Earnings Call Transcript - XNSE:SONATSOFTW 2026-11-06

Inba, Head of Investor Relations

Hello, everyone. My name is Inba. I'll be moderating today's session. Welcome to the Sonata Software Limited Analyst and Investor Conference Call for the second quarter of fiscal year 2027, ended 30th September 2026. Please note all participants will be in the listen-only mode and this call is being recorded. We have with us today on the call Mr. Rajshekar Dattaroy, CEO of International Services, Mr. Sujit Mohanty, CEO of Domestic Business, I'm Mr. Jagannathan C.N., Chief Financial Officer. We also have our extended leadership team on the call. Please note that there will be an opportunity for all participants to ask questions after the management's opening remarks. During the call, please note that the management may make certain forward-looking statements that involve risks, assumptions, and are based on information currently available to the management. Sunata does not undertake any obligation to update any forward-looking statements that may be made in the course of this call. We advise participants to exercise discretion while making any investment decisions. We will begin the opening remarks from Mr. Raj Shekhar, followed by the business overview and financial highlights. After that, we will open the floor for questions. With that, I hand the call over to Mr. Rajshekar for his opening remarks. Over to you, sir.

Rajshekar Dattaroy, CEO

Good afternoon, everyone, and ladies and gentlemen, good day, and thank you for joining us today. We value your time and your continued trust in Sonata. I'll just quickly cover what we did in the past quarter. And before that, I want to probably set a context that in quarter one, we said that we are setting a direction to be an AI native engineering organization and how to engineer the AI enterprise with outcome that business transformation and AI-first technology platforms and AI native service delivery. We are continuing on that path, and in Q2, we have made some progress, which I'll give you a quick summary. You would have noticed that we have grown in revenues despite a drop in one of our top accounts, so that shows the resilience that we have built into the current one. In Q2, we have made progress on multiple fronts. One, I think, has been to take our new offerings to our top clients and we see traction building up in terms of order book and pipeline around that. We have also taken our new offerings to our partners and we see increasing traction around that and demand from our new clients. We also have created a framework to evaluate whatever gaps we have in our execution capability, and we are systemically addressing the gaps, so that we have a structural model to scale this business. We have also seen that the quality of engagement in terms of volume of business as well as the nature of business has improved in our mid-sized accounts. Now, we have, of the six new horizontal offerings that we have, three of them provide about 61% of our additional pipelines that we have injected, and that includes legacy modernization, AI-powered engineering, and AI-ready data. This is aligned to what we had planned as a part of our game plan. We have also strengthened our partnership with Microsoft, both Sellto and Sellwith, and we have revamped the leadership in the past quarter. We now see early signs of traction and growth in each of these areas, both in Sellto and Sellwith. In especially Sellwith, we have seen that we have moved into adjacent areas of growth, and that's working well, and we hope to see positive momentum around this in the subsequent quarters. In the celebrate area, we have got new partner. We are a co-pilot depth partner now. We are a frontier partner and this year again, we have been nominated as the inner circle partner and we are trying to build strategic partnerships around data. So that bodes well again for the future. We have also significantly enhanced our Harmony.AI offerings across AI-native service delivery as an enterprise workbench. We have now Harmony.AI migration studio to address legacy modernization. And we have engine bridge for handling process transformation apart from AI-related data and resilient AI backbone. All these are fundamental to generate value-first transformation of enterprises to AI. So we have now seen that we have been able to take some of these offerings, especially the enterprise workbench, and be able to monetize them by actually taking them to client, delivering work, and able to see value both for ourselves and our clients. Two quick examples. One is a global quick-service restaurant chain. We helped in modernizing, and we were able to cut down about 35% of the time to deliver, as well as reduction in effort. And that has been highly appreciated, and we hope to get further business around legacy modernization from the same account. In the US healthcare benefits and claims leader, we have expedited the velocity of delivery by about 40%, and that also is becoming a long-term engagement with us. This proves that some of the assets that we had built in the past quarter can actually, in a real-world enterprise scenario, create value for our clients and which, hence, builds us a platform to scale them further. We had four key new wins. One was a large deal. Again, this all came in our chosen vertical, largely, which is Agni Pharma Specialty Retail. One of them was a large deal, which was around the cloud modernization, and that's a U.S. food service provider or equipment provider for the retail and big services in the restaurant. We continue to build on our AI capabilities in terms of delivery, people, and partnerships. We now have a growing pool of AI-certified architects, partnerships, and MDs who are trained and deployed on our private data. We have also significantly moved up our training on the Sonata Modernization Engineer, along with Frontier platform, so we have readiness to deliver to the new offerings that we are building. We have also made progress on the sub-verticals that we had cited in the last quarter, and we have made progress on three areas. One is mortgage and lending, pharma and medtech, and agrib. We are also enhancing our customer engagement and expense experience. With all this, we think that we expect a positive growth momentum in the coming quarters. Despite some headwinds typical of Q3 in isolated one or two verticals, we continue to focus on our operational rigor and expect to see improvement in our performance. We continue to build a resilient business, enhance our offerings and partnership, and deliver models aligned to our strategy and the responsible first AI approach. We believe this will create lasting value for our clients, employees, and shareholders. Thank you. And I'll now hand over to Sujit to give a summary of the logistics.

