SONATSOFTW Q3 FY26 earnings call.
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Revenue
₹3,081 Cr
verified against source
Revenue YoY
8.4%
reported change
EBITDA
Pending
latest reported figure
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Actual signal trajectory
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What the record says.
Sonata Software delivered a mixed Q3 FY26 with 21.4% YoY PAT growth and 220bps EBITDA margin expansion to 19.5%, reflecting successful execution of operational efficiency levers including AI-driven productivity and offshore mix improvement. However, revenue growth remained muted at 8.4% YoY (consolidated), with three top-10 clients creating headwinds—a BFSI client undergoing organization changes, a TMT client with budget pressures, and an unexpected retail client ramp-down. The company secured two BFSI deals (Fortune 500 payment tech and mortgage provider) and noted AI order bookings rising to 14% of total order book. North America now constitutes 70% of revenue (up from 54% three years ago), while HLS+BFSI contribute 31% of revenue. Management guided EBITDA to remain in the 18-21% range and expects domestic business to return to YoY growth by Q2 FY27. The primary risk remains client concentration with uncertain recovery timelines for the large accounts.
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Guidance to track
- Management expects EBITDA to remain in the 18-21% range, sustaining the current trajectory without sharp decline or increase. The margin improvement was driven by utilization gains, offshore mix, pyramid optimization, and price increases.
- Following a large client impact, the domestic business (gross contribution level) is expected to return to YoY growth by Q2 FY27 through three strategic pillars: SMC segment expansion, new OEM partnerships, and large SI deals.
- Management expects current growth trajectory to continue for the next 1-2 quarters as they absorb impacts from large tech and retail client headwinds. Q4 impact from the large retail client has been factored into guidance.
- AI order bookings contributed 14% of total order wins in Q3, up from 10% in Q2. The company is actively pursuing AI opportunities across 100+ clients.
Risks flagged
- One large BFSI client underwent organization changes and budget constraints, causing a significant ramp-down. While management claims the impact is absorbed and new deals are in place, the recovery timeline for BFSI revenue remains unclear given the regulated nature of the sector.
- An unexpected ramp-down occurred in one large retail client during Q3, with residual impact expected in Q4. Management could not provide conclusive guidance on the full impact and is working on revised terms.
- The largest TMT client continues to experience budget pressures on the non-engineering side, offsetting strong growth on the engineering side. Management acknowledged this bifurcation without providing a clear recovery timeline.
- One large domestic account transitioned to Microsoft direct billing, raising questions about channel strategy. Management clarified this is not a broad shift away from partners but acknowledged they are in a 'wait and watch' mode for the next few quarters.
Key quotes
- We want to be a differentiated modernization engineering firm powered by our proprietary platform framework. Platform was, is, and will be a core part of our DNA and we'll continue to flourish in it.
- The headwinds on the large BFSI customer are now absorbed in the Q3 quarter 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 a modernization firm in regulated industries like healthcare and BFSI, our core business is inherently protected by regulatory constraints, data sensitivity, and deep legacy code. Based on our understanding, AI tools are not very impactful in these areas today. Are we losing sleep over it? Probably no.
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