Sonata Software Limited

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.

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.

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.

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.

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.

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^🌐.

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.