Sujit Mohanty, CEO

Hi, good afternoon, everybody. Sincerely, thanks each of you for joining this call. I'm going to be very happy to have a new festival. Our domestic product business continue to build on the positive momentum achieved in the last quarter. We deliver a healthy performance while navigating and evolve the technology landscape and ongoing shifts in the OEM partner strategies. More importantly, the strategic actions we undertook over the past few quarters are beginning to show tangible results, strengthening our confidence in the growth trajectory of the business. As discussed in the previous quarters, our anticipated headwinds resulting from changes in the go-to-market models of Satraldaj OEF partners are already now behind us. We are now increasingly focused on accelerating growth opportunity ahead. We are making significant progress across our strategic growth pillars. We continue to strengthen our partnership with leading hyperscalers and technology providers. Through our focus, GTN's execution, we increased business for non-hyperscalar OEM from our existing and new customers. During the quarter, we announced our business partnership with Amazon Web Services by signing a 5-year strategic collaboration agreement to accelerate cloud adoption and modernization for enterprises across India. This collaboration is going to help us in defending our head-of-base capabilities, enable us to engage customers earlier in their financial journeys and unlock more strategic opportunities. We also signed a three-year joint go-to-market initiative with Google India for Google Gemini Interface. Our multi-cloud management services business continued to gain momentum during this quarter. We secured multiple strategy cooking across banking, financial services, manufacturing, and in the enterprise segment. As customers increasingly seek support for managing complex, hybrid, and multi-cloud environment, we believe this business provides a significant opportunity to build a stronger recurring revenue stream while defending long-term customer relationships. We continue to set up, build, and expand our addressable market through focused investment in new growth areas to reimagine the next stage of growth across enterprise IT services, GCC-focused professional services, and multi-cloud management services. We have personalized our inside sales group to strengthen market coverage and demand generation for some of these new business decisions. We are encouraged by the early opportunities emerging across enterprise customers and GCCs for the new business areas. The quarter also witnessed encouraging traction across our solution portfolio with several new wheels and expansion opportunity across system integration, multicloud management, and AI-led engagement. Our ability to collaborate closely with leading hyperscalers and technology partners continue to support customer acquisition and wallet share expansion across existing accounts. AI continues to be one of the most significant opportunities for our customers and partners. Enterprises are intelligently moving from experimentation to adoption, creating demand for cloud platforms, AI tools, infrastructure readiness, and managed services. Through our strength and partnership with hyperscalers and other leading audience, we are well positioned to support customers in their AI transformation journey while building a differentiated growth engine for the future. During the quarter, we achieved a gross contribution. of Rs.82 crores, which is a growth of 19.3% year-on-year, and a part of Rs.47.3 crores, which is a growth of 12.2% year-on-year. Looking at, we remain optimistic about the opportunities before us. The AWS Strategic Collaboration Agreement, the Google Gemini Enterprise Partnership, our going multi-cloud managed services business, and our investment in AI-led operating. Provides us with greater confidence in the medium-proof growth output. Overall, we remain confident in the direction of the domestic business. Our focus is not only on growth, but on building a diversified, scalable, and future-rich business with sustainable value creation for customers, employees, partners, and shareholders. With this, I am handing over the jargon for the financial software.

