Hello everyone, my name is Inba, and I'll be moderating today's session. Welcome to the Sonata Software Limited Analyst and Investor Conference Call for the third quarter of fiscal year 2026, ended December 31, 2025. We have with us today on the call Mr. Samir Dhir, MD and CEO. Mr. Jagannathan CN, Chief Financial Officer. We also have our extended leadership team on the call. Please note that there will be an opportunity for our participants to ask questions after the management's opening remarks. Should you need assistance during the call, please raise your hand from the participant tab on your screen. Please note that this call is being recorded. During the call, please note the management may make certain forward-looking statements that involve risk assumptions and are based on information currently available to the management.
Sonata does not undertake any obligation to update any such forward-looking statements that may be made in course of this call. We advise participants to exercise discretion while making any investment decisions. We will begin with opening remarks from the CEO, followed by a business overview and financial highlights. After that, we will open the floor for questions. With that, I hand the call to Mr. Samir Dhir for his opening remarks. Over to you, sir.
Thank you, Inba. Hello, everyone, and thank you for joining us today. We truly value your time and appreciate your continued trust and support in Sonata. In today's session, we'll walk you through our overall strategy, the progress we have made over the past few quarters, and our forward-looking roadmap. We'll also present a detailed view of our financial performance for quarter Q3 FY26, which concluded on December thirty-first, 2025. We are excited to share the progress we are making as we continue to execute our long-term vision. To begin, I'll walk you through our strategic priorities and key objectives, followed by highlights from our most recent Q3 performance quarter. So let's talk about our strategy and goals. At Sonata, our ambition is clear: We want to be a differentiated modernization engineering firm powered by our proprietary Platformation framework.
We are covering at scale across three core strategic dimensions. Number one, our four focus, four focus verticals, which is healthcare and life sciences, banking, financial services, and insurance, retail, manufacturing, and distribution, and technology, media, and telecom. Number two, our five priority geographies, which are North America, U.K., Europe, India, and Australia. Number three, modernization engineering leadership. With sustained investments in IP, our proprietary Lightning tools, and our robust offerings, we're enabling continuous modernization for our clients, building digital, AI, and data platforms that deliver transformative value for our customers. We see significant opportunities at the intersection of AI and modernization engineering, driving momentum across the strategic bets we have made, enabling us to consistently secure large deals, gain market share significantly in BFSI and HLS verticals, and deepen our capabilities in data, AI, and modernization engineering.
All this backed by scaling talent across sales, delivery, HR, and finance operations to support our growth ambitions. With that, let me turn to our strategic pillars. Our success is anchored on four strategic pillars. Number one, scaling Sonata capabilities and continued investments in AI. Number two, relentless focus on the large deal wins. Number three, scaling across our strategic verticals, geographies, and talent. And number four, our domestic business. Let me take you through updates on all the four pillars. Scaling Sonata capabilities, specifically update on AI and modernization. We continue to make meaningful and measurable progress in scaling our AI-led business across the company.
AI now accounts for 14% of our total order book, up from 10% of our previous quarter order book in the most recent quarter, demonstrating yet again a strong market demand and deeper integration of AI in our client solutions. Our go-to-market strategy is tightly integrated with CSP AI co-sell programs, particularly leveraging Microsoft's new AI consumption model. This quarter, we closed two mid-size AI plus CSP deals, which are expected to both drive existing client expansion and net new logo acquisition. Earlier this year, we launched AgentBridge, our cloud-agnostic agentic AI platform designed to help clients build and deploy next-generation agentic AI solutions. We're also partnering with IISc in India and Wharton School in the U.S. to further research and innovation in agentic AI. Internally, within Sonata, we have operationalized AI across our functions as well.
Across functions, we now run production-grade agents on AgentBridge, reinforcing our ambition to be a model AI-led technology services firm. We are actively pursuing AI opportunities across 100-plus clients, helping them unlock value through operational efficiency gains, faster time to market, and transformation of business models. On cloud and data. Our opportunities now account for 50% of our total pipeline, reflecting strong client demand for modernization. We are seeing accelerated adoption of Microsoft Fabric, where Sonata is an official Microsoft Fabric featured partner, enabling clients to build data analytics foundations for AI era. Microsoft Dynamics, we continue to work closely with Microsoft on programmatic plays across ERP modernization, SaaS transitions, and low-code, no-code compete deals, strengthening our leadership in the Dynamics ecosystem. With that, let me provide an update on the large deals.
Large deals pursuits remain a cornerstone of our growth strategy, with 40% of our pipeline comprising of large strategic opportunities. I'm pleased to share with you our large deal wins from the most recent quarter. The first win is with a global provider of financial technology and payment solutions, a Fortune 500 firm. They awarded Sonata a multi-year contract to modernize their core digital wallet platforms to enable faster and secure payments. This is a multi-year deal, and in this deal, we will deliver accelerated time to market for their digital wallet platform and drive growth in newer customer segments on their digital wallet ecosystem. The second large deal is also in the banking space.
A leading mortgage provider awarded Sonata a multi-year contract to modernize their core platforms, leveraging automation and AI to drive enhanced consumer experience, reduce technical debt, and AI enablement and data-driven insights for their end consumers. In the large deal wins we just announced, Sonata has differentiated through our AI-led transformation approach, integrated modern engineering practices, and transformation platform-driven data modernization to create real outcome-driven value for our clients. Let me provide an update on the key AI wins that we had in the quarter. The first one is for a Europe-based digital document management systems and workflow firm. They're partnering with Sonata to modernize their legacy system to be transformed to agentic AI-driven modernization. The strategic engagement modernizes the customer's core platform, enhances the scalability, and sets the foundation for future SaaS transformation for our client.
