Sonata Software Sees 45% Revenue Surge, Declares Dividend Amidst PAT Concerns

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AuthorKavya Nair|Published at:
Sonata Software Sees 45% Revenue Surge, Declares Dividend Amidst PAT Concerns
Overview

Sonata Software reported a robust Q3 FY26 with consolidated revenue surging 45.4% QoQ to ₹3,080.6 crores and PAT growing 6.1% QoQ and 21.4% YoY to ₹127.5 crores (before exceptional items). The company secured a large BFSI deal and declared an interim dividend of ₹1.25 per share. However, standalone PAT saw a sharp QoQ decline due to lower 'Other Income', and consolidated EBITDA margins compressed sequentially. Exceptional items related to new labour codes impacted reported PAT.

📉 The Financial Deep Dive

  • The Numbers:

    • Consolidated Performance (Q3 FY26 vs Q2 FY26): Revenue from operations reached ₹3,080.6 crores, a significant 45.4% increase quarter-on-quarter (QoQ). EBITDA (before other income and forex) was ₹200.2 crores, up 15.9% QoQ. Profit After Tax (PAT) before exceptional items grew 6.1% QoQ and 21.4% Year-on-Year (YoY) to ₹127.5 crores. PAT after exceptional items was ₹104.4 crores.
    • Standalone Performance (Q3 FY26 vs Q2 FY26): Revenue from operations increased 20.9% QoQ to ₹371.08 crores. However, PAT before exceptional items saw a stark QoQ decline from ₹146.77 crores in Q2'25 to ₹35.12 crores in Q3'25. This was primarily driven by a sharp drop in 'Other income', which fell from ₹14,226 lakhs (including substantial dividend income) to ₹3,458 lakhs.
    • Exceptional Items: An exceptional item of ₹31.3 crores was recorded on a consolidated basis (₹23.3 crores for gratuity and ₹8.0 crores for compensated absences) due to the statutory impact of new labour codes. Standalone exceptional items for the same reason amounted to ₹26.2 crores.
    • Key Ratios: Consolidated ROCE improved to 23.3% (from 22.1% in Q2'26), and RONW stood at 27.7% (from 27.1% in Q2'26). Days Sales Outstanding (DSO) was 71 days.

  • The Quality:

    • Margin Analysis: While consolidated revenue surged 45.4% QoQ, EBITDA grew only 15.9% QoQ. This indicates a sequential compression in consolidated EBITDA margins. The standalone PAT quality was significantly impacted by a sharp reduction in 'Other income', which in the previous quarter included substantial dividend receipts. The exceptional items, while explained by regulatory changes (new labour codes), reduced reported PAT by ₹31.3 crores consolidated and ₹26.2 crores standalone.
    • Cash Flow vs. Profit: The provided data does not include a Cash Flow Statement, so a direct comparison of operating cash flow to net profit cannot be made. However, the increase in ROCE and RONW suggests improved asset utilization and profitability on the company's capital.

  • The Grill:

    • Analysts will likely scrutinize the QoQ decline in standalone PAT, particularly the drastic fall in 'Other Income' from ₹14,226 lakhs to ₹3,458 lakhs. The sustainability of such non-operating income sources and the impact of the new labour codes on provisions will be key discussion points. The sequential compression in consolidated EBITDA margins will also draw attention, especially in light of strong revenue growth.

🚩 Risks & Outlook

  • Specific Risks:

    • Standalone Profitability: The sharp drop in standalone PAT and the reliance on 'Other Income' (especially dividend income) raise questions about the underlying operating profitability of the standalone entity.
    • Margin Pressure: The sequential compression in consolidated EBITDA margins requires management to explain the cost drivers and strategies to mitigate this.
    • Working Capital: A DSO of 71 days suggests a longer cycle for collecting receivables, which could tie up working capital.
    • Exceptional Items: While explained, these items impact reported profitability and require investors to look at adjusted figures.

  • The Forward View:

    • Management expressed confidence, highlighting strategic investments in Artificial Intelligence, which contributed 14% to the quarter's order book. The securing of a large deal in the BFSI vertical with a Fortune 500 fintech client is a significant positive.
    • Investors will be watching the execution of this large deal and the continued traction in AI-driven services. The domestic business's focus on diversification is a long-term positive. The company's commitment to a quarterly interim dividend policy is a shareholder-friendly move. The re-appointment of Srikar Reddy signals leadership continuity.
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