Sonata Software Ltd (NSE: SONATSOFTW) Q3 2025 Earnings Call dated Feb. 06, 2025
Corporate Participants:
Samir Dhir — Managing Director & Chief Executive Officer
Jagannathan Chakravarthi Narasimhan — Chief Financial Officer
Analysts:
Mihir Manohar — Analyst
Hasmukh Vishariya — Analyst
Unidentified Participant
Mayank Babla — Analyst
Prolin Bharat Nandu — Analyst
Dipesh Mehta — Analyst
Abhishek Shindadkar — Analyst
Jalaj Manocha — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Investor Conference call of Sonata Software Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone phone.I now hand the conference over to Mr Sameer, CEO and Managing Director from Sonata Software Limited and Mr Jaganathan CN, CFO from Sonata Software Limited. Thank you, and over to you, sir.
Samir Dhir — Managing Director & Chief Executive Officer
Thank you for a team. Good evening all-to-all the participants. I welcome you to this conference. Today, we will share our strategy, the progress we have made in the recent quarters, our strategic plan and the financial results for Q3 FY ’25, the quarter ended on, 31, 2024. Thank you for joining us today. We appreciate your valuable time and support. It is my pleasure to share our progress regarding our vision and our growth trajectory for Sonata.
First, I will provide you an update on our strategic goals and then we will discuss our progress for Q3 FY ’25. So let’s talk about strategy and goals first. We aim to be one of the fastest-growing modernization engineering companies powered by a unique platformation framework and AI. In the current context, while there are macroeconomic challenges, a slowdown of tech spending and decision delays, we continue to build for scale and drive towards our key bets.
And our bets include, number-one, to continue to win large and midsized deals, building on our successful track-record, YTD FY ’25, we have won eight large deals so-far. Number two, deepen and diversify our partnership with Microsoft, AWS and other key strategic partners and to help win new logos for Sonata and scale those logos to be the next $10 million, $25 million accounts for Sonata. YTD FY ’25, we have added 16 new enterprise-based logos that will scale over the next two to three years.
And number three, scale our capabilities, continue to build-out modernization engineering capabilities with AI across all our competence areas consistently. And we want to achieve our goals in our four verticals, which is healthcare, life sciences, banking, financial services, insurance, retail manufacturing distribution and PMT, which is telecom, media and high-tech. With investments in healthcare life sciences and banking financial services verticals, which we incubated in the second-half of 2022.
And we want to do this across five geographies, which is North-America, UK, Europe, India and Australia. With our differentiated lightning tools, IP and our offerings, we are steadfast in our pursuit of delivering value to our clients and their modernization needs. With that, let me provide an update on large deals. Our large deals pursuits are a significant part of our strategy. 44% of our large pipeline is from 1,400 clients. I’m delighted to share with you two significant wins we had in Q3 FY ’25. The first win is from a Finland-based mining and construction technology leader.
Our teams will drive modernization and transformation by leveraging AI, dynamics and our integration capabilities. Sonata will deploy the solution across 26 countries over the next three years. The second large in the quarter where our client offers technology solutions for transportation invoice management, data management and network optimization. Our teams will be — we will be a strategic partner for modernizing our clients 20 plus year-old SaaS-based platform through an AI-powered cloud and data modernization stack. This is a net-new client and a large deal for Sonata Group.
In both these deals, our teams have leveraged Sonata’s deep AI capabilities for process transformation, modern AI engineering tools and platform-driven data modernization. Let me provide an update on AI, which is our big bet. As stated earlier, we expect 20% of our revenue from AI-enabled services in the next three years. We have 58 million pipeline across 100 plus clients on AI. We enable our clients to leverage AI in three different ways. Number-one, driving efficiencies for them. Number two, driving higher consumer experience and modernized sales for them. And number three, driving innovative business models for our clients.
Our Harmony.ai platform is critical for our recent deal wins and subsequent AI model implementations. For banking financial services and healthcare. We’re making significant progress in implementing Gen AI using small language models for cost-efficiency from fine-tuning. We’re implementing agent AI for driving hyper automation in our transformation programs. Some of the key programs we are delivering include for healthcare clients, we are building their Gen AI platform, including forming their enterprise-wide. For a travel client, we’re building a co-innovation AI lab and implementing modern engineering across their software development life-cycle.