Jagannathan C.N., CFO

Thank you. Thank you, Shriji. Good morning, good afternoon, good evening, everyone. I will provide key updates on Q2 27 business and financial performance now. Starting with International Business. During the quarter, we benefited from few close drivers. We added 4 new customers in Q2 27. Top 10 clients contributed revenue share of 51% in Q2 27. Number of clients greater than 5 million run rates stood at 11. And number of clients between 3 to 5 million revenue stood at 12. Q227 order book stood at 98.5 million with a book-to-bill ratio of 1.18x. We cropped AA-led order book of 24.2 million in Q227 and now contributed to approximately 25% rate of the overall order book. AA-led pipeline is 358 million in Q227. Total hit counts including domestics stood at 6214 in Q227 with attrition at 10%. On-site offshore revenue mix stood at 3070 in Q227. Utilization improved to 90.5% in Q227 versus 88.5% in Q127. Let me now walk you through our financial performance for the quarter ending 30th September 2026. First starting with international services, rupee revenue student 797.9 crore, a growth of 2.7% in quarter on quarter and a growth of 9.3% year on year. Where USP revenue stood at 82.8 million represents growth of 1% in quarter and a growth of around 0.9% year on year. In constant currency terms, it represents a growth of 0.6% quarter on quarter and a plastic 0.1% year on year. EBITDA, before other income and forehead, in Q2, 27 stood at 15.5%, growth of 0.1% quarter-on-quarter from 15.4% in Q1, 27. The EBITDA improvement driven by the low factor, our utilization improved to 90.5% from 88.5%, primarily due to wrap-up completion of one of the last deals. Operational efficiencies of improving pyramid, fixed price optimization, and SDN day savings. The above increase is mainly offset by increments in this quarter. Increase in cost of severances in our last account due to ramp down in couple of joggers. Investment in new AI solutions for few of our customers as a proof of concept for potential revenue in the upcoming quarter. We continue to make investments in talent transformation, advisory solutions in line with our positioning of engineering in AI interfaces. Q2 27 packs put at 69.1 crores as against 62.2 crores in Q1 27, a growth of 11.1% quarter on quarter. However, there was a new growth compared to last year. Reported ROC and RONW for the quarter stood at 19.2% and 17.7% respectively. International Services DSO in June 27 is reported at 52 days against 60 days, but this is also due to some advanced collections in this quarter. We will maintain the DSO around 60 days in the coming quarters. Now, let me provide you an update on domestic business. Revenue for Q2, 27 students, 1655.6 crores. This looks like a degrowth of 73.9% quarter on quarter, but a growth of 19% year on year. As mentioned earlier, we focus on graph contribution rather than on revenue. Graph contribution for Q2, 27 students, 82 crores, a growth of 4.5% quarter on quarter and 19.3% year on year. Pat of Q27 stood at 47.3 crores against 45.9 crores in Q127, a growth of 3.1% quarter on dollar and a growth of 12.2% around year. DSO for Q27 is 47 days compared to 65 days in Q127. Reported ROC and RO&W of quarter quarter stood at 28.2% and 42.9% respective. Update on Consolidated Business. Consolidated Business revenue stood at 2445.2 crores and a growth of 15.4% year-on-year. Tax for Q2 to 27 stood at 116.4 crores, again 118.1 crores in Q1 to 27, reflecting a growth of 7.7% quarter-on-quarter. Although, there was a deep growth around the year. Reported ROC and ROW for the quarter stood at 25.8% and 23.3% respectively. EPS for the quarter 2 to 27 stood at 4.2 per share against 2.1 of 3.9 per share. Update on cash flow. Cash and generation remain strong during the year with closing gross cash balance of 426.3 crore. To conclude, overall, the quarter reflects continued progress in executing our A's first strategy, deepening client partnership, enhancing delivery capability, while maintaining a disciplined approach to business performance. Additionally, the operational momentum highlighted by our domestic business team is translating into healthy financial outcomes. Our focus demands on driving profitable growth, maintaining discipline, execution, and strengthening cash generation while continuing to invest in opportunities that support long-term value creation. With this, I hand over back for the questions.

Inba, Head of Investor Relations

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 connected via Zoom, please use 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 telephone call, to join the queue, please press star 9 on your telephone keypad. When it's your turn, you'll be prompted to unmute by pressing star 6. Please state your name and company name before asking your questions. We will wait for a moment while the question queue assembles. We take the first question from Depeche Mehta of MK Global. Please go ahead.

Dipesh Mehta, Analyst — MK Global

Thanks for the opportunity. A couple of questions. First, you indicated drop in one of the top customers, which we have observed. Can you provide some context around it and how you expect it to evolve in the next few quarters? Second question is about the data revenue side. Data revenue continue to have a significant weakness. It is 50% down YOY. Now, data is one of the focus area for company, but the performance which we report in one of the service line is not reflecting it focus kind of thing. So, if you can give some clarity how to read it. Third question is about EBITDA margin work. Jagan, if you can run through us about some of the factors which you indicated, if you can quantify some of the impact from quarter on quarter perspective. And I have one question on domestic business. Maybe once you answer these three, I have one follow-up on domestic. Thank you.

