Sonata Software Q4 FY26: Profits Improve as AI Pipeline and Large Deals Take Center Stage

Sonata Software ended Q4 FY26 with a mixed set of signals. Consolidated revenue fell sharply quarter-on-quarter, but profitability improved meaningfully. For the quarter, consolidated revenue was INR 2,536.2 crore while PAT rose to INR 130.5 crore, up 25.0% QoQ. Management attributed the resilience to tighter execution, delivery efficiency improvements, and an increasing contribution from AI-led initiatives, even as macro uncertainty kept client decision cycles elongated.

For FY26, consolidated revenue reached INR 10,701.2 crore, up 5.4% YoY, while PAT increased to INR 464.4 crore, up 9.3% YoY. The company recommended a final dividend of INR 4.15 per share. The year was positioned as difficult due to macro challenges and client ramp-downs, but the company emphasized that operational improvements and AI-driven productivity helped protect margins.

International Services: Flat Revenue, Better Margins

International Services was the most stable piece of the quarter from a revenue standpoint. Q4 FY26 revenue was 82.4 million dollars, flat QoQ, while constant currency growth was stated at 0.6% QoQ. In INR terms, revenue was INR 779.2 crore, up 5.5% QoQ. The more important change came from margins. EBITDA before forex and other income improved to 20.2% in Q4 FY26 from 19.5% in Q3 FY26, supported by higher utilization at 91.8% and a better offshore mix of 68%.

PAT for International Services rose to INR 84.2 crore, up 40.6% QoQ. Management highlighted delivery efficiency and cost optimization as drivers, supported by AI adoption and agentic implementations across projects. The company also stated that pyramid optimization and price increases helped, while higher AI-led CSP bundle deal costs acted as a partial offset.

Domestic Business: Q4 Weakness After Direct OEM Headwind

Domestic business performance was weaker in Q4 on revenue due to a sharp QoQ decline. Q4 FY26 domestic revenue was INR 1,759.2 crore versus INR 2,345.9 crore in Q3 FY26. EBITDA after forex and other income was INR 51.2 crore and PAT was INR 46.3 crore.

In the concall, management reiterated that the domestic segment faced headwinds from a large client renewal due to a direct OEM relationship. However, the domestic CEO stated that the business has largely covered the loss over the last four quarters and expects to return to its growth trajectory in the current fiscal year. Management also described a strategy to diversify through multi-cloud management, security management, and large hybrid system integration deals.

AI-Led Modernization and Large Deals: The Core Narrative

Sonata’s investor presentation repeatedly framed the company as a modernization engineering firm, positioning AI as the catalyst that accelerates legacy modernization, platform creation, business process transformation, and delivery transformation. Management disclosed an AI-led order book of 16.9 million dollars in Q4 FY26 and 49 million dollars for FY26, and stated that AI-led opportunities now contribute about 18% of the overall order book. AI-led pipeline was stated at 280 million dollars.

The quarter also featured two large deal wins: one with a US fintech and payments company for platform and data modernization, and another with a US PE-backed vertical SaaS holding company for modern engineering and cloud modernization. The deck indicated that large deals represent 43% of active pipeline.

Financial summary

Mix Shifts: Cloud and Data Gaining Share

Sonata highlighted a multi-year shift in revenue mix towards Cloud and Data. The investor deck showed Cloud and Data rising from 52% of revenue in FY24 to 59% in FY25 and 65% in FY26, while Dynamics reduced to 21% in FY26. For International Services, the FY26 GTM mix in the deck showed Cloud at 48%, Data at 17%, and Dynamic at 21%.

The company also disclosed vertical and geographic mix at an overall level in the investor presentation, with the US at 74% in FY26 and Europe at 16%. Vertical split showed RMD at 33%, TMT at 33%, Emerging at 4%, and BFSI plus HLS at 30% for FY26.

Takeaways

Sonata’s Q4 FY26 results underscored a pattern seen across the year: topline growth remains constrained by macro conditions and client-specific ramps and deramps, but profitability has improved through operational levers. International Services delivered the clearest margin progression, supported by utilization, offshore mix, and AI-led productivity.

The strategic emphasis for the next phase is visible in disclosed metrics: AI-led order book, AI pipeline, and large deal activity. Management also maintained a cautious tone on near-term growth, but reiterated confidence in medium-term improvement and a focus on maintaining EBITDA at similar levels while staying open to investments required for growth.