Sonata Software, a prominent player in the IT services industry, recently shared insights about its current operational landscape. Despite a robust project pipeline, the company is grappling with delays in decision-making and a halt in some opportunities, which have adversely affected revenue conversion in the fourth quarter. Jagannathan CN, the CFO, emphasized these challenges during a conversation with FE, highlighting the impact of external factors on their business.

Global Challenges Impacting IT Budgets

The global economic environment has placed additional strain on Sonata, particularly due to tariffs imposed by the U.S. This situation is indirectly squeezing client IT budgets, especially in crucial sectors like retail and logistics. While the overall spending isn’t entirely stalling, the uncertainty is leading to a slowdown in decision-making processes. As Jagannathan pointed out, “This is a tough situation; decisions are not being taken, and new opportunities are not coming in.”

Q4 Performance Analysis

Sonata’s recent financial performance reflects these hurdles. In the fourth quarter, the company’s net profit dipped 2.56% year-over-year, totaling Rs 107.53 crore. Conversely, revenue from operations saw a positive shift, rising 19.4% to Rs 2,617.2 crore.

• International IT Services Revenue: The full-year revenue for the international segment reached Rs 2,829.7 crore, marking a 5.6% increase. However, the fourth-quarter revenue from this segment experienced a sequential decline of 4%, settling at Rs 702.3 crore.

Cautious Outlook Amidst Uncertainty

Looking forward, Sonata is adopting a reserved stance on future guidance due to the prevailing market uncertainty. As Jagannathan stated, “We don’t want to give guidance now. There are uncertainties in the market, and we aim to align with industry trends to become a top quartile growth company.”

While the duration of deals remains stable, the closure of larger contracts is progressing slowly. “There are many large deals in our pipeline, but the conversion and closure are taking longer than anticipated,” he noted.

Embracing AI and Innovation

Sonata is witnessing a surge in demand for artificial intelligence (AI) integration, especially in cost-reduction initiatives. AI components have now become integral to nearly every deal. Although the firm feels pricing pressures due to increased competition in the AI sector, it is confident in its ability to adapt quickly. “Younger companies like us can leverage our agility to respond swiftly to technological changes, placing us ahead of our competitors,” the CFO mentioned.

Internally, the company is implementing AI to enhance delivery productivity, although full disruption is yet to materialize. Jagannathan remarked, “We haven’t reached that stage yet; it’s not happening now,” referring to the potential for AI to fully replace coding tasks. However, he acknowledged evolving deal scopes, noting that productivity benefits are starting to surface.

Continued Hiring Strategy

In line with its growth strategy, Sonata is maintaining its hiring momentum, particularly focusing on campus recruitment. “In FY25, we onboarded around 650 to 700 new hires, and we plan to maintain a similar number in FY26,” revealed Jagannathan. This hiring strategy aims to counteract attrition and uphold the company’s structural integrity.

In conclusion, while Sonata Software faces multiple challenges in a fluctuating market, its commitment to innovation and strategic hiring positions it well for future growth. As the landscape continues to evolve, the company’s agility and focus on AI integration will be critical for navigating the complexities ahead.