Shares of Sonata Software on Friday fell over 12% on NSE after one of the company’s largest clients decided to scale down its operations, impacting the firm’s margins in the third quarter and affecting growth in the fourth quarter as well.
The ramp-down, driven by the client’s optimisation efforts and the introduction of generative AI in customer service, led to a one-time discount and employee settlement costs.
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Jagannathan Chakravarthi Narasimhan, CFO of Sonata Software, told FE: “One of our largest customer wants to bring GenAI, particularly in the customer services space, so they have to ramp down in the near term. They also wanted us to pass on the benefit, by giving them a discount”.
The client had previously been increasing its business with Sonata Software for several quarters before indicating a reduction in spending at the end of Q2.
The revenue from operations of international IT services rose 3% sequentially to Rs 731 crore, while those from domestic products and services rose 44% to Rs 2,111 crore. But the net profit was down 1% QoQ to Rs 105 crore.
The IT firms consolidated Ebitda fell 7.8% QoQ in the December quarter to Rs 163.6 crore. “The revenue impact was not much for us, but margin impact was there, because you have taken it in one go and then settle it,” Narasimhan added.
For Q4, the company has provided guidance of a 2.5% to 3% revenue decline, primarily due to the impact of the ramp-down and a revenue drop from its acquired subsidiary, Quant.
While the immediate effects on margins and stock price are evident, the company views this as a temporary situation. Sonata expects revenue momentum to return in the first quarter of FY26.
Sonata Software expects FY26 to be better than FY25, with BFSI and healthcare sectors performing well, although retail remains sluggish. “We expect that Quant’s customer will do well” Narasimhan said.
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Further, he said that he is confident that revenue momentum will increase starting Q1 of FY26. “We are expecting in one or two quarters, our last customer also bouncing back and giving us a very good opportunity to grow,” Narasimhan reiterated.
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