Sonata Software Limited — Q3 FY26 earnings call

Call held 6 Feb 2026

Management summary

Sonata Software delivered a resilient Q3 FY26, with strong consolidated revenue and normalized PAT growth, alongside significant EBITDA margin expansion. The company saw robust AI-led deal wins and strategic progress in key verticals, despite facing headwinds from three top 10 clients and an unexpected ramp-down in a large retail client. Management remains confident in its long-term strategy and profitability trajectory.

Highlights

  • Consolidated revenue grew 45.4% QoQ and 8.4% YoY to ₹3,080.6 Crores, demonstrating strong overall performance.

  • Consolidated normalized PAT increased 6.1% QoQ and 21.4% YoY to ₹127.5 Crores, reflecting robust profitability.

  • EBITDA margin improved significantly by 220 bps QoQ to 19.5%, driven by operational efficiencies and AI adoption.

  • AI-led order booking contributed 14% of total order wins, up from 10% in the previous quarter, indicating strong market demand for AI solutions.

  • Secured two large deals in the BFSI sector, including a multi-year contract with a Fortune 500 firm, signaling continued large deal momentum.

Concerns

  • Headwinds from three top 10 clients, including organizational changes and budget constraints in a large BFSI client, impacted growth trajectory.

  • An unexpected ramp-down in a large retail client will impact Q4 numbers, with some residual impact expected.

  • Consolidated EPS declined to ₹3.76 per share in Q3 2026 from ₹4.33 in Q2 2026, despite PAT growth, due to one-time labour code impact.

Key financials

  1. Consolidated Revenue ₹3,080.6 Cr +8.4%YoY
  2. Consolidated Normalized PAT ₹127.5 Cr +21.4%YoY
  3. EBITDA Margin 19.5% +2.2%QoQ
  4. Consolidated EPS ₹3.76 -13%QoQ
  5. Consolidated ROC 23.3%
  6. Consolidated RONW 27.7%

What they filed

Q1 FY27: revenue up 10.6%, net profit down 0.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,170 2,843 2,617 2,965 2,119 −2%3,081 +8%2,536 −3%3,279 +11%
EBITDA177 164 173 160 173 −2%200 +22%209 +21%171 +7%
Net profit106 105 108 109 120 +13%104 −1%130 +20%108 −1%
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

Share of Revenue
₹3,084.5 Cr Total
  • Domestic Business ₹2,345.9 Cr 76.1%
  • International Services ₹738.6 Cr 23.9%

Order book

high confidence

Total value

$97 Mn

as of 2025-12-31 quantified

Inflow this quarter

$97 Mn

Composition

  • AI-led order booking (service line) 14%
Order booking stood at 1.18 times book-to-bill ratio, with AI-led deals contributing significantly.

Source: Prepared remarks

Capital allocation

high confidence
  • Dividend ₹1.25/share (interim)
    The company has declared its interim dividend for the quarter at Rs.1.25 per share in line with the commitment made during the Q1 earnings call to implement quarterly interim dividend payments.
  • Liquidity Cash ₹564 Cr Gross cash and cash equivalents stood at Rs.564 Crores in Q3 2026, with net cash and cash equivalents at negative Rs.12 Crores.
    Update on cash flow, cash and cash equivalent gross stood at Rs.564 Crores in Q3 2026 against Rs.326 Crores in Q2 2026. Cash and cash equivalent net stood at negative Rs.12 Crores in Q3 2026 against negative of Rs.280 Crores in Q2 2026.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · coming quarters · Medium confidence high teens and low 20s
    our EBITDA improved by 290 bps and we expect EBITDA to continue in our earlier forecasted range of high teens and low 20s as we move forward in the coming quarters.

    — Samir Dhir

Growth

  • Domestic Business YoY Growth Growth · by Q2 FY2027 · Medium confidence positive growth
    Within SITL, we had headwinds for one of our large clients, which we had talked about in prior quarters. However, based on a three-pillar strategy enacted several quarters back, our team will be back to YoY growth by Q2 of FY2027.