The second win is a strategic AI program with a U.S.-based global software provider to modernize their legacy WinF orms application to a browser interface solution using AI. With that, let me provide an update on the third pillar, strategic verticals, geos, and talent. We remain confident that our investments in verticals like healthcare and life sciences and BFSI are on track to scale. Together, these verticals now contribute 31% of our total revenue, a sharp rise from 13% just three years ago, a clear reflection of our strategic focus and disciplined execution. Our North America business has also scaled significantly and now represents over 70% of our total revenue, up from approximately 54% three years ago. This shift reflects our continued success in deepening client relationships and expanding share in North America.
For talent and workflow metrics, our LTM attrition stands at 11%. Our gender diversity remains healthy at 31%, underscoring our continued focus on building an inclusive organization. Despite a challenging macroeconomic environment that we are in, we remain committed to the future-focused talent investments that strengthen our ability to deliver and growth. Upskilling through Sonata University. Sonata University continues to power our upskilling and capability building agenda with a strong focus on AI readiness. Over 92% of our workforce and 80% of our managers are now trained in AI, reinforcing our commitment to building AI future-ready skills across delivery, engineering, and consulting. We have also rolled out wide coding training across the organization, with 78% of the employees successfully completing it, reflecting high engagement and adoption. As we announced earlier, we completed our annual compensation revision this year during Q2 and Q3.
Despite market headwinds and industry pressures, we continued in our investments in our people, reaffirming our belief in investing in our people and maintaining industry-leading engagement and learning initiatives. With that, let me go to the fourth pillar, which is the domestic business. In that business, we're making strong progress across three strategic pillars that we have talked to you about in prior quarters. Pillar number one, expand our Microsoft channel with a sharper focus on SMC segment, including the incubation of our new Sonata on Cloud SoC capability offering. Second, broaden partnership with other ISVs such as Oracle, IBM, OpenText, and Quest, expanding beyond the three hyperscaler CSP partnerships that we have enjoyed over the past many, many years. Number three, win large system integration deals that integrate the cloud providers with other platforms like Cisco, IBM, and Dell, and other ISV infrastructure providers.
These strategic bets are core to building a more diversified, resilient, and future-ready domestic business for Sonata. Let me provide an update on the industry recognition in the quarter. We continue to be recognized for our workplace culture and market momentum.... In the most recent quarter, we recognized a star performer and major contender in Everest Group's Enterprise Quality Engineering Services by PEAK Matrix Assessment. We were also recognized star performer and aspirant in the Everest Group Data and Analytics Services by PEAK Matrix Assessment. With that, let me provide an update on the quarter performance. Before I get into numbers, let me provide the tailwinds summary and the headwind summary. Let's talk about the tailwinds first. During the quarter, we benefited from three key growth drivers.
One, strong momentum from our large TMT and healthcare deal wins that we announced in prior quarters. They ramped up during the quarter with expanding scopes. Two, our continued strength in healthcare, life sciences, and BFSI verticals continue to be a significant driver for Sonata. Three, our robust performance in data and AI-led wins, reflecting growing client client demand for modernization. In addition to the growth momentum, our operational efficiencies, driven by AI adoption across functions, right shoring, and higher utilization, delivered a net EBITDA accretion of 2.2% quarter on quarter, and that's after absorbing 70 basis points of impact due to salary increments. Additionally, we optimized pyramid, we got price increases, and all these levers balanced out the higher CSP and AI-related costs as well.
So on a gross basis, our EBITDA improved by 290 basis points, and we expect EBITDA to continue to be in our earlier forecast range of high teens and low twenties as we move forward in the coming quarters. Within SITL, we had headwinds for one of our large clients, which we had talked about in prior quarters. However, based on our three-pillar strategy enacted several quarters back, our team will be back to YoY growth by Q2 of FY 2027. With that, we would have recovered from the single client issues within about 2 - 3 quarters' time. With that, let me talk about headwinds and the offsets in the business. Three of the top 10 clients in Sonata have headwinds which have continued in the course of the year.
While the rest of the business has continued to do extremely well, the three large clients' impact has impacted our growth trajectory in the most recent quarter, and we believe that will continue in the near term as well. The three clients: number one, our largest BFSI client underwent organizational changes and budget constraints, leading to ramp downs in the quarter. Our largest TMT client continued to have experienced budget pressures, resulting in moderate near-term growth. Within that, the largest TMT client, on the engineering side, we are back to growth sequentially, which is a positive news. On the non-engineering side, we continue to have budget pressures. And number three, very recently, there has been an unexpected ramp down in one of our large retail clients. We continue to work with the customer on the revised terms and conditions.
We'll be able to give you a more conclusive view in the coming months and quarters of the impact from this client. The revenue impact from this client has already been factored in our Q4 numbers. The impact on the three clients or the top ten clients has largely been offset by our growth in the large TMT and healthcare deals, and now the large payment tech deal that we just announced, they will offset some of these negative headwinds. Outside of these three large client impacts, we recorded healthy growth across the rest of our client base, reflecting the resilience and diversification of our portfolio. With that, let me get to the numbers. Growth and order booking. Our revenue grew sequentially, 40 basis points quarter-over-quarter. Our order bookings stood at 1.18 times book-to-bill ratio.
We secured two large deals in the quarter. The number of clients with more than 10 million annual run rate is now at eight. We added three enterprise clients and deepened our strategic partnership with Microsoft, AWS, Salesforce, and other key partners. Our AI-led order booking now continues, contributed to 14% of our order wins. Profitability. Our EBITDA improved significantly to 19.5%, up from 17.3% in the previous quarter. Our PAT grew 6.1% sequentially quarter-on-quarter and 21.4% Y o Y. In the India business, our gross contribution grew 10.8% quarter-on-quarter.
