Capillary Q2 revenue climbs 51% as EBITDA margin reaches 17%

Capillary reported Q2 FY27 revenue from operations of Rs 271 crore, up 51% year on year, while adjusted EBITDA more than doubled to Rs 44.8 crore and the adjusted EBITDA margin reached 17%. Q2 profit after tax, or PAT, was Rs 22 crore, equal to 8% of revenue.

How fast did Capillary grow in Q2 FY27?

Capillary grew Q2 FY27 revenue from operations by 51% year on year to Rs 271 crore, or by 43% in constant currency. Adjusted EBITDA rose to Rs 44.8 crore from Rs 22 crore in Q2 FY26, while PAT reached Rs 22 crore after what management described as negligible PAT in the previous-year quarter.

For H1 FY27, Capillary reported revenue of Rs 528 crore, up 47% year on year and 38% in constant currency. H1 adjusted EBITDA was Rs 89 crore, equal to a 17% margin, while H1 PAT was reported at Rs 12 crore, or 2% of revenue.

Annual recurring revenue, or ARR, increased 51% year on year to Rs 1,085 crore in Q2 FY27 from Rs 717 crore in Q2 FY26. Management attributed the increase to the Session M acquisition, net retention rate expansion and new annual contract value, or ACV, wins on a larger recurring-revenue base.

New ACV on a trailing-12-month basis rose to Rs 93 crore in Q2 FY27 from Rs 52 crore in Q2 FY26. Management said reported new ACV growth was about 66% to 67%, and that growth was about 79% in constant currency after excluding one exceptionally large healthcare-customer deal from the prior-year comparison.

What drove Capillary’s H1 FY27 revenue increase?

Capillary’s H1 FY27 revenue growth came from organic operations and acquisitions, with organic revenue rising 23% to Rs 318 crore from Rs 257 crore. Inorganic revenue more than doubled to Rs 210 crore from Rs 101 crore, making acquired operations the faster-growing component of the 47% increase in reported H1 revenue.

Management identified the Session M acquisition, completed in Q1 FY27, as the main driver of inorganic expansion. It said Session M broke even in both Q1 and Q2 after Capillary acquired the business from Mastercard, and it disclosed no additional acquisition in Q2 FY27.

Capillary reported organic net retention rate, or NRR, of about 116% in Q2 FY27 and constant-currency NRR of about 109%. Management said higher platform usage, product upgrades and service upsells, plus expansion by multinational and conglomerate customers into additional brands or countries, supported retention.

Management also said customers acquired through prior transactions and migrated to Capillary’s platform were showing NRR similar to its core customer set. It cited aiRA, Experiences Plus and Engage Plus as products being adopted by both migrated customers and Capillary’s existing base.

Why did Capillary’s adjusted EBITDA margin reach 17%?

Capillary’s H1 FY27 adjusted EBITDA margin expanded by 600 basis points to 17% from 11% a year earlier, as adjusted EBITDA increased to Rs 89 crore from Rs 41 crore. Management attributed the gain to NRR expansion, operating leverage in costs below cost of goods sold, or COGS, and synergies from Cognitiv and Session M.

Gross margin remained 67% in Q2 and H1 FY27 despite the inclusion of Session M, which management said carried a lower gross-margin profile than Capillary. Management said acquired businesses typically begin at around 30% gross margin, while migrated customers can reach a 65% to 70% gross-margin range after being moved to Capillary’s platform.

H1 revenue increased 47%, whereas non-COGS costs increased 34%, according to management. It said Session M added technology-team and management costs, but technology, sales and marketing, and corporate costs generally rise more slowly than revenue, creating operating leverage as revenue grows.

Management said about Rs 2.5 crore of the H1 adjusted EBITDA increase from Rs 41 crore to Rs 89 crore came from inorganic operations. It attributed about half of the remaining increase to migrated acquired customers and the other half to organic new business, adding that every Rs 100 of new organic revenue generated Rs 44 of adjusted EBITDA.

What did Capillary report on cash, debt and profitability?

Capillary generated Rs 113 crore of net cash from operating activities in H1 FY27, equivalent to 128% of adjusted EBITDA of Rs 89 crore. Management said the operating-cash-flow-to-adjusted-EBITDA ratio showed that the business generated more operating cash than adjusted EBITDA during the half year.

Capillary ended Q2 FY27 with Rs 573 crore of cash and Rs 45 crore of borrowings, all of which management described as short-term working-capital borrowings. Management said Capillary had zero long-term debt and reported free cash flow to PAT of 506%, although it did not disclose the free-cash-flow amount in the presentation.

Return on capital employed, or ROCE, improved to about 7% in Q2 FY27 from about 5% in the preceding quarter. Cash return on invested capital rose to about 29% from about 22% over the same period, alongside the Rs 113 crore H1 operating cash flow.

The Q2 FY27 bridge from adjusted EBITDA to PAT included about Rs 1 crore of finance cost, Rs 24 crore of depreciation and amortisation, and about Rs 2 crore of tax credits. Management said depreciation and amortisation increased by about Rs 4 crore from the prior quarter because of the Session M acquisition, resulting in Q2 PAT of Rs 22 crore.

Conclusion

Capillary combined 51% Q2 FY27 revenue growth with a 17% adjusted EBITDA margin and Rs 113 crore of H1 operating cash flow. The result reflected 23% organic H1 revenue growth, inorganic revenue increasing from Rs 101 crore to Rs 210 crore, and a 600-basis-point rise in the H1 adjusted EBITDA margin from 11% to 17%.

The next items to watch are the migration of Cognitiv and potentially Session M customers to Capillary’s platform, which management said generally takes two to three years for acquired customers. Management also expects more migration activity over the next few quarters through an artificial-intelligence-based capability tested with a first Cognitiv customer, while Session M’s progress beyond break-even remains an unresolved operating milestone.