💰 Financial Performance

Revenue Growth by Segment

International IT Services (IITS) grew 1% QoQ in constant currency to $82 million (INR 730.30 Cr), while the Domestic (SITL) segment contributed INR 854.35 Cr to the total consolidated revenue of INR 2,119.30 Cr in Q2 FY26.

Geographic Revenue Split

North America accounts for over 70% of total revenue, up from 54% three years ago, while India represents the primary domestic market through the SITL business.

Profitability Margins

Net Profit Margin for Q2 FY26 was 5.67% (INR 120.19 Cr profit on INR 2,119.30 Cr revenue). Profit for the half-year (H1 FY26) stood at INR 229.53 Cr, up 8.2% from INR 212.13 Cr in H1 FY25.

EBITDA Margin

Consolidated EBITDA margin was approximately 9.5% in Q2 FY26 (INR 202.17 Cr). The company achieved a 70 bps net EBITDA accretion QoQ after absorbing a 90 bps impact from salary increments, representing a 160 bps gross improvement.

Capital Expenditure

Annual capital expenditure is projected at INR 60-65 Cr, funded by annual cash accruals exceeding INR 150 Cr.

Credit Rating & Borrowing

CRISIL maintains a 'Stable' rating with a healthy gearing of 0.13 times. Total borrowings as of September 30, 2025, include INR 398.87 Cr in non-current and INR 199.99 Cr in current financial liabilities.

⚙️ Operational Drivers

Raw Materials

Employee benefit expenses represent the largest operational cost at INR 422.50 Cr (19.9% of revenue). Purchase of stock-in-trade (software licenses/hardware) for the SITL segment cost INR 1,349.66 Cr in Q2 FY26.

Import Sources

Not explicitly disclosed, but software licenses are primarily sourced from global vendors like Microsoft (USA).

Key Suppliers

Microsoft is the primary strategic partner and supplier for the domestic SITL business segment.

Capacity Expansion

Current talent capacity stands at 6,649 employees as of Q2 FY26. Utilization improved to 87.3% from 86.6% in the previous quarter to drive efficiency.

Raw Material Costs

Purchase of stock-in-trade decreased to INR 1,349.66 Cr in Q2 FY26 from INR 2,227.59 Cr in Q1 FY26, reflecting seasonality and policy changes in the domestic business.

Manufacturing Efficiency

On-site/offshore revenue mix shifted to 43%/57% in Q2 FY26 from 47%/53% in Q1 FY26, improving margins through lower-cost offshore delivery.

Logistics & Distribution

Not a material cost for digital software and services delivery.

📈 Strategic Growth

Expected Growth Rate

15%

Growth Strategy

The company is targeting $250 million in revenue for both Healthcare and BFSI verticals within 3-5 years. Growth is driven by the 'Platformation' framework, aggressive AI/Agentic AI adoption, and expanding the North American footprint which now exceeds 70% of revenue.

Products & Services

IT Consulting, Application Development, Managed Services, Cloud Infrastructure, and Microsoft Software Licensing/Distribution.

Brand Portfolio

Sonata Software, Sonata Information Technology Limited (SITL), and Platformation.

New Products/Services

Agentic AI implementation and AI-powered platform services are expected to drive future deal wins, with a current large deal pipeline of 20-30 deals.

Market Expansion

Focus on scaling the North America business and expanding the Microsoft channel with a sharper focus on the Small and Mid-market Cloud (SMC) segment.

Market Share & Ranking

Not disclosed, but the company is a dominant player in the Indian Microsoft licensing market.

Strategic Alliances

Deep strategic alliance with Microsoft; the company is a leading partner for Microsoft's cloud and business applications.

🌍 External Factors

Industry Trends

The industry is shifting toward 'Agentic AI' and digital engineering. Sonata is positioning itself by increasing its BFSI and Healthcare revenue share from 13% to 33% over the last three years to capture higher-growth segments.

Competitive Landscape

Competes with mid-tier and large-cap Indian IT firms like LTIMindtree, Coforge, and Persistent Systems.

Competitive Moat

The 'Platformation' methodology and deep-rooted Microsoft partnership provide a durable competitive advantage in digital transformation projects, making it difficult for clients to switch providers.

Macro Economic Sensitivity

Highly sensitive to US enterprise IT spending and interest rate environments affecting BFSI and TMT client budgets.

Consumer Behavior

Enterprises are delaying discretionary TMT spending while prioritizing AI-driven cost optimization and healthcare digitization.

Geopolitical Risks

70% revenue concentration in North America exposes the company to US regulatory and economic shifts.

⚖️ Regulatory & Governance

Industry Regulations

Compliant with Ind AS 34 and SEBI Listing Regulations; operations are subject to international data privacy laws (GDPR, CCPA).

Environmental Compliance

Not disclosed as a material cost factor.

Taxation Policy Impact

Effective tax rate for H1 FY26 was approximately 27.4% (INR 86.77 Cr tax on INR 316.30 Cr PBT).

Legal Contingencies

Current tax liabilities (net) stood at INR 155.15 Cr as of September 30, 2025.

⚠️ Risk Analysis

Key Uncertainties

Ramp-down of the largest BFSI client and decision delays in the largest TMT customer pose near-term revenue risks of approximately 3-5%.

Geographic Concentration Risk

High geographic risk with >70% of revenue derived from North America.

Third Party Dependencies

Significant dependency on Microsoft for the SITL segment's revenue and gross contribution.

Technology Obsolescence Risk

Risk of AI disrupting traditional managed services; mitigated by the company's focus on Agentic AI and digital engineering.

Credit & Counterparty Risk

Trade receivables stood at INR 1,776.84 Cr as of September 30, 2025, with a focus on enterprise-grade clients to ensure quality.