In summary, Sonata delivered a resilient performance in Q3 FY 2026, with 40 basis points quarter-on-quarter growth, with 21.4% YoY PAT growth, and EBITDA improving to 19.5%, which is what we have talked about in several previous quarters, that our long-term aspiration is to be high teens and low twenties EBITDA company. We secured two large deals, expanded our AI-led order bookings, and now have eight clients with an annualized run rate exceeding $10 million. Our long-term ambition to be a differentiated modernization engineering firm, powered by Platformation, AI, and modern technologies, continues to drive our strategic momentum. I want to thank all the Sonatians for their continued dedication and commitment. Their efforts form the foundation of our progress and future success, and we remain confident in delivering long-term value for our clients, partners, and shareholders.
With that, I'll turn it over to Jagan for his comments. Jagan?
Yeah. Thank you, Samir, for the overview. Good morning, good afternoon, good evening, everyone. Let me walk you through our financial performance for quarter ending December 31, 2025. First, starting with international services. In Q3 2026, USD reported revenues stood at $82.3 million, growth of 0.4% quarter-on-quarter. In constant currency terms, it represent growth of 0.3% quarter-on-quarter. Rupee revenues stood at INR 738.6 crore, growth of 1.1% quarter-on-quarter. EBITDA before other income and ForEx for Q3 2026 improved to 19.5%, up 20 basis points QoQ from 17.3% in Q2 2026. This improvement is on top of 70 basis points improvement in Q2. After absorbing the impact of increment of 70 basis points, the gross EBITDA improvement in Q3 stood at 290 basis points.
This accretion is primarily driven by operational improvement across delivery SG&A, reflecting better delivery efficiency cost optimizations. To give you specifics, utilization improved to 90%, up from 87.3% in Q2 2026. As informed in Q2, our utilization and HC levels were driven by sustainable productivity improvement and operational efficiency in delivery enabled by AI adoption, differentiated AI solution, agentic implementation across project. Our offshore revenue mix improved to 63% from 53% in Q2 2026. We also benefited from pyramid optimization and price increases. All the above levers are partially offset by higher CSP AI related costs. EBITDA, after other income and ForEx for Q3 2026 stood at INR 146.8 crore, growth of 0.5% quarter-on-quarter, and 23.7% year-on-year.
Q3 2026 reported PAT stood at INR 59.8 crore, including one-time impact of labor cost of INR 28 crore pre-tax. Normalized PAT for Q3 stood at INR rupees 80.4 crore against INR 78 crore in Q2 2026, growth of 3% quarter-on-quarter and 41.2% year-on-year. Reported ROCE and RONW for the quarter stood at 18.7% and 23.1% respectively. International services DSO for Q3 2026 is reported at 71 days, against 68 days in Q2 2026. Now, let me provide you with an update on domestic business. Domestic business revenue for Q3 2026 stood at INR 2,344.9 crore, with growth of 68.5% quarter-on-quarter and 11.1% year-on-year.
Gross contribution for Q3 2026 stood at INR 76.1 crore, with growth of 10.8% quarter-on-quarter and degrowth of 7.1% year-on-year. PAT for Q3 2026 stood at INR 44.6 crore, including one-time impact of labor cost of INR 3.3 crore pre-tax. Normalized PAT for Q3 stood at INR 47.1 crore, against INR 42.2 crore in Q2 2026, with growth of 11.6% quarter-on-quarter and a degrowth of 2.1% year-on-year. Reported ROC and RONW for the quarter stood at 43.1% and 41.8% respectively. Update on consolidated business.
For the quarter, the consolidated revenue for Q3 2026 stood at INR 3,080.6 crore, with a growth of 45.4% quarter-on-quarter and growth of 8.4% year-on-year. PAT for consolidated business for Q3 2026 stood at INR 104.4 crore, including one-time impact of labor cost of INR 31.3 crore pre-tax. Normalized PAT for Q3 2026 stood at INR 127.5 crore, against INR 120.2 crore in Q2 2026. Growth of 6.1% quarter-on-quarter, and 21.4% growth year-on-year. Consolidated EPS for Q2 2026 was INR 3.76 rupees per share. Q2, it was INR 4.33 rupees per share.
Reported ROCE and RONW for the quarter stood at 23.3% and 27.7% respectively. The company has declared its interim dividend for the year, for the quarter at INR 1.25 per share, in line with the commitment made during the Q1 earnings call to implement quarterly interim dividend payment. Starting this year, company intends to follow a quarterly interim dividend payout policy. Update on cash flow. Cash and cash equivalent gross stood at INR 564 crore in Q3 2026, against INR 323 crore in Q2 2026. Cash and cash equivalent net stood at -INR 12 crore in Q3 2026, against -INR 280 crore in Q2 2026. Update on our operating metrics. Business operating performance.
Total headcount stood at 6,404 in Q3 2026, against 6,649 in Q2 2026, with attrition of 11%. On-site offshore revenue mix at 37:63 in Q3 2026, versus Q2 2026 of 43:57. Utilization reported at 90% in Q3 2026, versus 87.3% in Q2 2026. We added 3 new customers in Q3 2026, which include two large multi-year deals. Top 10 clients contributed revenue share of 55%. In Q2 2026, it was 53%. Number of clients greater than 5 million run rate stood at 13 in Q3 2026, same as Q2 2026. Number of clients in is greater than 3 million up to 5 million revenue stood at 8, same as Q2 2026.
