Sonata Software CFO says revenue growth has bounced back this quarter

The growth trajectory for revenue is strong because of the pipeline and order book, said Sonata Software’s CFO, Jagannathan Chakravarthi. The company’s international business reported a revenue growth of 1.3 per cent quarter on quarter (QoQ) and 8.5 per cent year on year (YoY) at ₹687.8 crore in the quarter ended June 2024.

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“We had said we touched the bottom of revenue growth last time, and that we would bounce back with more growth in the coming quarter. We guided it would be 1-3 per cent and ended up with a 1.3-1.4 per cent growth. Revenue growth momentum may also be faster by the Q3 to Q4 time-frame,” said Chakravarthi.

Overall, revenue for Q1’25 stood at ₹2,527.4 crore, a QoQ growth of 15.3 per cent and a YoY growth of 25 per cent. EBITDA grew sequentially at 22.2 per cent to ₹176.2 crore. However, PAT for the quarter stood at ₹105.6 crore, a de-growth of 4.3 per cent QoQ.

Increase in EBITDA

Adding that the increase in EBITDA level and gross margins reflected the operational performance of the business, he said, “Coming to PAT, three factors played a role this quarter- an SEZ unit went from 100 percent tax exemption to 50 percent. In this new financial year, we have to provide the additional tax impact. Second, because of the large deal, there was some rebadging of people. There was also forex loss in this quarter. We take hedging at different percentage level for six quarters. In some of these quarters, because of fluctuations in the rupee currency, changes happen.”

In Q1FY25, the company won three large deals - a US medical & mental healthcare company, a manufacturing & services company in the Australia and New Zealand (ANZ) region and a top financial corporation in the US. 14 new customers were added during the quarter. “The technology, media, and telecom (TMT) sector is doing well, particularly our largest customer. Last quarter, healthcare was a little soft. One of our largest projects got over. The new project only came in towards the end of the last quarter, so there was a drop in revenue. Otherwise, healthcare is doing well,” said the CFO.

He added that the company expects banking, particularly retail banking to bounce back soon. While the manufacturing vertical is soft, retail is softer. “Some large dynamics projects are getting over in Q2. We believe that retail will be soft for next couple of quarters, but BFSI will bounce back.”

AI adoption

Sonata is also bullish on AI adoption, after winning nine small and medium-sized AI deals in the quarter. “Customers are asking about AI, without which no deal will go through. They don’t want to miss out. But in case of large deals, customers may contemplate on whether to invest now or wait. We are very confident that AI is going to be a next technology revolution. However, it will take a little more time - like four to five quarters for more visibility and stability,” he said.

While the US geography and Australia in the ANZ region continues to do, UK and Europe, may take more time to catch up, he said. “Opportunities are aplenty. If economic conditions like fed interest rate and political conditions like US elections pass through, we may get more clarity in the demand environment and more opportunities.”

In Q1, Sonata hired almost 150 freshers. Headcount stood at 6201. “Last year, we hired almost 650 people. We are one of the few companies who honored 100 percentage of the offers given. This year, we will hire the same number of people, if not a little more.”