Rajshekar Dattaroy, CEO

Thank you, Dipesh. I'll take the first couple of questions and then hand it back to Jordan to answer. I think, like I narrated, that we had a drop on our top customer in the past quarter. That happened due to during the renewals. I think these drops are normally expected. But I think that we are past that now, and we see positive traction going forward. That's because of two, three things. One, we have made changes in our teams and leadership. That's one. Second, we have changed our strategy in terms of where we focus in these areas, varying more towards the spend around the act, and that's holding us in good stead going forward. Data revenue, if you compare Y1Y, and right now, our largest BFSI customer, which ramped down, had largely data as their thing, and that contributed to the Y1Y trend, and in the drop on the large account, also a large part was from the data area. So both contributed for the quarter-on-quarter as well as a Y1Y trend, but... We feel very strongly that our data pipe as well as OB will continue to grow because of some of the work that we are doing in strategic alignment of modernizing to AI-ready data. So that, I think, is a go-forward direction. Jagan, do you want to answer the question?

Jagannathan C.N., CFO

Yeah. The way, as I mentioned in my comments now, there were headwinds and there were tailwinds for us. The tailwinds have been the improvement in margin for us, improvement in utilization for us in this quarter. That was beneficial one plus there are savings in the operational efficiency that brought in during this quarter. But as I mentioned earlier last quarter also, this quarter we had a salary increase for our low management people. For the shift conflict, about 60% of the people for us. That increment had an impact on the EBITDA as expected. And there is a, on the last account, there are couple of geographies where we had a severance cost incurred for it because of couple of background stay at the group that's reflecting in our revenue also. So that has been observed in this. Third one is the investment in whatever we have done with our customer. As mentioned by Rad, we have been focusing on our new go-to-market, ALA go-to-market. Six offerings what we mentioned and our focus on three offerings to the customer. We are seeing a lot of fractions there. Hence, we have invested on demonstrating the value of these solutions to the customer through an invested proof of delivery. We have given for the few of the customers, which is also some of these things that we are reflecting in our pipeline as well as in the order book, which you will see in the next couple of what I have seen due to the increment. It will reflect in the increase in the revenue. So, these are the major reasons on our EBITDA for this water.

Dipesh Mehta, Analyst — MK Global

No, Jagan, thanks. But I was more looking about quantification of some of these factors, like let's say wage act, what is the exact impact on margin? Similarly, severance payment, because it is unlikely to recur, let's say, next quarter. So if you can quantify it, help us to understand what is recurring and what is non-recurring impact this quarter. And on the top client also, let's say you indicated about some of the market we exited, CV runs. But let's say going forward basis, are we seeing any challenges in top 10? Because if I look last couple of years, our performance was affected because of the challenges in some of these top client. So from here on, let's say from next 12 to 18 months perspective, what's the growth outlook you observed in our top 10 client? If you can provide some details and the domestic business, which I wanted to understand, let's say domestic business is showing now signs of recovery. Do you expect domestic business is returning back to mid-end kind of gross contribution profit trajectory on going forward basis? Thank you.

Jagannathan C.N., CFO

Okay. Deepesh, your question is very valid. The second part of it about the growth, Raj will comment about it. I'll complete the margin part of it. Out of this, whatever I mentioned to you, there are one-timers, which is the severance cost, which contributed around 50 basis points for us in this quarter. And also, this one-time proof-of-concept investment is around 100 basis points for us. So, these tools are replaced. It's there, but this one-time proof of delivery, depending on what customer wants and what is the situation of the deal, it is not a planned kind of an investment which can be structured for the next course for that kind of thing. Depending on customer's requirement and opportunity in print office and the size of that, we may have to decide on this. As of today, I have reflected the past what we did in Q2. Let's not reflect what we are going to do in Q2. So you cannot, I will not be able to comment on the quantum, what it will be, reflect or not reflect, as present, we will, in case if there is a substantial portion, this is not a substantial investment, we thought that this is not a continued substantial investment, but this is a very important investment for our winning of series with customers, two of our existing customers, hence we invested on this. We may have some portions of this continuing in two, three, but. It's not that we know exactly where we stand at. It only reflects the past data. You can't extrapolate it for the future.