Q3 2026 order books stood at 97 million, with book-to-bill ratio of 1.18x. In summary, our Q3 performance reflects disciplined execution and impact of sustainable margin levers, driven by operational efficiency and AI-led productivity gains. We remain confident in our ability to continue improving margins through execution rigor and delivery excellence. With this, I hand over back to the moderator. Back for the question.
Thank you very much, sir. Ladies and gentlemen, we will now move to the Q&A segment. To ensure we provide space for as many participants as possible, we request you to limit yourselves to two questions per turn. For participants connecting on Zoom, please click on the Raise Hand icon located at the bottom toolbar on your screen. When called upon, you will receive a prompt to unmute. For our participants connected via a telephone call, to join the question queue, please press star nine on your telephone keypad. When it's your turn, you will be prompted to unmute by pressing star six. Please state your name and company name before asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from Dipesh Mehta of Emkay Global. Please go ahead, sir.
Thanks for the opportunity. Can you hear me now?
Yes, sir. Please go ahead.
Yeah, thanks for the opportunity. Couple of question. First, just want to clarify, I think in the prepared remark you indicated YoY growth to return by quarter to FY 27. That is what you indicated, or I misinterpreted it?
Domestic business, right?
No, International side, IITS.
No, no. We, we mentioned about domestic business.
Okay. So for international business, we have not made any comment about growth trajectory.
So Dipesh, let me take this, Samir. So there's two parts. So the comment that we made was for the domestic business, which was to say that by Q2, we'll revert back after the large client impact, by Q2, we'll come on YoY basis on growth positive basis. On the international side, we talked about three client impacts, and we believe the current trajectory that we delivered in the most recent quarter will probably continue in the near term as well. We are not able to give you a firm indication as to how long will it take to come back to our old growth rates, but at least for the next one or two quarters, we expect the trajectory to continue.
Okay. So to just to understand this domestic business, this is for gross contribution level or we are referring on revenue perspective?
Gross contribution level, Dipesh.
Understood. Now, on the international side, there is a very sharp decline in BFSI, which you partly alluded about, large BFSI, where you are seeing some challenges. Considering that these three things, do you think things have largely bottomed out, or you think incremental impact to play out in quarter four? And quarter four, we used to see, let's say, usual seasonality earlier. This time, obviously, we have not benefited even quarter three. So considering no benefit, do you think quarter four to be relatively more stable quarter for us?
Yeah. So I think the headwinds from the large BFSI customer, Dipesh, have been now absorbed in the Q3 quarter. And because we just announced two large deals in BFSI, which are different deals, I think Q4 onwards will pick up growth in the BFSI segment as we move forward. So yes, we have—we are back to growth on BFSI segment now. I think the impact of the large client is behind us and absorbed.
No, my question was for company IITS overall, not-
Overall. Okay. Overall, I think, like I said, the trajectory that you've seen in the last one or two quarters will probably continue for at least next 1 or 2 quarters. We are not able to guide beyond that because we're just absorbing the impact from the large tech client and the large retail client as well. So we'll provide you in coming time, but you should expect the same growth trajectory that we've been on, at least for next one or two quarters.
The large retail client impact was there in quarter three, or it will be now in quarter four kind of thing?
It was largely absorbed last quarter and partially will get absorbed in the current Q4 quarter.
So if I look your RMD, now, that segment, we were not that positive on growth trajectory, but last two quarter it did fairly well. So can you provide some sense on retail manufacturing, how it is shaping up?
Sure. So RMD segment, as we have talked about earlier, has been in stress because of the tariffs earlier on and continuing issues that have been going on in the industry in general. It, the segment did not grow just because our banking business shrank significantly in the last two quarters, so the percentages looked higher. But as an absolute number, the business did not grow as much. But with the now large retail client impact, you would probably see a decline in our retail business relatively more in the, in the Q4 quarter. But then from Q1 onwards, we'll be back on growth in the retail segment as well.
If my calculation is right, your RMD segment has grown 36% YoY in absolute revenue perspective, in dollar terms. In quarter-on-quarter, it grew almost 10%, 9.5%-10%.
Yeah, it is because of the large customer. The amount of the impact was divided between Q3 and Q4. You will see the impact more, more visible in Q4 than in Q3
No, the question is, quantum of growth is very strong. When we are saying it is under some kind of stress, 30% growth is very strong in my opinion, considering the overall company average growth. I just want to understand how, whether it is now sustainable trajectory or we are still skeptical on growth.
You are talking about RMD, Dipesh?
That's right.
RMD, we had last year, good amount of, recovery happening towards the last two quarters. We will have the similar kind of, range of revenue for at least couple of more quarters to observe the impact of the large customer.
Understood. Maybe I can take, comment follow-up. Thanks.
Thank you. We move to our next question from Sachin Sehgal of Aanicod Infotech . Please go ahead. Mr. Sehgal , you may ask your question now.
Yes. So which sectors in India are growing, like our domestic business, which sectors are growing? That is, like year-on-year, it has grown—like quarter-on-quarter, it has grown to, like, almost double-digit digits. Which are all sectors that are consuming our technology in India?
You want to know which segment is doing well?
Yes, yes, in the domestic segment.
Yeah. BFSI is doing well, and we have also expanded into conglomerates and manufacturing companies now.
Okay. And the international business, what are the impacts of that AI into our, into our system? Like, are we adopting it or...?
Till now, AI has been beneficial to us. If you see the commentary given by Samir also called out that AI has given a benefit to us, and it has helped us to improve the margin and improve the utilization also. With almost lesser addition of manpower, it has helped us to get more benefit in margin.
