Release Date: May 07, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sonata Software Ltd (BOM:532221, Financial) won 11 large deals in FY25, including two marquee wins, which underscores their growing relevance and transformation impact.
- The company has expanded its presence in BFSI and Healthcare Life Sciences, with these verticals now contributing to 35% of total international business revenue, up from 13% twelve quarters ago.
- Sonata Software Ltd (BOM:532221) achieved AWS generative AI competency and became a member of the Microsoft Partner AI Council, reinforcing its leadership in enterprise-grade AI adoption.
- The company reported a strong annuity-driven growth in SITL with an industry-leading ROCE of 43.2% in Q4 FY25.
- Sonata Software Ltd (BOM:532221) maintained a steady utilization rate of 87% and a low attrition rate of 14%, indicating efficient workforce management.
Negative Points
- The company faced headwinds in the retail and manufacturing verticals due to budget cuts and broader macroeconomic uncertainty, impacting growth.
- Sonata Software Ltd (BOM:532221) experienced a significant revenue decline from its largest client due to budget cuts, which was more than anticipated.
- The EBITDA margin for FY25 stood at 17%, down from 21% in FY24, indicating a decrease in profitability.
- There is uncertainty in the retail and manufacturing sectors, with longer deal closure cycles and continued softness expected.
- The company faced challenges in posting results on time, leading to investor dissatisfaction during the earnings call.
Q & A Highlights
Q: How does the increasing use of AI in coding by high-tech companies impact Sonata's business model?
A: Samir Dhir, CEO, explained that while AI adoption is increasing, particularly in customer support, the impact on software development is still in early stages. Sonata is positioned as a leader in AI, which helped secure a significant deal. The company is optimistic about AI's role in its growth strategy.
Q: Can Sonata achieve mid to high single-digit growth in its international IT business?
A: Samir Dhir, CEO, noted that a recent $73 million deal will ramp up over the next few quarters, contributing to growth. The largest client is expected to return to marginal growth, supporting overall growth prospects.
Q: What factors contributed to the Q4 revenue decline, and what is the outlook for Q1?
A: Jagannathan Chakravarthi, CFO, stated that the decline was mainly due to a large client's ramp-down and seasonal impacts. For Q1, the company expects a turnaround with flat to marginal growth, driven by new deals and client recovery.
Q: How will the large deal impact margins, and what is the pipeline outlook?
A: Samir Dhir, CEO, mentioned that the deal is accretive over five years, with minimal margin impact expected in the first year. The pipeline includes several large deals, with a focus on sectors like tech, banking, and healthcare.
Q: What is the impact of potential changes in the domestic business strategy by a large vendor?
A: Jagannathan Chakravarthi, CFO, acknowledged ongoing discussions and potential impacts but emphasized that the execution of the vendor's strategy will determine the actual impact. The company is taking measures to manage risks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