Rajshekar Dattaroy, CEO

I'm answering the question on top 10 customer mix. There are isolated headwinds that is expected in Q3, especially in... Our BFSI and TMT vertical, but we still think that our top 10 will contribute more than what it has contributed in the past. And not specifically each account, but the top 10 contribution will be higher. That's what we see for the moment. And go forward also, I think our top 10 business are looking far more sustainable at this point of time.

Sujit Mohanty, CEO

Yeah, I'm considering on the India business. See, taking into account the GTMs which are running currently in the market, our OEM engagement, and the customer traction around the GTMs, we strongly believe that in the medium term, we will continue to have a good trajectory. Thank you.

Inba, Head of Investor Relations

Mr. Mehta, do you have any more questions?

Dipesh Mehta, Analyst — MK Global

No, thank you.

Inba, Head of Investor Relations

Thank you. A quick reminder to our participants, if you wish to ask a question, you may click on the raise hand icon from the participant tab. We'll take our next question from Amit Chandra of HDFC Securities. Please go ahead.

Amit Chandra, Analyst — HDFC Securities Limited

Am I audible?

Inba, Head of Investor Relations

Yes, sir.

Amit Chandra, Analyst — HDFC Securities Limited

Yeah, yeah, thanks for the opportunity. So my first question is on the, you know, is on the stress that you're seeing from the top account, you mentioned that there was some kind of, you know, some kind of delays in terms of renewals or some of the renewals did, like, did not happen or we had some hit there. So, is it because, you know, if I, if I like recollect last time you said that, you know, most of the renewals in terms of the Microsoft or the large account has been on track, and we're seeing some signs of recovery there. So what has changed there, like maybe in the last like three months, and also, you know, from here on what gives you the confidence that maybe the top five top 10 accounts, you know, will actually drive the growth because we have been We have been struggling for growth over the last many quarters now, and some of the verticals, some of the clients, we are facing headwinds, and we are facing headwinds. You know, overall, overall, you know, the growth for the IITS, the international services has been stressed. And if I see some of the verticals also, like your, you know, like emerging vertical wire on a wire wire basis has seen a sharp kind of an, you know, So, what kind of recovery we expect in the coming quarters?

Rajshekar Dattaroy, CEO

Amit, I think we have asked three questions. One is on the renewals from our top accounts, and I think, like I said, the renewals was behind us, but we had ramdom in one program, particularly, and which resulted in the revenue. Decrease in the past quarter, but that is behind us now. We see positive traction building and I think we should not, we need not look at that going forward. I think we have moved to new areas and that's working well for us. So that's on the top account. On the top 10 performance, I think there are accounts in the top 10 which are We have one or two accounts which have some isolated headwinds in the Q3, but I think overall it will still see a creation. That's what we see currently. And we are continuously building pipeline in these areas and we expect to convert. We also see large deals coming in the top 10 accounts. I think there is about 30%. Of the last deals are in the top 10 accounts. So we expect that to also play out for us. Coming to verticals, I think for us, we have HLS, which is healthcare and lifestyles, which is going consistently for us. BFSI, if you compare last year, that was including one of the accounts from the quant, I think. That account has since run down, but after that, we still, last quarter, we saw improvement in BFSI as well. RMD is slightly under pressure. TMT barring the top account is looking good. One of the things that I wanted to mention is that some of our growth is also coming from the big size accounts, which is scaling up faster. And that's primarily because what is happening is that we see with the AI that go to market, there is a model like proof and scale. You prove for two months, three months, and then scale. We already see examples of that happening, and that is happening faster in this mid-size account. So they are scaling faster. While we have pipeline, the OB descent-making is longer in this, primarily because they are worried about security, regulations, and this kind of thing, even though they might be convinced about the offering. So that's the typical color on the geography. We also made significant progress on agri, for example, in an area which has been our focus. We have had wings there already, and those kind of go-to markets are further into.

Amit Chandra, Analyst — HDFC Securities Limited

Okay. And so, in the, in the, like, TMT vertical, apart from the stress, apart from the decline that we had in the top, the top account, is it fair to assume that the other accounts exo that has been, has been growing or is it more like broad-based kind of an, you know, the pressure we are seeing in TMT?

Rajshekar Dattaroy, CEO

No, no, no, it's not broad-based. It was isolated to one account. We might have another account on which there may be pressure in the coming quarter. But in spite of that, we see positive traction overall. I do want to reiterate that. And it is not isolated to this one account. So, we are trying to build a resilient business. We understand some of these things will happen. We are anticipating that and driving the business towards being resilient and growing despite this.