Okay. So like, I have seen that in the international business, one large deal has been gone, in the quarter and quarter. Like, the European deals are coming into the picture, like, how much is the business in the Americas, in the different Pacifics of the world? It's not been the clear idea about it, while reading the financial things.
America still is leading. We are growing more in America than Europe.
Okay. And how much is the percentage of the Americas and the Europe?
About 70% in Americas now.
Okay. Yeah, that's it. Thanks.
Thank you. A reminder to our participants, if you wish to ask a question, you may click on the Raise Hand icon from your Zoom tab. Participants connected via telephone may enter star nine to ask a question. We'll take the next question from Amit Chandra of HDFC Securities. Mr. Chandra, please, could you unmute your microphone and ask your question.
Hello, can you... I'm audible?
Yes, sir.
Yeah.
Yeah.
So thanks for the opportunity. So my question is, on the continuation and clarification on the, you know, retail, you know, softness in, in a specific client, that we serve. So, you know, in BFSI, we saw that, one specific client issues, you know, impacted our revenues, heavily in terms of, if I see YoY, it's a 60% decline, INR 15 million kind of a drop from a single client. So is it, fair to assume that is, all the decline is from a single client, or is it we are seeing in specific, like, BFSI, is it, like other clients also where we saw this drop?
Yes, Amit, let me take this. So in BFSI, it was a single client impact, which started sometime in summer. And by the most recent quarter, we have fully absorbed the impacts. All the impact was one client, and it's now fully absorbed. And like we made a comment earlier, as we move forward from Q4 onwards, we'll be back on growth in BFSI.
Mr. Chandra, do you have any more questions? Thank you. There's no response from this connection. We'll move to our next participant. That's Vipulk umar Shah from Sumangal Investments. Mr. Shah, please go ahead with your question.
Am I audible?
Yes, sir.
Hello?
We can hear you, sir. Please go ahead.
Yeah, so my question is regarding the strategy. Mr. Samir, before you took over, we were a Platformation company, and we were focusing more on IP-led products. So that strategy has been discarded, or it is continuing? So can you make some broad comments regarding that?
Sure, happy to. If you, Vipul, if you go back to the original, in my prepared comments I talked about, and let me reiterate, our ambition is to be a differentiated modernization engineering firm, powered by a proprietary Platformation framework. We talked about in the prepared comments as well. So Platformation actually continues, was and will continue to be a core part of our thesis and our DNA. And it has actually become more important now, given the relevance of AI, we are really building out and expanding the scope of Platformation and redefining and extending the boundaries of Platformation to incorporate the impact and the benefits of AI as well. So some of the wins that we have talked about are foundational in nature because we're able to win those contracts because of our Platformation thesis.
Because as we move forward, customers are looking for providers who can bring in engineering best practices as well as IPs and platforms that can help them accelerate time to market. So in summary, Platformation was, is, and will be a core part of our DNA and will continue to feature Sonata.
What percentage of revenue we are getting from this Platformation right now?
So Platformation is really not an SKU. It's not a, it's not a measurable unit. It's a, it's a concept that we apply across all our deal wins. In some deals which are more migrate or modernization type deals, it is very much a core part of it. In some deals, it is probably slightly lesser. It depends on the nature of the project. So it's not something that we track as a percentage of revenue, it's a solution vector. As we solution our deals or problems for our customers, we apply the Platformation principles into our solution tenets, ripple.
Okay. Couldn't get a very clear reply, but is it possible to take it offline, sir?
Absolutely. So while you're at it, let me give you an example. So if, let's say you're building a front office call center platform, so of course we'll leverage the technology from Microsoft or AWS or any other third-party software provider. But as you implement the platform, you use the Sonata Platformation techniques to implement in a more efficient and simpler way. That's how we do it, but happy to take it offline.
Thank you, sir.
Thank you. We take the next question from Dipesh Mehta of Emkay Global. Please go ahead.
Thanks for the opportunity for a follow-up. 2 question. First, about the EBITDA margin. I think when you indicated about margin work, you indicated some of the offsetting factors. I missed it. Can you help us understand that part? Positive, I understood. I think you said some negatives were there. I could not understand that part. Second question is about the EBITDA margin trajectory. Considering we deliver significant improvement this quarter, 220 basis points kind of improvement, do you think it is now here to sustain and further improvement in coming quarters or how one should expect it? Thanks.
Management team, are you still connected? Management team, are you still connected to the meeting?
There's some technical challenges. Hold the line for 30 seconds.
Sure, sir. Sure. Ladies and gentlemen, please remain connected while the management will unmute their connection again. Please do not disconnect. Thank you. Ladies and gentlemen, we request you to please remain connected.
We are back now. Hopefully, you can hear us now.
Yes. Thank you, sir.
Okay. Sorry for the inconvenience. I think there was some technical glitch. So I think the question was on the offsetting factor and the guidance for EBITDA go forward. So as we do the cloud deals, there is an element of cloud consumption as well as services component, and some of these deals have dilutive effect in the first few years. So what I was talking about was there's a balancing of CSP and AI-related costs in the first part of the deals, for the first part of the years of these deals, and that is partly offset by the levers that we talked about. So that was the offsetting factor we were talking about, Dipesh.
As far as your question about the forward-looking EBITDA guidance, as you know, we have always guided that we want to be a high teens and low twenties EBITDA company. In the most recent quarter, we announced about 19.5% or 19.6% EBITDA. I think you can calibrate us to be in the 18%-21% type company range, go forward as well. That said, we don't expect a sharp decline or sharp increase go forward. We'll be in the same zone of what we have seen in the most recent quarter from an EBITDA performance perspective.
Can you help us understand this CSP and AI-related cost, how it plays out, and what will be the contour to understand this part? Thank you.