For our financial services client, we’re building AI-enabled intelligent document processing capabilities. We are delighted that Sonata has achieved AWS’s generative AI competency. By harnessing AWS’s Gen AI technologies and advanced AWS DevOps services, we are well-positioned to customer experiences and provide hypersonalized content. We are also a proud partner of Microsoft’s partner AI Council. With partnership with the Victorian government, we announced our commitment to set-up an AI of excellence in Melbourne, Australia to meet the growing demand for Gen AI and data solutions The center is expected to around — to create around 100 skilled jobs in Melbourne over the next three years. Approximately 87% of our organization is now Gen AI trained. This improvement demonstrates our unwavering commitment to upskilling and the immense potential of AI across our operations, ensuring that we are well-prepared for the future. The fourth update on scale and scale to build our capabilities in our verticals and technology capabilities. Our invest verticals of healthcare life sciences and banking contribute now to 35% to 40% of our revenue, up from 13.5%, 11 quarters ago. So in 11 quarters, we moved the dial from close to about 14% to close to about 40%, a significant movement, and that’s above when Sonata has grown in the last two years significantly as well. We expect our investments verticals to reach 250 million in revenue in the next three to five years time. The following are the key bits to help scale our modernization offerings. Number-one, cloud and data, we have continued to progress in the cloud and data pipeline. Now cloud data is about 44% of our overall pipeline. We are seeing increased demand for our data-driven deals. Our revenue from data modernization has grown from 13% to 26% in the last 11 quarters. Second, Microsoft Fabric, which we have talked to you about in earlier forums as well. Sonata is proud to be a featured and launch partner for Microsoft Fabric, a data analytics platform for the era of AI, which we call as infrastructure for AI and it was made available — GA available in November ’23. Since its launch, we have witnessed a significant pipeline buildup from — for fabric, which is at around about 70 billion to 75 billion now from across 70 clients. Dynamics, in Q3 ’25, we won one large deal, the one I talked about earlier is on dynamics platform. And we are seeing a good momentum buildup in Dynamics, FNOC and power platform across. SITL, our India business SITL, which focuses on annuity sales continues to deliver strong consistent growth and an industry-leading ROCE of 48.5% in Q3 FY ’25. Let me share with you some of the awards and accolades our teams got in the course of the quarter. Sonata is now recognized as a disruptor in HFS Horizons as your ecosystem service providers. Sonata is now also recognized as disruptor in the Horizons part factor services for Generative Enterprise 2024. We are also recognized as an aspirant in the AI and Gen AI Services in peak Assessment of 2024. We’re also proud to share with you that we are recognized a disruptor in HFS Horizon best service providers for commercial banks in 2025. With that, let me provide an update on. Our active headcount increased to 7,000 plus, up from Q1 FY ’25 was 6,600 and we’re pleased to cross the 7,000 mark. It’s a significant moment for us to cross the 7,000 headcount mark globally. We added 182 people in the quarter. The last 12 months — last 12-month attrition was 14% and our gender diversity is at 31%. During the course of the quarter, we implemented a compensation increase for our mid and senior management effective Q3. In addition, we continued with our campus hiring plans despite the market conditions and onboarded nearly 100 campus graduates during the quarter. Sonata University, which has been at the forefront of our capability build, building initiatives and continues to enable increased usage and acquisition of new scale such as Gen AI. Sonata Spark, our annual event to celebrate technologies at Sonata, continues to celebrate creativity, collaboration and innovation at our firm. After months of hard work, our talented brought game-changing ideas to life using the power of AI and modernization engineering to drive value for our clients. With