Whalesbook
📉 The Financial Deep Dive
The Numbers:
Capillary Technologies India Limited reported strong financial performance for Q3 FY26. Revenue stood at ₹184 crores, marking a significant 16% year-on-year growth. For the nine-month period of FY26, revenue reached ₹543 crores, a 22% year-on-year increase.
Adjusted EBITDA for Q3 FY26 saw a robust 24% year-on-year growth, reaching ₹30 crores. This translated to an improved EBITDA margin of 16.4%, up from 15.3% in Q3 FY25. For the nine-month period, adjusted EBITDA grew by a substantial 53% to ₹71 crores, with margins expanding from 10.5% to 13%.
Profit After Tax (PAT) for Q3 FY26 was ₹8 crores (4% of revenue), indicating a decline from the previous year. This decrease was primarily attributed to one-time expenses, including ₹1.6 crores for gratuity and ₹2 crores for IPO expenses [provided text], alongside increased depreciation and amortization (D&A) from the Kognitiv acquisition. However, the normalized PAT for Q3 FY26 remained flat year-on-year, suggesting underlying operational stability. For the nine-month period, PAT stood at ₹9 crores (1.7% of revenue), which represents an eight-fold increase compared to the prior year.
A key metric, the Net Retention Rate (NRR), was 111% for the trailing twelve months ending December 2025. The organic business NRR was particularly strong at 115%, while the inorganic NRR stood at 96%, reflecting the integration of acquired entities. Annual Recurring Revenue (ARR) grew by 21% over March 2025 for the nine months of FY26, reaching ₹736.1 crores as of Q3 FY26. The company added 12 new customers in 9M FY26, contributing ₹66 crores to its new order book [provided text]. The fourth acquisition, Kognitiv, has been completed [provided text].
The Quality:
Gross margins are reported to be approximately 69-70% [provided text]. Profitability is further enhanced by leverage in non-COGS costs, which grew only 11% against a 22% revenue growth in 9M FY26 [provided text]. Operating cash flow for the nine months of FY26 was ₹101 crores, representing a strong 142% of the nine-month adjusted EBITDA. The company projects a sustainable OCF to EBITDA ratio between 105-110% [provided text]. As of December 31, 2025, Capillary Technologies maintained a healthy closing cash balance of ₹463 crores [provided text].
The Grill:
Management actively addressed concerns regarding AI disruption, asserting that Capillary is insulated due to its 'system of record' nature, outcome-linked pricing, niche loyalty focus, and enterprise client base. [provided text] They also clarified their position in the US healthcare market, stating there is no exposure to Medicare/Medicaid. [provided text] The PAT decline in Q3 FY26 was thoroughly explained by one-time expenses and increased amortization, with the normalized PAT confirming underlying business strength. The inorganic NRR of 96% was attributed to the ongoing migration process of acquired entities. [provided text]
🚩 Risks & Outlook:
The company is prioritizing AI innovation, particularly with its aiRA product, to offer advanced conversational analytics, campaign management, and customer support capabilities. [provided text] Strategic investments are planned for AI and migration platforms to improve operational leverage. [provided text] The subscription-led business model with long-term contracts provides revenue predictability. [provided text] Capillary continues its M&A strategy, with two further Letters of Intent (LOIs) in the market, aiming for market consolidation. [provided text]