So this is the cloud consumption cost that many clients want us to take as part of the engagement. Some customers work with the cloud providers directly, and some customers want to bundle it as part of services deal. So that's the cloud compute cost that we're talking about. It's very client specific.
So this is pass through, in a way?
Well, not really, because this has a managed services component as well. So it is baked into that aspect.
Understand. Thank you.
Thank you. We'll take the next question from Asis Das from Mirae Asset Securities. Please go ahead. Mr. Das?
Yeah. Am I audible?
Yes, sir.
Okay. Thanks for the opportunity. So, a question, I just want to understand about the outlook of the TMT vertical. See, what I see that, data and Dynamics revenue has declined quarter-on-quarter. So is this, is this because of the softness in your top client?
See, I'm sorry, I'm struggling to understand. You're asking about data or you're asking about TMT vertical?
[crosstalk]
Yeah, I combined both the things. So I wanted to understand the TMT vertical's outlook, and also I see that your Dynamics and data service line revenue growth has declined quarter-over-quarter. So is there any relation? And, because you mentioned in your prepared comments that you are executing a lot of data-related projects.
Sure, sure, sure. We can answer that. So let's talk about the data and data-related ramp down. So the data-related overall growth is very solid, but the banking client that we talked about, Ashish, earlier, the work ramp down that happened in that single client was largely data work. So we're seeing that impact of that one single client come through in the data practice as well. But if you back out one single client impact, I think overall the banking data practice has done very well, very well for us. As far as the TMT is concerned, I think we've seen significant growth momentum in the TMT vertical. We've seen a resurgence in the most actually full fiscal year.
If you keep out the large account, one large account out, because that's the one big account that changes the metrics significantly, but if you back that out, one large account, I think we've done very well in the TMT vertical. In fact, the deal that we announced last year, which was, I think, the $73 million deal for 5 years, was part of the TMT vertical as well. And in the course of the year, we've seen a pull-through effect of the deal, which gave us a significant lift overall.
Okay. And you also talked about some engineering segment of your large account, where you see a lot of traction. So could you just highlight what kind have you started seeing growth or have you got any large deals or you expect any deal going ahead on that engineering segment?
Yeah, no, absolutely. So, if you think of the large client, they have two bodies of work. One is the engineering body of work, and loosely speaking, the other, let's call it non-engineering body of work. In the engineering side, which is where bulk of the investments are going from this client, which is largely AI-driven, and they're trying to modernize their platforms and their products and bring in AI elements in those. So Sonata is right in the middle of those transformation projects to bring the power of AI into all their products. And that's really what is driving the growth. So yes, we have won several mid-sized deals in that, in that nature in the engineering side, and year on year, we have done well on the engineering.
Like I said earlier, we believe we are, we are back on growth engineering side for the last two, three quarters, and as we move forward, we'll continue to see that. Having said that, the non-engineering side is where the, the reductions have been, and that will continue to be the offsetting factor of this good news.
Okay. Yeah. So my last question on the domestic business. So what I see that this quarter we saw a strong year-on-year growth, despite you lose one of your largest client in that segment. And also, you are giving the outlook that after two quarters, you'll see year-on-year growth. So what is the reason for the growth during the quarter? And second, I just want to understand, like, after two quarters, when you are showing your confidence that you'd back on growth, so which strategy is going to play out to drive your growth on after two quarters?
Sure. If you go to my pre-prepared comments, and I'll repeat earlier. So we have instituted a three-pillar strategy. Sujit is on the call, I'll request his comments as well. But the three-pillar strategy is fairly simple, which we instituted about, I would say, four quarters back. First one was to expand in the SMC segment from our channel partners' perspective, which was the first strategy we instituted about three, four quarters back. Then we instituted a second strategy, which was to go after the VAR business, which is the integrated deals. So when we implement cloud, we also want to implement integrated deals along with the providers. And the third one was to go after more OEMs beyond the three cloud providers.
All these three strategies were unleashed and unpacked in the last 3-4 quarters. So what you saw, the recovery is largely offset by these three strategies that have been at play for some time. So we saw the impact coming. Our teams are proactive, and hence we're able to recover in about 2-3 quarters' time. Sujit, as if you're on call, please feel free to make any additional comments.
Thanks, Samir, but I, I think you have covered it. So essentially, we have increased our coverage, and as Samir mentions, we are taking not just the platform now, we are also, wherever possible, we are getting into the, you know, system integration business around the platform. And as Samir mentioned as the third point, beyond these hyperscalers, now we have also started focusing on some of the other OEM partners business, and that is giving us some good results. Thank you.
Yeah. Thanks a lot for taking my questions. All the best.
Thank you. We have a Mr. Amit Chandra from HDFC Securities who'd like to ask a question. Please go ahead, sir. Mr. Amit Chandra?
Audible now?
Management team, can you hear Mr. Chandra?
Yes, we can hear you now, Amit. Thank you.
Okay.
Please go ahead.
Yeah. So thanks for the opportunity. I don't know if you have heard my last question, but, I know, you know, just some clarification on the, you know, retail manufacturing vertical. Obviously, you mentioned that, you know, we have seen, like, you know, ramp up of some deals there, and obviously, you have absorbed the impact of, the ramp down in one of the clients there. So if you can just, you know, you know, assure us that the ramp down there will be not as severe as what we saw in the BFSI, because in BFSI, the ramp down has been, you know, very severe and there has been, you know, a huge reliance on, like, one client. So in terms of concentration, how the concentration is there in the retail vertical? So that is the first question.
Secondly, you know, in terms of the utilization, obviously we have scaled up the margins, we have offshored, and we are running at, almost, like, you know, like peak numbers in terms of utilizations. So what's the view there, in terms of, you know, able to operate at such high utilization levels? You know, what's the view there? So.... Y eah.
