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In the quarter ended March, Sonata Software reported a 7.9 per cent decline in revenue to ₹2,617.2 crore. Despite this, its Q4 profit after tax (PAT) rose by 2.4 per cent to ₹107.5 crore. CFO Jagannathan Chakravarthi attributed the performance to ongoing macroeconomic challenges and seasonal factors. However, the company remains optimistic about maintaining its position as a top-quartile growth player in the IT sector.
What is the general commentary for Q4FY25 and full year FY25?
FY25 has been a year with many uncertainties due to several developments. It was a tough market. While the initial first two quarters were better, the subsequent ones were a little tough, particularly in the context of our largest customer. They have cut down their spending and asked us to ramp down. They did this with all the service providers, and this created an impact for us in Q3 and Q4. There was a seasonal impact on Quant’s customers, which we had highlighted earlier.
We also knew our large customers would continue to have a negative impact in Q4, but it was more than we expected. The good part about the quarter, however, is that despite the revenue drop, we achieved a good amount of EBITDA growth compared to last quarter. We are focused on modernisation and engineering, and see an opportunity in the evolving data modernisation.
We continue to invest in AI capability, including agentic AI. In the coming days, opportunities will co-exist with uncertainties which opened up doors for companies that can focus and leverage their strengths.
In Q1FY26, we may see a flattish to very low growth for the large customer and Quant customerswill start gaining back. They will scale in Q2 and Q3. In the medium term, we are positive about being a top-quartile growing company in the IT industry.
From client conversations, what part of their tech spending are they cutting down?
They are optimistic about AI. Clients want to optimise their spend in some areas where they invested heavily. Some of us were impacted by the near-shore facility, hence the impact on revenue and the cost was high in the previous quarter. We believe the opportunities coexist. For example, we also entered the AI and data business unit of the customer. There is an opportunity for us in this space, and we can grow in the coming quarters and expand into a few areas.
While your full-year performance has grown, quarter-wise, it has come down. Despite a cloudy macro environment, some of your peers showed better growth. Where did you fall short this quarter?
FY24 was a good year for us, and FY25 had many uncertainties. In FY26, due to the persistent uncertainties, we don’t want to provide any guidance for revenue growth. But we strongly focus on becoming a top-quartile service provision company in the IT industry. We think we can achieve this by focused investment on AI, Microsoft Fabric, agentic AI and leveraging our focus on verticals like BFSI and healthcare.
In Q4, we gave warnings of degrowth, particularly because our banking customers in Quant were hit by the seasonal impact. We believe that although there are many uncertainties in the next couple of quarters, we should be able to improve our position in the coming quarter.
Are you seeing any tailwinds despite the uncertain environment?
All this uncertainty opens up more opportunities. For example, our large customers are undertaking a vendor consolidation, meaning we can get more business. Also, when there is uncertainty for us, we have to see the kind of services customers expect. I can bring in a solution to replace the manual or human-based processes with agentic AI. I probably can save the cost for the customer and gain a larger revenue share.
In the medium term, we believe technology changes will enable growth, opening up many new opportunities for us to leverage. And when the market comes out of all this uncertainty, we will be one of the top-quartile growing companies.
What sectors are picking up, and what are facing softness?
A sector working well is Healthcare and Lifesciences (HLS). Banking, Financial Services and Insurance (BFSI) will have a seasonal impact, but bounce back soon. Telecom, Media and Technology (TMT) is improving compared to last year. With a large deal coming in, they will have a decent improvement in revenue growth. Retail, Manufacturing and Distribution (RMD) has many uncertainties.
Are you evaluating organic moves to contribute for overall revenue growth?
We will be open to acquiring a company strategically fitting a little later — maybe towards the end of this year or next year.
This article first appeared on The Hindu Business Line
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