Jagannathan C.N., CFO

Just to add on, Amit, one point I want to clarify, just to add on what Raj was mentioning, the top account we had this quarter, there was some impact was there, but we see that from next quarter, there will be positive momentum in this top account.

Amit Chandra, Analyst — HDFC Securities Limited

Okay. Answer, earlier we used to give some sense in terms of how much exposure we have with Microsoft in terms of sell to and sell with, only in the IT services side, excluding the domestic business. So any number you can give us, what would be the Microsoft kind of exposure sell to and sell with within the IT services? right now.

Rajshekar Dattaroy, CEO

I think we can provide you the details offline and provide you the details.

Amit Chandra, Analyst — HDFC Securities Limited

Okay. And in terms of the margins, obviously, there has been the margin erosion that we have seen in the past few quarters. But earlier, we had an aspiration to operate in, say, 18 to 20% range. Now we are back to 15%. So from here on, and we are also operating at pretty higher utilization levels. So from here on, what are the margin levers that we have apart from growth? And obviously, you mentioned about some of the one-offs that we had in this quarter and we had the wage hike also. So now most of the one-offs are in the base. The wage hike is there in the base and we're expecting some kind of growth to come back. So from here on, what kind of margins we can expect, steady-state margins for the IT business?

Jagannathan C.N., CFO

Okay. Amit, I'll take this question. Our aspiration is to maintain the margin between 80 to 20 percentage. As mentioned, we are working towards that. And this quarter, we called out what was the reason why we have our EBITDA percentage where it is now. It has not degrowth till there was an improvement in spite of all these investments and investments for us. We expected the margin to improve from now. This is being the base levels and we are expecting the margin to grow. How much of margin growth? Where will happen? We will keep you posted. We wanted to reflect the number when the results are being announced, but definitely there will be a positive momentum in the margins in the coming quarter. That is what we expect on this. I want to highlight one important point because you also mentioned about the revenue growth. If you see after a long, long time, at least four, five quarters after that, we have crossed the 0.5 percentage of growth in this quarter and we are reflecting clearly a one percentage growth, which we see that the starting of the growth phase for Sonata is coming back. And that is what both in terms of margin as well as in terms of revenue, we are very positive in the coming quarter.

Amit Chandra, Analyst — HDFC Securities Limited

Okay, sir. And, sir, the final question from my side. For the domestic business, obviously, we are seeing the growth coming back and the concerns related to the top client going direct and all. So, is it fair to assume that most of the concerns are behind us and we can be back to 20-25% kind of a growth trajectory in that India business?

Sujit Mohanty, CEO

I will not be able to comment on exact percentage, but I can definitely tell you that you will see the growth trajectory in the medium terms.

Amit Chandra, Analyst — HDFC Securities Limited

Okay, sir. Thank you.

Inba, Head of Investor Relations

Thank you. Anyone who has a question may click on the raise hand icon to join the question queue. Participants, if you wish to ask a question, you may click on the raise hand icon so that we can unmute your connection. We'll take a next question from Ashish Dash of Systematics. Please go ahead.

Ashish Das, Analyst — Systematics

Am I audible?

Inba, Head of Investor Relations

Yes, sir.

Ashish Das, Analyst — Systematics

Okay. Thank you for the opportunity. So, you mentioned that there are positive fractions in certain. Also, you highlighted that you are entering into new areas. So could you please elaborate those things? Because also Jagan highlighted that 1% growth despite the challenges. So if this traction could drive our growth acceleration, I'm just asking to understand that.

