AI Now 16–18% of Revenue | Sonata Software on Macro Headwinds, Microsoft Drag & FY27 Margin

Added: 2026-05-12

[00:00:12]Welcome back. Let's invite the first management on the show, Sonata Software.

[00:00:15]The company reported a mixed set. EBITDA margins expanded, but the revenue has come under pressure. Raj Shekhar Datta Roy Datta Roy, Chief Executive Officer at Sonata Software, is now joining in.

[00:00:25]Uh thank you very much, uh Mr. Roy, for joining in. This is Reema here. Uh let me begin with the international business. It's been growing at this, you know, zero flat flattish to 1% kind of growth for the last couple of quarters.

[00:00:37]When does it turn? Uh so, if you could give that, what is the guidance for FY27 on international, and then we'll take it forward.

[00:00:45]No, I think um um I think we should recognize I think in the last one year uh we have seen a lot of macroeconomic headwinds.

[00:00:53]We had seen client ramp-downs, and uh in spite of that, uh we have expanded our EBITDA, and our profits have grown 9.3% uh consolidated, and 18.7% on international services. I think that's the key thing, based on our strong uh execution of operational improvements.

[00:01:12]Uh as for FY27, I think we continue to look out uh the macroeconomic situation, the AI shift, and uh movements of key clients. So, I think uh we are working this out, and um we'll update as we go along. In the near term, uh we we'll continue to have a similar momentum, but we'll update as we move forward during the quarters.

[00:01:35]Mhm.

[00:01:36]Uh got that. [clears throat] Uh Mr. Mr. Roy, uh good morning, sir. Uh Prashant here.

[00:01:41]And I should say congratulations. I think you've taken over as uh CEO.

[00:01:46]Uh so, congratulations from all of us.

[00:01:49]Thank you very much. Thank you very much. Appreciate it. So, so uh you know, you you headed you were headed the technology function for a long time, and you've been a veteran at Sonata.

[00:01:59]Uh just just directionally, sir, will you What's the direction the company's going to take? Are we going to Are you going to continue to uh sort of focus on, you know, uh what you've been doing so far? Would you Would you take a new Is there a new direction here uh in that sense? I mean, the big upheaval happened a couple a year back, right? With the With the With the Microsoft change in direction in terms of how they were uh they sold licenses.

[00:02:24]Uh you You've been a You were a long-standing partner. That did cause a dent to revenues. So, just your thoughts on this, sir. Just the direction the company will take.

[00:02:34]I think um thank you and I think uh in general, if you if you look at it, I think we will ensure continuity of what we had.

[00:02:44]But, we will sharpen our focus and to our and accelerate our pivot to AI. I think that's one. On the domestic business, um I think we were a couple of quarters back, uh we had uh Microsoft going directly to customers and we we see the situation has largely stabilized.

[00:03:02]We are able to continue to get new wins.

[00:03:04]Uh our diversification across SMC as a segment as well as um on other relationship has paid off and you can see that um our domestic business has shown growth in the last quarter. Uh and we think we can continue this momentum going forward. So, what was the What What is the actual uh Uh if I can put it ask you what is it What is the uh dent caused by this change in direction from Microsoft?

[00:03:35]No, it Actually, it was largely already taken into account last year. And if you see this this quarter, we have already shown in the domestic percent at 3.9% growth uh quarter on quarter on PAT and it is reflective of uh the diversification that we had executed uh in the last two two three quarters as well as we tried to change the segment that we operate and that's showing growth back. I think uh Um, so we don't foresee major changes or headwinds going forward. But we remain mostly optimistic. Uh, Mr. Roy, I get that the Microsoft issue is in the past. Uh, but can you just for the sake of understanding the impact, can you tell us what was the peak revenues that you got from Microsoft and what was it in FY26 on the whole?

[00:04:26]So, if you if you if you look at our whole impact on on the Microsoft business per se, I think we we had a decline in the past quarters and that has largely been recovered, okay? And and I think uh, like I mentioned, we took mitigation and that's kind of paid off for us. Okay, but is it hard for you to tell us the loss of revenue because of Microsoft from peak to today? Is there a number that you can share?