    — Samir Dhir

  • International Business Growth Trajectory Growth · next one or two quarters · Medium confidence continue current trajectory
    But at least for the next one or two quarters, we expect the trajectory to continue.

    — Samir Dhir

  • BFSI Segment Growth Growth · Q4 onwards · Medium confidence pick up growth
    And because we just announced two large deals in BFSI, which are different deals, I think Q4 onwards will pick up growth in the BFSI segment as we move forward. So yes, we are back to growth on BFSI segment now.

    — Samir Dhir

  • Retail Segment Growth Growth · from Q1 onwards · Medium confidence back on growth
    But from Q1 onwards, we will be back on growth in the retail segment as well.

    — Samir Dhir

Efficiency

  • Utilization Levels Efficiency · ongoing · Medium confidence high 80s range
    We believe the utilization levels that we have will probably continue to be in the high 80s range.

    — Samir Dhir

What to watch in Q4 FY26

International Business Growth Trajectory

next one or two quarters
Current Current trajectory expected to continue
Target Improved growth rates or clearer long-term guidance

Why it matters

To assess if the company can return to higher growth rates beyond the near-term trajectory.

But at least for the next one or two quarters, we expect the trajectory to continue.

Risks & concerns

  • Headwinds from top 10 clients

    medium

    Three of the top 10 clients experienced budget constraints and organizational changes, impacting growth trajectory.

    Management acknowledged

  • Unexpected ramp-down in large retail client

    medium

    A recent unexpected ramp-down in a large retail client will impact Q4 revenue, with some residual impact in Q1.

    Management acknowledged

  • Microsoft's direct billing strategy

    medium

    Microsoft's move towards direct billing for some accounts could impact partner-led business, though management is monitoring the situation.

    Analyst observing

  • Higher CSP and AI-related costs

    low

    These costs partially offset operational efficiencies, but management believes they are balanced by other levers.

    Management acknowledged

Q&A highlights

6 direct
International Business Growth Trajectory Partial
But at least for the next one or two quarters, we expect the trajectory to continue.

Analyst sought clarity on the growth outlook for international business, which management indicated would continue its current trajectory for the near term without providing a firm long-term outlook.

Asked by Dipesh Mehta

BFSI Segment Performance and Q4 Outlook Direct
And because we just announced two large deals in BFSI, which are different deals, I think Q4 onwards will pick up growth in the BFSI segment as we move forward. So yes, we are back to growth on BFSI segment now.

Analyst questioned the sharp decline in BFSI and Q4 stability, to which management confirmed the impact of the large client is absorbed and new deals will drive growth from Q4.

Asked by Dipesh Mehta

Domestic Business Growth Drivers Direct
BFSI is doing well and we have also expanded it to conglomerates and manufacturing companies now.

Analyst inquired about specific growth sectors within the domestic business, and management highlighted BFSI and expansion into other industries.

Asked by Sachin Sehgal

Impact of AI on International Business and Margins Direct
Till now AI has been beneficial to us. So if you see the commentary given by Samir also, all doubt that Al has given a benefit to us and it has helped us to improve the margin and improve the utilization also with almost lesser addition of manpower, it has helped us to get more benefit in market.

Analyst asked about AI's impact, and management confirmed its positive contribution to margins, utilization, and market benefit.

Asked by Sachin Sehgal

Platformation Strategy and Revenue Contribution Partial
So, platformation is really not an SKU. It is not a measurable unit. It is a concept that we apply across all our deal wins.

Analyst sought to understand the revenue percentage from platformation, but management clarified it's a foundational framework applied across deals rather than a direct revenue line item.

Asked by Vipulkumar Shah

EBITDA Margin Trajectory and Offsetting Factors Direct
So what I was talking about was there is a balancing of CSP and AI-related costs in the first part of the deals, for the first part of the years of these deals. And that is partly offset by the levers that we talked about.

Analyst asked for clarification on factors offsetting margin improvements, and management explained the balance between CSP/AI costs and operational efficiency levers.