Rajshekar Dattaroy, CEO

See, if you look at our... Growth driver, I think what Javan pointed out, I think given where we set off earlier, right, and if you look back in the last past four to six quarters, we had multiple headwinds of a large account ramping down and all the stuff which we had. And we were trying to build a resilient business so that it could completely stay stable. I think in this quarter, we are moving the needle from growth, from stability to growth, which is represented in this 1%. Now, coming back, this is the early indicator of this movement. What's driving that? I think fundamentally... I think three things are driving this. I think what we are taking to customers for which there is demand given AI is, I think, the first thing, which is our new offerings. We see three specific areas right now, like I mentioned. One is AI native service delivery. We see significant traction around that and it's built around our differentiated approach with enterprise workplace. Secondary is legacy modernization. That's a big bulk of this pool of demand was not available to us in the past, and that's now available in multiple forms, whether it's data, cloud apps, or your business process. We are seeing legacy modernization as a big thing. There are three main things which are driving the growth, I mean, demand in the market. One is business transformation with AI, legacy modernization, and service delivery transformation. For each of these, we have built assets as a part of our Harmony.ai to help differentiate and win, and that's creating the positive traction. Third, I think, is our focus in terms of where we are focusing in terms of growth. If you look at our accounts that we are focusing is based on where we can see headroom potential for Sonata. Second, where we have capability aligned and we have now put investments to drive that growth and that seems to play out. So those accounts are growing for us. In spite of, we might have no market share now, but I think we are able to grow market share. And because of the new offerings, we are able to create opportunities. So that's why. The second vector of this thing is also new account. So if we see we have strengthened our partnerships, especially with Microsoft and AWS, and we have other partnerships which are in the works right now. And we have built strategic partnerships. So after a long time, we will see that we have seen Dynamics business growing back, and that's back of new builds. We also see data pipeline. We may not be able to be visible now in terms of revenue, but I think we have a very strong pipeline and very strategic. Model of engagement around data. That's one. Cloud with legacy modernization is going. So these are the vectors in terms of horizontal. In terms of verticals, I think, We still think TMT is going to be attractive to us. BFSI, except for maybe a little bit in Q3, there might be some admin, but beyond that, midterm is still going to go for us. And healthcare has been steady. So these three verticals will help grow. We also see that we might have some spaces in our retail, but it will probably take one or two quarters to come back. On specific pockets, we have science showing science of recovery, especially logistics. So I hope that gives color to the audience.

Ashish Das, Analyst — Systematics

Yeah, understood. Just wanted to confirm one thing. You mentioned that there is another account which you may see some headwings in coming quarters. Would you please elaborate, like, highlight more about that account, which vertical, what kind of impact you are expecting? What is the exact issue?

Rajshekar Dattaroy, CEO

That will be a TLT vertical. That means a TLT vertical. I mean, just to give you a little bit of color on that, in the next quarter, you might see a slight ramdown in that account in TMT vertical. In spite of that, we think we'll be able to grow and we'll achieve top 10 account secretion, right? Point number one. Point number two, even in that account, Our order book has actually gone up. So the revenue will now be spread over a longer period of time and the revenue value of order book has actually gone up significantly from what it was in the past. So you'll see a longer stream of revenue. So while we have a quarterly impact, the long term view over say 8 to 10 quarters is positive in terms of the total volume of revenues.

Ashish Das, Analyst — Systematics

Okay. And my last question is, last two quarters, what I've seen in your presentation, you are highlighting key deals rather than large deals. So could you please highlight what do you mean by key deals and what is that the average size of the deals?

Rajshekar Dattaroy, CEO

See, large deal we are classified at over 5 million. But see, one of the things that we, in this market, I personally don't, our strategy is not to be dependent only on large deal because it has decision-making delays and complexities which is affecting our performance. So that's a pivot that we have made. We are actually mitigating this with a much more wider size of deal which are typically in the range of 2 to 4 million dollars. Maybe a little high, but it might be slightly below. Fine, but it is still significant for us, right? For example, we have a deal this quarter, which is about $4.2 million, right? It is not characterized, but it's still important. And we are trying to intentionally grow this kind of deal. So it mitigates the risk of large deal decision-making deals, right? And that's how we are building a resilient business. Hence, we started pointing out key deals so that it's a right indicator of our pipeline.

Ashish Das, Analyst — Systematics

Okay, got it. Thank you so much.

Inba, Head of Investor Relations

Thank you. We take our next question from Dipesh Mehta of MK Global. Please go ahead.

Dipesh Mehta, Analyst — MK Global

Yeah, thanks for the opportunity. Couple of questions. Just want to get sense about the micro-verticalization which you earlier alluded to. And even in your presentation, you give some now more detail about what we address in BFS, HLS, RMD. Can you give broad sense, let's say, where are the scale of some of this sub-vertical and what kind of growth opportunities you find from medium-term perspective? Second question about some of the leadership changes which you highlighted, particularly at the account level. Can you give, let's say, broad color about whether we are largely behind that exercise in terms of change in leadership which you intend to make is already happened or where we are in that journey? And last question is about Pond. Pond we acquired a few years back, considering some of the client-specific challenges and overall growth trajectory, do you see, let's say, any chance of impairment in the transaction? Thank you.

Rajshekar Dattaroy, CEO

Sorry, I missed the last question, if you can just repeat, Deepesh.

Dipesh Mehta, Analyst — MK Global

The quant business, considering some of the client-specific challenges led to, let's say, decline in business, are we witnessing, let's say, or seeing scope of impairment in that business?