I got your questions now, Amit. So let me just take the first one, and before I answer a specific question, I will paint a broader picture so that if there's any confusion, we can remove that. So if you look at the more sectoral view for us, Amit, clearly our banking financial services and healthcare verticals have done well overall, minus the effect of one single banking client. So we feel very good about the momentum in these two businesses. In the TMT sector, minus the large account, we have done well. I think the momentum is still very strong. In the retail in general, it has been soft for us.
We'd had some one or two quarters of growth, but we don't expect to be in a solid growth trajectory in any time in the next one or two quarters as well. I think retail will continue to be under pressure for us. It will have one quarter impact because of the large deal, the ramp down for the client that we just talked about, the large account we just talked about. We absorbed a bulk of it in Q3, but some residual impact will come in Q4 as well, for sure. But despite and in spite of that, we believe the growth rate overall at a company level in the international business that we have will continue the trajectory, so we'll be able to absorb the impact of the large of the large client, even in Q4 quarter.
So that's a broader commentary from this client perspective. As far as this client is concerned, like I said earlier, they had an unexpected ramp down in the course of the quarter from this client. We continue to work with the customer on the revised terms and condition, and we'll give you a more conclusive view in the coming months as to what is happening with this customer. By the time we come back in May, we'll give you a more conclusive view. That's our current information that we have.
As far as your point about utilization is concerned, given our practice spread right now, as you know, we have been trying to focus the company on fewer practices and go deeper in them, and of course, AI is a significant part of it. We believe the utilization level that we have will probably continue to be in the high 80s range. That's a sustainable model for us. The current quarter and maybe one or two quarters that you're seeing right now might be touching maybe 89%-90%. So we might dilute by a percentage or two, but we still think we are a high 80s utilization company. In odd quarter, we might touch 90%. So that's really how we think about it.
Okay. And so, you know, obviously, in BFSI vertical, you have, you know, clarified, but if I see, you know, over the last, say, 8-10 quarters, we scaled up from say, INR 11 million- INR 26 million, and then again scaled back to INR 10 million. So, you know, the growth came from the single client, and again, you know, it—we are back to the levels where we were, you know, 7-8 quarters back. So is it—And you have always been saying that BFSI is the focus vertical for us. So, but apart from the top client, we're not seeing any, you know, material growth in, you know, the clients ex of the top client. So, is it, you know, that the draw down has been across the clients, or is it only top client led?
So I can confirm it's been a single client impact in the banking sector for sure. It's not a broad-based impact. As you know, BFSI is a very regulated industry, and it takes many, many years to scale this business out. If you recall, in my prepared comments, I talked about two large deal wins. Both of them are in BFSI sector. One of them is with a Fortune 500 client, which is a multi-year deal, which will continue to scale for us largely from Q1 onwards. So we think that is a fairly large, scalable deal for us. And the second deal also, you know, which is a little bit small, not as big as the first one, that will also continue to scale for us. So this BFSI sector is a regulated sector.
It has a lot of competition, but with our differentiated AI proposition, we believe we have now a secret sauce to scale and win more large accounts, so that we are at a tipping point. Hopefully, we can scale from here. We just had an unfortunate event with one large client. That's why we had to shrink back.
Okay. On the TMT vertical, the largest client, obviously, you said that you are seeing traction on the engineering side. So within the large client, what would be the mix of engineering and, like, non-engineering work if-
We don't disclose that candidly, but that's a customer-specific centric data. We cannot disclose that. But we just want to give you a color that it's not the full account or full relationship is not growing. There are parts of the relationship which are actually going quite well now, and the other part, which is still under budgetary pressure.
Okay. And, on the domestic business, obviously, you know, we have seen, in terms of GCs, a slight decline, but, you know, just want to understand it better in terms of, the strategy of, like Microsoft here, in terms of going direct. Is it, you know... Was it, you know, confined to only one large client or, you know, is it a full-fledged strategy in like, in terms of they are going across most of the larger clients, or is it just they're trying and testing it in terms of what additional benefits, they are trying to derive? If they are not seeing any additional benefits and the complexity increases, they might go back to the, you know, usual, like course of business, which was there earlier. Is it, you know, fair to assume it's a temporary impact, or is it going to be more structural?
Look, I cannot comment on Microsoft's strategy. I can comment on our strategy, and our strategy is simple: to focus on the three pillars that I talked about, to expand in the SMC sector, in the channel business, to go after the new OEMs that we're going after, and to win large SI deals. That's really what we are focused on... and I think that strategy is working well for us, because despite a large account hit that we had, we are confident about 2-3 quarters we'll bring the business back on Y-o-Y growth basis. Having said that comment, Sujit, if you want to make any additional comment, please feel free. So I just want to just make sure I pull in Sujit.
Thanks, Samir. Actually there is no very, you know, no very clear-cut written communication saying, "Okay, these are the accounts which will be now going, going forward will be billed directly," and things like that. So the initial indications which were been given, that there are a few accounts which Microsoft is planning to bill directly. And, you know, we are not the only partner in India. There are multiple partners of Microsoft in India. So for each partner there can be 1, 2, 3, some accounts which are there. As of today, you know, one of our large account got impacted, and they have already gone ahead and Microsoft is billing them directly.
Now, how it is going to span out and what will happen, that obviously it's very early to say. We have... You know, it is just two quarters back, this has happened. We are also watching the situation going forward, how things are going to span out. What—as Samir mentioned, we are, we are more concerned and we are more focused on, you know, how we are going to make sure that our business growth and trajectory is maintained, and that is what we are more focused at. There are something on which we don't have control, and, we have to be just, very agile and aggressive to make sure that if, and when it happens, or if it happens, then we should be ready to face it.
