Capillary Q1 FY27: Growth stays strong, but an exceptional fraud loss dominates reported PAT

Capillary Technologies India Limited started FY27 with a sharp acceleration in scale and operating profitability, even as a one-time fraud incident pushed reported profit into the red. For the quarter ended June 30, 2026 (Q1 FY27), revenue from operations rose to INR 256.64 crore, up 43% year on year. Adjusted EBITDA increased to INR 44.02 crore, up 132% year on year, with margin expansion to 17.2% from 10.5% in Q1 FY26.

Reported profit after tax (PAT) was INR minus 9.55 crore, a sharp reversal from INR 0.75 crore in Q1 FY26. Management attributed the swing primarily to an exceptional loss of INR 33.39 crore related to a social engineering fraud at SessionM Czech Republic s.r.o., a step-down subsidiary. The company also mentioned a one-time deferred tax liability of INR 1.61 crore. Adjusting for these items, the company presented normalised PAT of INR 25.44 crore at a 10% margin.

Beyond the exceptional item, the quarter also reflected the combined impact of three operating levers management has repeated across its disclosures: net revenue retention-led expansion, a higher share of subscription revenue, and improving scale leverage below gross margin. The company highlighted that roughly 60% of its cost base is non-COGS, and said these costs did not increase linearly with revenue.

A subscription-heavy model, and a bigger ARR base

Capillary’s revenue mix remains strongly recurring. In Q1 FY27, subscription revenue was INR 242.49 crore, or 94.5% of total revenue. This line grew 50% year on year compared with Q1 FY26 subscription revenue of INR 161.6 crore. Other services (installation) and campaign services formed a relatively small portion of revenue.

The company reported Annual Recurring Revenue (ARR) of INR 1,026.6 crore in Q1 FY27. It also reported trailing-twelve-month (TTM) new ACV of INR 92.6 crore, and described this as 75% year-on-year growth excluding the effect of a large healthcare customer in the prior base.

Note: Normalised PAT is as presented by the company and adjusts for exceptional loss and one-time deferred tax item.

Growth mechanics: NRR, new wins, and acquisitions

Management positioned Capillary as a dual-engine growth business: organic expansion driven by net revenue retention (NRR) and new customer wins, supplemented by acquisitions.

For trailing twelve months ending June 30, 2026, the company disclosed total NRR of 113%, with organic NRR at 111% and inorganic NRR at 120%. The company emphasised that organic NRR is the clearer indicator of expansion dynamics for customers already on the Capillary platform, while inorganic NRR can be distorted due to the base effects and migration status of acquired cohorts.

On customer concentration, the presentation showed a gradual reduction in dependence on the top accounts. In Q1 FY27, the top 5 customers contributed 34% of revenue, down from 40% in Q1 FY26. Importantly, the company stated that the reduction is driven by faster growth in the broader portfolio, even as absolute top-5 revenue increased from INR 72.7 crore in Q1 FY26 to INR 86.7 crore in Q1 FY27.

A key inorganic contributor is SessionM, acquired from Mastercard with completion on May 1, 2026. Capillary stated that acquired customer contracts are tracking to a planned 32 million USD ARR and that platform upgrade plans are on schedule to drive break-even profitability in the first year post-acquisition. The presentation also stated that purchase consideration net of debt-like adjustments settled in cash was INR 16.91 crore.

The call added important colour on how Capillary expects to extract value. Management said it would not begin a broad migration of SessionM customers to the Capillary platform until end of the year or early next year, although a few customers could be fast-tracked. In parallel, it expects operational efficiencies at SessionM even before migrations, including optimisation of infrastructure costs.

Capillary also described progress on migration programs for earlier acquisitions. It stated that almost all customers from Persuade, Brierley, and Rewards+ have migrated to the Capillary stack, with only two customers remaining.

AI strategy and product expansion: aiRA and Experience+

Capillary’s product narrative is increasingly built around an AI-led roadmap. The presentation frames a three-layer platform approach: a system of record (core loyalty platform), a system of intelligence (aiRA analytics agent), and a system of actions (aiRA action agents). The company indicated that newer AI-powered experiences are priced on usage and outcomes.

In the earnings call, management quantified aiRA’s early commercial traction. Aneesh Reddy stated that aiRA is at roughly 2.0 to 2.5 million USD in revenue run-rate and expressed an internal aim to reach 5% to 10% of total revenue from aiRA in FY27. Management also claimed aiRA has high gross margin characteristics.

A smaller but strategic addition was the CustomerGlu acqui-hire, rebranded as Experience+. The company described it as a marketer-first front-end experiences layer to enable gamified actions such as challenges and streaks in apps, with reduced dependence on IT release cycles.

The exceptional fraud incident: what the company disclosed

The largest negative event in the quarter was the cyber fraud incident at SessionM Czech Republic s.r.o. The company disclosed that between June 24 and July 2, 2026, perpetrators impersonated the Group CEO and a purported legal counsel, inducing an executive to make unauthorised remittances.

Capillary disclosed that INR 33.39 crore (EUR 3.05 million) was remitted to third-party accounts in Hong Kong and Singapore and that an exceptional expense for this amount has been provided for pending potential insurance settlement. It stated that accounts containing approximately INR 4.7 crore (EUR 428k) in Singapore have been frozen. The company disclosed expected timelines of 6 to 8 months for recovery through Hong Kong courts for frozen monies and that the insurance claim process may take about 5 to 6 months.

On July 31, 2026, Capillary also filed an exchange disclosure stating that its Audit Committee approved initiation of a forensic audit in connection with the incident. The disclosure named KPMG Assurance and Consulting Services LLP as the forensic auditor and described the scope as review of unauthorised banking transactions, internal controls assessment, root cause determination, and recommendations.

Outlook: guidance reiterated, but execution will be watched

In its investor materials, Capillary reiterated its earlier FY27 guidance of INR 1,065.0 crore revenue and INR 172.0 crore adjusted EBITDA. In the call, management stated it expects to beat these numbers but does not want to revise guidance immediately.

For investors, the quarter creates a clear split-screen view. On one side, Capillary’s fundamentals show strong revenue growth, rising adjusted EBITDA margin, and a subscription-heavy revenue model, backed by high organic NRR and a growing ARR base. On the other side, the fraud incident raises questions around controls, subsidiary processes, and eventual recovery outcomes, even though the company has provided detailed disclosures, initiated a forensic audit, and indicated insurance coverage is being pursued.

If Capillary can sustain its organic expansion, execute SessionM integration and cost optimisation, and convert aiRA adoption into meaningful revenue contribution, the operational narrative of FY27 could remain constructive. But the market will likely track the recovery progress on the exceptional loss and any learnings from the forensic review just as closely.