Rajshekar Dattaroy, CEO

Okay, good. Now, I think especially for the top account, I think the leadership changes are behind us. I think we continuously look at how to improve our capability to execute. That apart, I think the broad, especially on the top account. Having said that, we have plans to augment further, align to our strategy further. We have a fairly stable leadership team now, which is working well for us, and we are hoping that that will be sufficient for our current growth, but we will be investing for future and larger growth. Number two, subverticals, like I said, still to play out in terms of revenues, but we see early momentum in. Two verticals specifically. One is in life sciences. Life sciences, we have taken this approach and we already have prospects in mature state based on the sub-vertical strategy. So like we are taking an approach where we are able to build a minimum viable proposition, take it to the customer, validate it. Based on that itself, we are seeing traction on that. Having said, the revenue, etc. will play out only in the midterm. Number two is Agri. Agri, we already have wins and we are strengthening that. This has been a traditional strength of Sonata. So that's again, is working well for us. And we are building out in BFSI, multiple domains, especially we have started with mortgage and lending, which has been our core area of focus. So that's also we have an MVP of the proposition that we are, but you'll see the revenue back in the midterm. But I think life chances is closest to them. Revenue today. This also is the validation of our approach, which finally will lead to outcome-based models getting implemented with clients in future. The last question was on impairment, Devan, you want to?

Jagannathan C.N., CFO

Yeah. So, with regard to the font, we have, at present, it's not showing and reflecting on this environment specifically, but we will be re-evaluating this as per the governance process and regulatory requirements. Last was done in the month of March, because of the year and time, with the structured audit process, we have tested the environment and we didn't reflect anything and it was discussed by the auditors also confirmed on this. Going forward, we may consider merging quant and with our sonata in the coming quarters, whenever we vote the sites to vote. So that's the situation on this situation.

Inba, Head of Investor Relations

Mr. Dipesh Mehta.

Dipesh Mehta, Analyst — MK Global

No, thank you. Thanks.

Inba, Head of Investor Relations

Thank you. Any participant who wishes to ask a question may click on the raise hand icon. We have our next question from Jimit Ji of MK. Please go ahead. Hello.

Jimit Ji, Analyst — MK

Yes, please go ahead. So, I just actually wanted to understand on the progress on the AWS deal that we signed. So, has that ramped up or is it in the process of ramping up? And any ballpark contribution that we can expect from this? If you can just shed some light on this, that would be really very helpful. Thank you.

Sujit Mohanty, CEO

So, Jamit, you know, we signed this SA agreement with AWS, which is a five-year contract. And as for the contractual terms, the first few quarters, we have to build up a competency team. So currently, we are working on building the team, and we are having the engagement with AWS India account teams. So this will take around two to three questions to set it up and have the GPMs. The execution will most probably start, starting from the first quarter of the next financial year. We need at least till next quarter to keep the platform ready and have the setup. So this is how the plan has been set in motion. And this is how it has been agreed with AWS.

Jimit Ji, Analyst — MK

Okay, thank you. And just can you even, you know, help us understand some of the contours around it in terms of, say, is this a pure Microsoft-like structure or is it a different structure and how do we expect, like, do we expect anything incremented on the gross contribution level as and when it ramps up?

Sujit Mohanty, CEO

Sure. So, Currently, we have an engagement with AWS and we do AWS business in India. The whole idea of getting into this plan is to accelerate the AWS business and the customer acquisition around AWS technology in India. And essentially, we are looking to double our earnings from AWS technology areas, what we are having currently. And that is how this program has been designed. So definitely we are looking for doubling gradually our earning from AWS engagement. Thank you.

Inba, Head of Investor Relations

Jimit, do you have any more questions?

Jimit Ji, Analyst — MK

No, thank you so much.

Inba, Head of Investor Relations

Ladies and gentlemen, that was the last question for today. I'll turn the call back to Mr. Ashrikar for a brief summary and closing comments.

Rajshekar Dattaroy, CEO

No, I think thank you very much for everyone for joining the call and very happy Diwali to everyone. We wish a very happy and prosperous day of life for everybody. And we at Sonata are trying to build a resilient business. That works for the employees, shareholders, and all stakeholders, and I look forward to that. Thank you again very much.

Inba, Head of Investor Relations

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, please feel free to reach out to the investor relations team at investor at sonata-software.com. You may now click on the leave button to exit the meeting. Thank you for your participation. Goodbye.