Sonata Software Hopeful Of Recovery In Upcoming Quarters, Expects Better Results In FY26

The IT industry may take another couple of quarters to stabilise, even though signs of economic recovery are already emerging, according to Sonata Software Ltd.’s Chief Financial Officer Jagannathan CN.

Speaking to NDTV Profit, Jagannathan said Sonata Software Ltd. is likely to follow this broader market trend in the near future.

“We are emerging into a better situation for IT companies, but it may take a couple more quarters to happen,” Jagannathan told NDTV Profit, adding that if this momentum was sustained, fiscal 2026 would look better for the industry.

Over the last year, the IT industry has seen multiple mass layoffs globally, followed by a sectoral crash in the stock market.

Jagannathan said that while there were some improvements in the IT sector, the uncertainty persisted.

This uncertainty is clouding customers’ decision-making, which, in turn, is impacting the revenue of companies despite several opportunities in the pipeline, Jagannathan noted.

“It is an interesting phase in the IT industry where the pipeline is strong but not able to convert that into revenue. It’s taking more time to convert. It’s not that the order is getting rejected or cancelled,” he added.

He explained that Fed rates, US elections, and other factors were also impacting decision-making, but nobody could predict the exact reason for the uncertainty.

“Another aspect is the technology cycle of the industry. The customer wants AI in even a $100,000 deal,” Jagannathan added. He said regular upgrades in artificial intelligence were also making customers wait and watch, fuelling their uncertainty.

Sonata Software recently signed an IT outsourcing deal with a US-based healthcare company. Jagannathan said this was the second-largest deal for Sonata.

“It is a seven-year deal where we will develop AI for them to optimise the IT calls with customers. In the first two years, we will develop the AI; in the subsequent five years, we will be implementing and running their operations, and then handing that over to the customer,” he said.

However, for the first two to three quarters, there will be a dilution of the margins.

“Over seven years, this deal has better margins than the company average, but for the first couple of quarters it is going to have pressure on the margins,” Jagannathan shared.

Shares of Sonata Software extended declines for the third consecutive trading session. The stock initially opened higher but later erased opening gains and fell as much as 2.03% to Rs 628.75. As of 2:45 p.m., the scrip was trading 0.6% lower. The stock has returned 18% so far this year.

The analyst consensus price target was Rs 776.29, implying a potential upside of 22% from the last closing price, according to Bloomberg data. Among the eight analysts tracked by Bloomberg, six analysts have a "buy' rating from the stock and two analysts have a "hold" call.