that, now let me provide you an update on our Q3 ’25 performance. Let me start with International Services business first. In constant-currency terms, we have witnessed 4.4% Q-on-Q growth. Dollar terms, revenue grew by 2.8% quarter-on-quarter. Order booking for the quarter, book-to-bill is at 1.23 for the international business. In the Q3 quarter, we have witnessed a tale of two cities for us. On one-hand, we’re delighted with a 4.4% constant-currency Q-on-Q growth and robust broad-based growth in sectors like BFSI, HLS and US. As a percentage of overall revenue, BFS and HLS have grown significantly Q2 to Q3. However, on the other hand, during the quarter, we had unplanned ramp-downs and one-time discounts for a large high-tech client. As a result, our TMT vertical degrew due to certain ramp-downs and onetime discounts. This TMT, large client ramp-down and onetime discount has two impacts on our performance and I want to share that with you. First, on our Q4 revenue growth, we will have a full-quarter impact of these ramp-downs, which happened during the course of the quarter. In prior quarters, we had indicated to you that Q3 and Q4 would grow strongly. While Q3 has been a strong growth quarter for us, we now expect Q4 to be a degrowth quarter for Sonata due to sudden ramp-downs in this high-tech client and quant seasonally weak quarter. The second impact of this sudden ramp-down is on our Q3 margins. Our EBITDA for Q3 quarter has a negative 3.5% one-time impact due to sudden ramp-downs, one-time discounts and the severance payouts that we had to make. These costs are — are related to one-time discount and we do not expect them to occur in the upcoming quarter. Let me provide an update on EBITDA. We talked about EBITDA earlier. Our EBITDA has sequentially declined to 14.6% in Q3. Utilization remained steady at 87%. Quarter-on-quarter, our headcount increased by over 150 FTEs in international services. SITL business, the gross contribution at our domestic business grew 16.7% quarter-on-quarter. We are very pleased with our performance in SITL business. The newly formed security operations center in our SITL business will be 20% of our gross contribution in the next three to five years’ time. In summary, we were and are very optimistic about our long-term growth prospects. In the coming quarters, we will continue to face the tailwinds and headwinds, the tailwinds due to our large deals, our success in healthcare life sciences, banking and the headwinds due to the sudden ramp-down in the high-tech customers, customers specifically in Q4 and general slowdown in retail manufacturing. Team Sonata remains committed to judiciously accelerating the growth curve and building scale for Sonata. I want to thank all the team members globally for their commitment, hard work, work ethic and the quality of outcomes they deliver to our clients day-in and out. Thank you. With that, let me turn it over to Jagan for his comments on our financial performance. Jagan?
Jagannathan Chakravarthi Narasimhan — Chief Financial Officer
Thank you, Sameer, for the overview. Good morning, good afternoon, good evening to all of you. Let me start the update with International services business for Q3 ’25. Revenue. Q3 ’25, our international services dollar revenue stood at INR87 million, which is quarter-on-quarter growth of 2.8 percentage and in constant-currency terms, it is 4.4 percentage. Our product rupee revenue stood at INR731.7 crores, which is quarter-on-quarter growth of 3.4 percentage. Coming to profitability, International Services EBITDA before ForEx and other income stood at 14.6 percentage, down from 18.2 percentage in Q2 2025.
The 360 basis-point decline was mainly explained by the following factor, large tech client, client ramp-down in Q3 for one-time discount given to them. Impact of salary eggs was offset by SG&A savings and leverage we got in this quarter. EBITDA after ForEx and other income stood at 16.1 percentage in Q3 2025. PAT for International Services stood at INR56.9 crores, against INR62.2 crores in Q2 2025. International Services PAT decline was mainly explained by the following factor, EBITDA dropping by 360 basis-points. Benefits include ForEx, one-time tax benefit, unwinding of interest on defit consideration and volume increase.