[00:04:54]Well, no, I'm I'm we don't want to probably quantify the number at this point of time and then we can probably see as we go along. Uh, what about the AI part of the business? I think you have a very strong pipeline in terms of AI. 18% of the order book is AI-led.

[00:05:08]When does this all start converting into revenue and can you give us the revenue contribution on account of AI?

[00:05:16]So, I think we have already stated that AI is giving us about close to 16 to 18% of our revenues right now, which is AI-led. Uh, we see a pipeline of 280 million, which is a all-time high pipeline and largely out of AI-led revenues.

[00:05:35]And I think we should see as we move forward, revenues should be get driven by largely some of this pipeline which are largely coming out of the AI-led opportunities.

[00:05:48]Okay, 16% revenue contribution and the pipeline is $280 million all-time high and that's largely AI led. Your margin story margin expansion story is very impressive. Can you build on the margins? You ended last year with 18.4% can you push towards 20%?

[00:06:05]So I think we have we have reached a beta of 20.2% we can we continue to look for two things which is operational efficiencies as well as AI infusion in our delivery which can probably give us headroom but we I think we are also cognizant that we need to make investments as we go forward and we'll continue to hold a beta at similar levels so that we can invest into growth in in the future. So similar levels will be the 20% that you had in Q4 or full year margins of 18 and a half percent?

[00:06:41]No, the 20% that we had in Q4 is likely the levels at which we want to directionally manage. Obviously, we want to see the impacts of currency etc. as we go from but largely that's the direction.

[00:06:52]>> Okay. You also spoke about investments in AI. Now you're sitting on a cash pile of 600 crore rupees. Are you looking at an acquisition? If yes, could you conclude one in FY27 anything in the offing?

[00:07:04]No, I think M&A's are something that we continue to look opportunistically as they come along as as we look at this point of time there is nothing on the anvil but we continue to evaluate opportunities and if it fits into our overall game plan, we'll consider that.

[00:07:20]Right. Could you could you give us in FY27 Mr. Roy, what will be what will revenues grow by?

[00:07:29]So I at this point we are not providing any guidance because of the uncertainties that lies in the market ahead. We continue to remain similar growth momentum. We We got some wins in the last quarter large two large deal wins which we have announced, so which gives us a 10 wins. Having said that, I think we still see uncertainties in some of our larger clients across segments. And hence we are not guiding at this point of time.

[00:07:56]Okay. And just one final question because you've spoken about budget pressure in the TMT side of business. And this has been ongoing for the last a couple of quarters with many companies that we speak to. They're saying that these high-tech companies are spending so much on infrastructure that they've brought down their investments in general services. And even the media companies, telecom companies are going through their own internal challenges. I mean, how bad is it on the TMT side? And do you see this spreading to other, you know, verticals?

[00:08:23]Are there any headwinds that you'd like to call out for FY 27?

[00:08:28]Well, I think there are two I mean, if you look at it and you step back, I think there are three parts to the that we are seeing getting impacted. One is I think there's a trend of uh doing less doing the same work for less. That's one. Number two, and I think doing the same similar do more work for the similar amount of revenue than do net new work.

[00:08:52]I think that most of the portfolios which are susceptible are the managed services portfolio. Fortunately for us, that's a lesser part of the uh portfolio. And hence the impact is not as much.

[00:09:03]But that said, I think there remains continuous pressure on the platform organization because of the investments they have to make and continue to make in various aspects of their business including hardware. Um we see a uptick on some of the demand around AI-led modernization of their uh overall landscape and applications. But um I think the volume could increase, but the pressures on pricing could be there as we go forward.

[00:09:37]Okay. All right.

[00:09:38]All the best, sir. Thanks a lot for joining in. Wishing you a good remainder of the day and a good quarter ahead as well. We'll catch up periodically and congratulations on the new post that you've taken over.