So having said that, our assessment is not that Microsoft has decided to completely come out of partner-led business and are going to do business directly. I think those are not the concern what we have. I hope I have answered your question.
Yeah, sir, but just one clarification on this. So, you know, is it easier for Microsoft to, like, go directly or it increases the complexity in terms of their engagement with the clients? Because it's not a single billing or no single entity billing it. There is complexity in terms of, you know, handling multiple, you know, small organization within large organization. So how complex is the billing process in terms of going direct? Just want to-
You seem to know our business very well. But I can only give you my view, which will not be right here. But, see, it all depends how Microsoft is looking at it, and that's what I said, that, you know, these are multi-year contracts. 2 quarters, it's very short time to figure out what will happen or how it will pan out. I think... So we are also in a wait and watch mode, and we are observing the whole thing. I'm sure, you know, in next few quarters, we'll have some sense in terms of how things are.
Okay, sir. Thank you, and all the best, sir. Thank you.
Thank you.
Thank you. We take the next question as a follow-up from Vipulk umar Shah from Sumangal Investments. Please go ahead.
Hi, thanks for the opportunity. So, my question is regarding the turmoil in software stocks globally since last few days due to release of Anthropic Claude. So what are your comments? So this will be deflationary for our business in the long term, short term, or is it beneficial to you? Or are you really worried that you may lose a sizable business due to AI over medium term? So your investors are really very worried about the impact of AI on software IT services company. So your broad comments will be highly welcome, sir.
Sure, Vipul, happy to provide, and I think this is an important question. But before I answer the question, Vipul, let's just give you a little bit comments about the business that we run. So as you know, we are a modernization engineering firm. We primarily focus on consumer-facing regulated industries, both healthcare, life sciences, banking, financial services. They're heavily regulated industries. Our core business is for complex legacy modernization, which is inherently protected by regulatory constraints, data sensitivity, and deep legacy code. Based on our understanding of the tools out there right now, the AI tools are not very impactful as the technology exists today in these areas right now. So to answer your question, are we losing sleep over it today? The answer is probably no.
But are we keeping a watchful eye for the future because it's a innovation that can change any time? We are definitely keeping a watchful eye, and we'll keep continuing to do that. Having said that, is there a marginal impact on our business? Absolutely, there's a marginal impact on the business. Probably partly positive and partly negative. Positive, because we are gaining market share in the business, because with AI, it gives you a level playing field to other larger IT services companies, so we are we believe we can be nimbler and faster and hence gain market share, and that's what is probably reflecting in our order book numbers.
You've probably seen our order book for AI go from 5% of the total order book to about 10%, and the most recent quarter we announced about 14%. That's because we believe we are a relatively smaller company, so we can be, you know, faster and nimbler and agile. Having said that, the negative impact is that customers do expect more productivity now, which I think is fair. So we are, we are catching up with the productivity angle. We are delivering that productivity to the customers. We have made investments in AgentBridge, we've made investments in Harmoni.AI . If you go back two years, we talked about the investments in Harmoni.AI . Go back a year, we talked about investments in AgentBridge.
So those are all things that we are doing to catch up on the productivity side, and that's something we continue to work upon. Have we solved that puzzle fully? I don't think we have fully solved it, but we're making you know, incremental progress towards that aspect. But in the whole, are we losing sleep over it? We are not losing sleep over it. We believe the business model that we have created is resilient, but we're keeping a watchful eye in the future.
Are you forced to share the benefits of productivity improvement with the clients?
So, I would say, think of our business in two parts. 80% of our clients, and this is just rough numbers just to give you a sense, think of the 80/20 rule, Vipul. 80/20 rule-wise, most customers want faster delivery than efficiency. They want projects to be delivered faster. Price is not a constraint for them. 20% customers do expect, on the 80/20 rule basis again, efficiencies. So yes, in the 20% cases, we share partly the gains with them, partly we keep ourselves, and that's partly reflective in our margin accretion as well. But largely it is, "Can you help Sonata deliver the project faster?" And that's really the journey that we are on most, in most of the cases.
Very helpful, sir. Thank you so much.
You're welcome.
Thank you. We will take that as our last question for today. I'll turn the call back to Mr. Dhir for a brief summary and closing comments. Over to you, sir.
Thank you, operator. We just want to thank all of you to join us today, and your interest. The questions were very engaging. I'm sure you do a lot of work to think about these questions, and we do a lot of preparation. Our teams do a lot of preparation to come up with the answers. Hopefully, we answered all of your questions. If not, happy to take those questions offline through Jagan. We'll be happy to answer. But we are delighted with the progress we are making, especially on the profitability front. That was something that we talked to you guys about, that we'll get to high teens and low twenties EBITDA. We're glad that we have gotten there, and we believe we've gotten there in a sustained manner.
We're glad that we had two large deals win in BFSI. We're very proud that our order book on AI is at about 14% of our total order book. There's work in front of us on growth, given the three large account impact that we have seen. We'll continue to work on that. I think the next one or two quarters, we believe we'll continue the current growth trajectory, but hopefully coming out of it, we'll be able to give you better guidance as to how quarters beyond that will pan out. So thank you very much for joining today. We appreciate all the support. Thank you, operator.
Thank you. On behalf of the leadership team, I would like to thank you for your time and for your continued interest in Sonata Software. Should you have any follow-up queries that were not addressed, feel free to reach out to the investor relations team at investor@sonata-software.com. You may now click on the Leave button to exit the meeting. Goodbye.