    Retail manufacturing stabilization and growth
    stabilize and return back to growth
    		Medium
    Order Book
    Desired book-to-bill ratio
    between 1.2 to 1.3
    		High

    BFSI Large Client Impact Absorption

    End of Q3 FY26 / Q4 FY26
    CurrentSignificant ramp down, impact expected to be absorbed by end of Q3 FY26
    TargetFull absorption of impact, business building from Q4 FY26

    Why it matters

    The largest BFSI client is a major headwind; its stabilization is key to BFSI segment recovery and overall growth.

    Once the whole impact of this one large client is absorbed, I think it will be fully absorbed at the end of Q3, then I think we'll be looking to build a business from there further on going into Q4.

    How to verify

    risks_and_concerns[risk='Ramp-down in largest BFSI client']

    Risks & concerns

    5
    RiskSeverity

    Ramp-down in largest BFSI client

    Organizational changes and budget constraints led to significant ramp down, impacting overall growth. — Management acknowledged

    high

    Decision delays in largest TMT customer and global R&D

    Contributed to headwinds in the TMT segment. — Management acknowledged

    medium

    Potential for Microsoft to take direct contracts in domestic business

    Microsoft's new strategy could impact some large accounts at renewal, necessitating diversification efforts. — Analyst acknowledged

    medium

    Slowdown in Retail manufacturing

    Muted growth due to tariff side, with stabilization expected in 2-3 quarters. — Management acknowledged

    medium

    Headwinds from two large accounts offsetting book-to-bill ratio

    Issues in a large tech client and a large banking client are causing a growth slowdown despite new deal wins. — Management acknowledged

    high

    Q&A highlights

    7

    “So, our offshore ratio has actually improved this quarter from 53% to 57%. And I am not sure how the large companies have more than 78%. I don't think the fact is right. So, we are one of the companies, few companies who have more offshore percentage of revenue.”

    Analyst questioned Sonata's lower offshore mix compared to peers; management clarified it's revenue mix and stated improvement, while disputing the peer comparison.

    asked by Vipul Kumar Shah

    3 min read7 chapters

    Detailed Narrative

    01

    Strategic Pivot Towards AI Modernization Engineering

    Sonata Software is strategically positioning itself as a differentiated AI modernization engineering firm, leveraging a proprietary platformation framework. This strategy is yielding results, with the AI order book growing from 8% in Q1 to 10% in Q2 FY26, showing highest adoption in TMT verticals. The company has launched the cloud-agnostic AgentBridge platform and is actively pursuing AI opportunities across over 100 clients, with cloud and data opportunities now constituting 55% of its total pipeline.

    02

    Resilient International Services Performance Amidst Headwinds

    The International Services segment demonstrated resilience, achieving a 1% QoQ constant currency revenue growth, reaching $82 million. In Rupee terms, revenue for this segment was ₹730.30 crores, growing 4.3% QoQ and 3.2% YoY. EBITDA (before other income and forex) improved significantly to 17.3%, up 70 bps sequentially from 16.6% in Q1, driven by enhanced utilization of 87.3% and an improved offshoring mix of 57% from 53% in Q1.

    03

    Challenges in Key Client Accounts and Domestic Business

    The quarter was marked by significant headwinds from a large BFSI client, experiencing a ramp-down due to organizational changes and budget constraints. Decision delays also affected the largest TMT customer and global R&D. Concurrently, the domestic business segment faced a substantial degrowth of 38.8% QoQ and 4.8% YoY, with revenue at ₹1391.3 crores, primarily due to Microsoft's evolving direct engagement strategy. Management is implementing diversification strategies to mitigate these impacts.

    04

    Margin Expansion Driven by Operational Efficiencies

    Despite absorbing a 0.9% impact from salary increments, Sonata achieved a net EBITDA accretion of 0.7% QoQ in Q2 FY26. This was attributed to three key levers: higher utilization, planned large deal offshoring, and systematic AI adoption across all functions. The company expects PAT to further accrete in the second half of the year compared to the first half, reinforcing its aspiration to be a high-teens EBITDA company.

    05

    Strategic Deal Wins and Client Portfolio Expansion

    Sonata secured one large deal with a leading US healthcare provider for multi-year core platform modernization and won several mid-sized AI deals, including one in the retail vertical. The company reported an order book of $105 million for Q2 FY26, with a book-to-bill ratio of 1.28. The number of clients with an annual run rate exceeding $10 million increased to eight, and six new enterprise-grade clients were added during the quarter.

    06

    Talent Development and Industry Recognition

    The company maintains a trailing 12-month attrition rate of 14% and a gender diversity of 31%. Significant investments in talent development include AI readiness programs, with 94.8% of the workforce and 80% of managers now AI-trained. Sonata was recognized with CII AI Awards for 2025 for Best AI Solution Showcase and Best Industry AI Application for its AgentBridge Platform, and as a major contender in Everest Group's application development services for AI applications.

    07

    Shareholder Returns and Liquidity Position

    In line with its new policy of quarterly interim dividend payments, Sonata Software declared a second interim dividend of ₹1.25 per share. The company's cash and cash equivalents stood at ₹323 crores at the end of Q2 FY26, a decrease from ₹600 crores in Q1 FY26. Management remains confident in its long-term vision and growth aspirations despite the current liquidity position.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.