At international services level, Q2 2025 ROCE stood at 16.9 percentage Q2 was 20.3% and Q3 RO and W stood at 19 percentage. Q2 ’25, it was 23.5%. Domestic — now moving on to the update on domestic business. Our revenue in Q3 2025 stood at INR2,11 crore — INR11.1 crores, which is 44.4 percentage quarter-on-quarter and 17.3% year-on-year. Gross contribution for Q3 ’25 stood at INR81.9 crore with a 16.7% Q-on-Q growth and 14.9% year-on-year growth. PAT for Q3 2025 stood at INR48.1 crore, again, INR44.3 crores in Q2 with 8.5% quarter-on-quarter and 12.8 percentage Year-on-year growth. The DSO for Q3 ’25 is 45 days compared to 35 days in Q2. DSO increased due to 28% of invoicing being in the last month of the quarter. ROCE for domestic business improved to 48.5% in Q3 compared to 45.2% in Q2 ’25. Consolidated EPS for Q3 ’25 was INR3.78 per share, Q2 was 3.84 per share, decreased by 1.5 percentage quarter-on-quarter. At consol level, Q3 ’25 ROC stood at 23.1% compared to 24.7% last quarter and ROA and W stood at 26.3% compared to 28.4% last quarter. Now coming to cash-flow update. This quarter, we delivered exceptional collection of INR3,138 crores, including $100 million to INR842 crore. Collection be achieved in the international services. As a result, our gross cash balance stood at INR672 crores and the net cash balance stood at stood at INR115 crores. Coming to this, coming back to the update on operational metric, total headcount moved from 6,009 in Q2 ’25 to 7,090 in Q3 ’25, net headcount addition of 182. Utilization in Q3 ’25 stood at 87%. Q2 was also 87%. We added 11 new customers in Q3 ’25. Top-10 clients contributed 66 percentage in this quarter compared to 63% last quarter. Number of clients, 303 million run-rate in Q3 ’25 is 21 customers compared to 22 last quarter. Vertical mix is SaaS produce, TMT is 29%, retail and manufacturing is 25%, HLS is 11%, BFS is 30% and emerging is 5%. Revenue by top go-to-market, our data is 26%, dynamics is 24% and cloud is 37%. Q3 ’25, order book — bookings stood at INR114 million and 1.23 times of international services revenue. Our international services DSO for Q3 ’25 is 47 days compared to 45 days last quarter. In summary, we remain optimistic about long-term growth prospect. Thank you. With that, let me turn back to the moderator for question-answer.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. Participants connected on webcast may click on the Ask a Question tab available on the screen. Before asking the question to the management, please introduce yourself providing your name and your organization name. You may post text questions as well. Participants connected through audio call, you may please press R&1 on your phone. If you wish to remove yourself from the question queue, you may press R&2.Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We’ll take our first question from Mihir Manohar from AMC. Please go-ahead.
Mihir Manohar
Hello. Yeah, hi, thanks for giving the opportunity. Am I audible?
Jagannathan Chakravarthi Narasimhan
Yeah.
Mihir Manohar
Yeah, sure. So I wanted to understand this. I mean, when we see the international revenue, see growth is at 4.4%. So now there is a client rundown, which has happened this quarter because of which I mean the margin current impact. So how to understand why is the revenue lockdown despite the ramp-up ramp-down in there and there is only margin impact?
Jagannathan Chakravarthi Narasimhan
Yeah. The ramp-down happened towards the end-of-the quarter and this is going to have a one-month impact we had in the customer for this quarter in revenue term, but we had a cost impact because of the actions we have to take to reduce the cost. This will have a full run revenue impact in the next quarter
Mihir Manohar
Okay but the margin impact was for the full-quarter
Jagannathan Chakravarthi Narasimhan
No margin is one-time because you have to do a settlement to the understood.
Mihir Manohar
Okay. Because 350 basis-points kind of an impact, I think that would close to be INR20 crores kind of a number as an impact value. Is that understanding correct?
Jagannathan Chakravarthi Narasimhan
Yes. The revenue growth had a one-month impact and the next quarter is going to be full-quarter impact. Our margin had onetime because of the one-time cost we incurred in particularly in the nearshore location, we had an impact on the margin?
Mihir Manohar
Okay, understood.So also in relation to how long?
Jagannathan Chakravarthi Narasimhan
We had a salary increase also.
Mihir Manohar
How large would be this account and which geography, what kind of challenges are there in this account? I don’t know why is it ramping down? Is it completion of the program or some vendor change or change how to understand that?
Jagannathan Chakravarthi Narasimhan
No, this is a decision taken by the — by that customer to cut-down their cost due to the AA implementation and optimize it like 25%, 30% of customers bringing down the cost, they have taken an action on that.
Mihir Manohar
Okay. Okay. Understood. And my last thing was just on when we see or this year we have seen two ramp-down.
Operator
I’m sorry to use your handset mode, please? Your line is not very clear.
Mihir Manohar
Yes, this is audible now. This is audible now?
Jagannathan Chakravarthi Narasimhan
It is better. It is better now.
Mihir Manohar
Yeah, sure. Thanks. Thanks for that. Sure, sure. Thank you for that. I wanted to broadly know, I mean, when we see the healthcare at the start of the year with the June quarter, healthcare vertical had a client down now TMT vertical facing some challenge. So I mean, what a broader set of learnings or how to understand that we will try to mitigate such kind of ramp-downs going ahead. So if you could provide some clarity around that?