Asked by Dipesh Mehta

TMT Vertical Outlook and Data/Dynamics Revenue Direct
So the data related overall growth is very solid. But the banking client that we talked about, Asis, earlier, the work rammed on that happened in that single client was largely data work. So we are seeing that impact of that one single client come through in the data practice as well.

Analyst questioned the decline in data and dynamics revenue, and management attributed it to the impact of the single large banking client, not a general slowdown.

Asked by Ashis Dash

GenAI Disruption and Productivity Benefits Direct
So we believe we can be nimbler and faster and hence gain market share and that is what is probably reflecting in our order book numbers. You have probably seen an order book for Al go from 5% of the total order book to about 10% and the most recent quarter we announced about 14%

Analyst raised concerns about GenAI's deflationary impact, and management explained it as an opportunity for market share gains and productivity, reflected in growing AI-led order bookings.

Asked by Vipulkumar Shah

3 min read 7 chapters

Detailed narrative

Strategic Pillars and AI-led Modernization

Sonata Software is positioning itself as a differentiated modernization engineering firm, powered by its proprietary platformation framework. The company's strategy is built on four pillars: scaling capabilities with AI, relentless focus on large deal wins, scaling across strategic verticals/geographies/talent, and growing the domestic business. AI now contributes 14% to the total order book, up from 10% last quarter, demonstrating strong market demand. Sonata has also launched AgentBridge, an AI platform, and is partnering with academic institutions for further research.

Strong Q3 Performance and Margin Expansion

The company delivered a resilient Q3 FY26, with consolidated revenue reaching ₹3,080.6 Crores, growing 45.4% QoQ and 8.4% YoY. Consolidated normalized PAT stood at ₹127.5 Crores, up 6.1% QoQ and 21.4% YoY. EBITDA improved significantly by 220 bps QoQ to 19.5%, driven by operational efficiencies such as utilization improvement to 90%, pyramid optimization, and price increases. These levers helped absorb the 70 bps impact from salary increments and higher CSP/AI-related costs.

Large Deal Wins and Vertical Focus

Sonata secured two large deals in the BFSI sector during the quarter, including a multi-year contract with a Fortune 500 financial technology provider. These wins are expected to drive growth from Q4 onwards. The company's focus verticals, Healthcare & Life Sciences and BFSI, now contribute 31% of total revenue, a sharp increase from 13% three years ago. North America's revenue contribution has also grown significantly to over 70% of total revenue, up from 54% three years ago.

Domestic Business Growth and Strategy

The domestic business reported revenue of ₹2,345.9 Crores, with 68.6% QoQ and 11.1% YoY growth. Its gross contribution grew 10.8% QoQ to ₹76.1 Crores. The strategy for domestic growth involves expanding the Microsoft channel with a focus on the SMC segment, partnering with other ISVs beyond hyperscalers (like Oracle, IBM, Quest), and winning large system integration deals that combine cloud providers with other platforms. Management expects the domestic business to return to YoY growth by Q2 FY2027.

Headwinds from Key Clients

Sonata faced headwinds from three of its top 10 clients. A large BFSI client experienced organizational changes and budget constraints, leading to ramp-downs. A major TMT client continued to face budget pressures, though the engineering side of this client is now back to sequential growth. Additionally, an unexpected ramp-down in a large retail client will impact Q4 revenue, with some residual impact in Q1. Management believes these impacts will be offset by growth in other areas and new deal wins.

Talent and Workforce Metrics

The company's LTM attrition stands at 11%, and gender diversity is healthy at 31%. Sonata continues to invest in talent development, with over 92% of its workforce and 80% of managers trained in AI. Live coding training has been rolled out, with 78% employee completion. The annual compensation revision was completed in Q2 and Q3, reflecting continued investment in people despite market headwinds.

GenAI Impact and Productivity

Management views AI as beneficial, helping improve margins and utilization with less manpower. AI is seen as a level playing field, enabling Sonata to be nimbler and gain market share, as evidenced by the increase in AI-led order bookings. While customers expect more productivity, Sonata is addressing this through investments in AgentBridge and Harmoni.AI, aiming to deliver faster project execution rather than just efficiency gains.

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