Capillary Technologies: AI-Powered Growth and Profitability in Q3 FY26

Capillary Technologies India Limited, a prominent software product company specializing in AI-powered cloud-native Software-as-a-Service (SaaS) solutions for loyalty and customer engagement, has reported a robust performance for the third quarter and nine months ended December 31, 2025. The company's strategic focus on organic expansion, new customer acquisitions, and accretive M&A has driven significant growth, positioning it as a leader in the global loyalty management space. Despite a temporary dip in Profit After Tax (PAT) for the quarter, the underlying operational metrics reflect a healthy and cash-generative business.

For Q3 FY26, Capillary Technologies recorded an operating revenue of ₹184.04 Crore, marking a 16% year-on-year increase. The nine-month period (9M FY26) saw even stronger growth, with operating revenue reaching ₹543.25 Crore, a 22% increase compared to the previous year. This impressive top-line performance was fueled by healthy expansion within the existing customer base, significant contributions from new annual contract values, and the strong performance of the recently acquired Kognitiv business. The company's Net Revenue Retention (NRR) remains a key highlight, with organic NRR standing at an impressive 115%, placing Capillary in the top 10 percentile of global SaaS companies. This organic growth is primarily driven by platform usage overages, inflationary adjustments, product upgrades, service upsells, and expansion into new brands and geographies.

| Financial Summary (INR Crore) | | :---------------------------- | :------------------ | | Metric | Q3 FY26 | | Operating Revenue | 184.04 | | Adjusted EBITDA | 30.14 | | PAT | 7.99 | | Adjusted EBITDA Margin (%) | 16.4 | | PAT Margin (%) | 4 |

Profitability metrics also showed significant improvement. Adjusted EBITDA for Q3 FY26 grew by 24% year-on-year to ₹30.14 Crore, with a margin of 16.4%. For the nine-month period, Adjusted EBITDA surged by 53% to ₹71.20 Crore, demonstrating strong operational leverage. However, the PAT for Q3 FY26 was ₹7.99 Crore, a 30% decline from ₹11.42 Crore in the prior year. This decline was primarily due to higher depreciation and amortization expenses, totaling ₹62.4 Mn, largely attributable to the Kognitiv acquisition, and one-time expenses of ₹35.9 Mn related to IPO costs and the Direct Labour Code impact. Despite this, the 9M FY26 PAT grew eight-fold to ₹90.2 Mn, showcasing the overall positive trajectory of profitability driven by operational efficiencies and integration synergies.

Strategic Pillars: AI, M&A, and Organic Expansion

Capillary's strategy is built on several key pillars, with an 'AI-first' approach at its core. The company's AI-powered Research Assistant (aiRA) is designed to deliver predictive insights and automated personalization at scale, enhancing campaign design, forecasting, and fraud prevention. This AI capability is not just a product feature but a force multiplier, improving win rates and productivity by automating complex workflows and analytics. Management is actively exploring monetization strategies for aiRA, with clearer details expected in the coming quarters, as initial pilots show promising value.

Another critical growth lever is strategic Mergers & Acquisitions (M&A). Capillary focuses on consolidating the fragmented loyalty market by acquiring competitors at attractive valuations (0.5x to 1.5x revenue multiples). The primary objective is to migrate these acquired customer bases from legacy platforms to Capillary's superior, higher-margin platform. This migration process significantly boosts gross margins from approximately 30% to 65%, making M&A a 4-5 year cash payback engine. The company is also developing AI-powered migration capabilities to streamline this process, with new automated tech expected to be deployed in the coming quarters.

Organic expansion remains robust, driven by the company's ability to upsell and cross-sell to its existing large enterprise customer base. This includes expanding platform usage, offering product upgrades, and extending services to new brands and geographies within client conglomerates. New customer wins, particularly among Fortune 500 companies, are accelerating across global markets, contributing to future revenue predictability. Capillary has successfully executed go-lives in new verticals like healthcare, significantly increasing its subscriber base.

Financial Health and Outlook

Capillary Technologies demonstrates strong financial health, characterized by its cash-generative nature. The 9M Operating Cash Flow (OCF) to Adjusted EBITDA ratio stands at an impressive 142%, indicating efficient internal funding of operations and growth. The company maintains a strong closing cash balance of ₹463.5 Crore. Management emphasizes a disciplined capital allocation framework, prioritizing continued investment in R&D for product differentiation, especially in the AIRA AI platform, and strategic M&A to consolidate market leadership.

| Revenue Stream Breakdown (INR Crore) | | :--------------------------------- | :------------------ | | Product | Q3 FY26 Revenue | | Subscription Revenue | 164.08 | | Other Services (Installation) | 18.98 | | Campaign Services | 0.97 |

The company's revenue mix is heavily skewed towards subscription revenue, which accounted for 89.2% of total revenue in Q3 FY26, growing 42% year-on-year. This high proportion of recurring revenue provides stability and predictability to the business model. While customer concentration exists, with top 5 customers contributing 38% of 9M FY26 revenue, the absolute growth in revenue from these clients, coupled with faster growth in the broader portfolio, indicates a healthy diversification strategy.

In conclusion, Capillary Technologies India Limited is executing a clear strategy for sustained, profitable growth, leveraging its AI-first platform, disciplined M&A, and strong organic expansion. The company's leadership in the loyalty technology space, validated by top analyst ratings, and its focus on enterprise-grade reliability, position it well for continued success in the evolving digital landscape. Management's commitment to strategic R&D and efficient capital allocation underscores its confidence in delivering long-term value to stakeholders.