Capillary Technologies says SessionM broke even in FY27 Q2

Capillary Technologies said SessionM, acquired on May 1, reached break-even in FY27 Q2 and H1. Capillary’s stated acquisition model is to migrate acquired customers to its platform, raising gross margin from about 30% to about 65%; management described that process as supporting a four-to-five-year cash-payback engine.

Did SessionM reach break-even after Capillary acquired it?

Yes, Capillary said SessionM achieved break-even in FY27 Q2 and H1 after the acquisition closed on May 1. The company said the integration was performing as planned and remained on track, while it continued to build SessionM enterprise relationships across North America, Latin America and Asia-Pacific.

SessionM adds revenue at lower gross margins, according to Capillary’s presentation. Yet subscription gross margin was 67% in FY27 H1 and 67% in FY27 Q2, with Capillary attributing that stability to higher-margin net revenue retention, or NRR, expansion from existing customers.

Capillary’s H1 FY27 figures show inorganic revenue growing faster than organic revenue. Inorganic revenue rose 107% year on year to Rs 210 crore, compared with 23% growth in organic revenue to Rs 318 crore, while total revenue increased 47% to Rs 528 crore.

How does Capillary expect acquisitions to repay their cost?

Capillary expects acquired-customer upgrades to support a four-to-five-year cash payback by raising gross margin from about 30% before migration to about 65% after migration to its platform. Management said the resulting profitability and cash-flow generation make its mergers and acquisitions, or M&A, approach a cash-payback engine.

Capillary completed its first customer migration in FY27 Q2 using artificial-intelligence-powered migration capabilities. It said that migration laid the groundwork for a growing number of migrations in the quarters ahead, but did not disclose the number of customers to be moved, a migration timetable, acquisition consideration or cash generated by the first migration.

The upgrade mechanism centres on Capillary’s platform products, which include CDP+, Loyalty+, Engage+, Insights+, Rewards+ and Experience+. The company also identified Connect+ for bulk and application programming interface integration, Neo for feature extensibility, Vulcan for custom user interfaces, and web and mobile software development kits.

Why do migrations affect Capillary’s margin model?

Migrations affect the margin model because Capillary said incremental revenue from existing customers carries higher gross margin and can use hosting and customer-support capacity already in place. Those costs therefore do not scale in proportion to incremental revenue, according to the company.

Capillary reported organic NRR of 116% in FY27 Q2, or 109% on a constant-currency basis. It identified platform-usage overages and inflationary increases, product upgrades and service upsells, and new brands, geographies and business units as the three stated sources of NRR expansion.

Customers from earlier acquisitions that have fully migrated to Capillary’s platform can expand across its product suite, the company said. The presentation does not disclose revenue from migrated SessionM customers or identify how much of the 116% organic NRR came from acquired-customer upgrades.

The H1 comparison shows an improvement in reported adjusted earnings before interest, tax, depreciation and amortisation, or adjusted EBITDA, although Capillary did not isolate SessionM’s contribution. Adjusted EBITDA rose 116% to Rs 88.9 crore in H1 FY27 from Rs 41.1 crore in H1 FY26, and the margin increased to 17% from 11%.

What costs remain relevant to Capillary’s acquisition plan?

The principal disclosed cost factor is that about 60% of Capillary’s costs are non-cost of goods sold, or non-COGS, covering technology, sales and marketing, and corporate functions. Capillary said these costs do not grow linearly with revenue, though non-COGS costs increased 34% year on year in H1 FY27.

A large majority of the H1 FY27 non-COGS increase came from the SessionM acquisition, according to Capillary. Revenue from operations rose 47% during the same period, faster than the 34% rise in non-COGS, a comparison the company linked to operating leverage and the adjusted EBITDA margin increase from 11% to 17%.

SessionM’s lower initial gross margin remains relevant because Capillary said 67% subscription gross margin was maintained despite the addition of SessionM revenue. The company did not state that SessionM had already reached the about 65% post-upgrade margin cited for migrated acquired customers.

Capillary reported profit after tax of Rs 12.37 crore in H1 FY27, including an exceptional cyber-fraud loss of Rs 33.39 crore provided pending a potential insurance settlement. This item is separate from the SessionM integration plan, but it left the reported H1 profit-after-tax margin at 2%, compared with a 17% adjusted EBITDA margin.

How do new contracts support Capillary’s integration plan?

New contracts support Capillary’s growth alongside acquired-customer migrations. Trailing-12-month new annual contract value, or ACV, grew 79% year on year to Rs 93.3 crore in FY27 Q2, excluding one large healthcare customer from the FY26 comparison base.

Capillary said the majority of recent new wins were anchored on its aiRA artificial-intelligence stack. The company presented aiRA as a tool that can connect with customer-data sources and work across customer-lifecycle activities, including acquisition, conversion, retention and reactivation, with a person approving actions.

Annual recurring revenue, or ARR, reached Rs 1,085.4 crore at the end of FY27 Q2, up 51% year on year from Rs 717.3 crore in Q2 FY26. Capillary attributed that increase to SessionM, NRR and new ACV, rather than attributing the full ARR increase solely to the acquisition.

Quarterly operating results also coincided with the first completed migration. Capillary reported FY27 Q2 revenue from operations of Rs 271.35 crore, up 51% year on year, and adjusted EBITDA of Rs 44.86 crore, up 103%, at a 17% margin.

Conclusion

Capillary’s acquisition case combines SessionM break-even with a stated sequence of customer migrations, product expansion and higher gross margins. In H1 FY27, inorganic revenue rose 107% to Rs 210 crore, total revenue rose 47% to Rs 528 crore, and adjusted EBITDA margin increased to 17% from 11% a year earlier.

The next disclosed execution point is a growing number of migrations in the quarters ahead following the first FY27 Q2 migration. Management’s four-to-five-year cash-payback description depends on acquired customers moving from about 30% to about 65% gross margin, while the number, timing and revenue effect of future migrations remain undisclosed.