Jagannathan Chakravarthi Narasimhan
Yeah, these are all now very large. The healthcare client was a new client and we were investing on to get the customer and then we had a challenge on that. But this is like an existing customer, one of the largest customers. So because of the size and because of our size, the impact is felt immediately for us. These kind of events of — in the uncertainty in the market and uncertainty with the customer can happen if it is but very rarely that it’s not that it has happened and more regularly it happened, but this TMT customer is — it’s like a one-time active — one-time happening.
Mihir Manohar
Sure, sure. And what sort of impact should we consider for 4Q for this account?
Samir Dhir
Maybe let me take this, Sameer. I think you have multiple questions here your question. So this is a client that we are going pretty strong in first-half of the year. And in second-half of year, they decided to take some cost optimization efforts for their own budgetary reasons and hence they — hence we had an unplanned ramp-down
Mihir Manohar
And I mean you were not audible that’s the problem with me only eventually is this any better me here or no?
Jagannathan Chakravarthi Narasimhan
Yeah, is better here.
Samir Dhir
Okay. So I was saying that for this large customer, we were in a pretty good growth trajectory in the first-half of the year. In the second-half of the year, we started seeing some ramp-down, which is due to largely because of their cost-containment effort that they wanted to do to manage their own costs. So we — we had a ramp-down mid to late November, early December timeframe and now we’ll see a full-quarter impact.
This is a very stable customer, but we are going through a sort of a seasonal change with them at this point in time. We think this effect will last fully for Q4. They might — it might spill-over to-Q1, but we can’t comment on it today. But this will come back on growth trajectory in a couple of quarters back again. This is not a permanent damage. This is a short-term blip that we are taking right now.
Mihir Manohar
Sure, sure. So point taken. Just what could be the impact in 4Q because of this account?
Samir Dhir
Like we said, I think we’d expect a degrowth right now because this customer is still in a very much a decision-making mode. So it’s very hard to predict how much is the impact be, but we answer the overall.
Jagannathan Chakravarthi Narasimhan
Yeah, overall, we are expecting about 2.5% to 3.5 percentage of de-growth next quarter, including — including quant seasonal impact.
Mihir Manohar
Okay, at the company-level.
Jagannathan Chakravarthi Narasimhan
Company-level, correct.
Mihir Manohar
Sorry. International ideas. For the International IT services.
Jagannathan Chakravarthi Narasimhan
Yes, yes, yes.
Mihir Manohar
Okay, understood. Understood. Okay. That’s it from my side. Thank you.
Operator
Thank you. We’ll take the next question from the line of Hasmok Devji from Tata Mutual Fund. Please go-ahead.
Hasmukh Vishariya
Yeah, hi, thanks. Thanks for the opportunity. Just to follow-up on the previous question, right? So here if we look at all this high-tech customers are just spending huge money on AI, right? So in that case, how one should Predict all this coming in because this looks like one-time, but probably because of future investments, they may ask for further discounts or let’s say, cost rationalization. So how one should think about that?
Samir Dhir
Yeah., thank you. Hopefully, I’m audible. So this customer, like I said earlier, was doing quite well for us in the first-half. A very stable customer, one of the large — it is the largest customer for us in the high-tech space. We don’t anticipate this effect to last long. We think it’s one or two quarters discussion that they’re having. And then post that the growth will resume in this customer. But having said that, the reality remains in this current market, industries are going through cyclical effects. If you recall, one year back, banking was in a slowdown, now banking is up.
One year back, TMT or high-tech customers are doing well, our TMT is down. So we are definitely seeing in a year cyclical effects of some of these industries. And that’s one of the reasons that we have diversified Sonata over a period of time, so we can have multiple bets in the market. That’s why the four verticals that we have talked about is really important and core part of our strategy. But right now, the impact because it’s the largest client of Sonata, the impact is pretty deep for one or two quarters for us from a growth perspective. But are we worried about long-term prospects of the growth on this account? Absolutely no. We know we’ll bounce-back to growth either in later part of Q4 itself or maybe sometime in Q1, hard to predict exact timeline, but in the next four to five months, we should be back on growth.
Hasmukh Vishariya
Got it. Got it. Because let’s say, after deep-sea this high-tech customers or large high-tech customers might have been taken aback as far as the huge amount they are spending on, let’s say, Gen AI, right? So in that case, there may be in future a possibility of rationalization of cost additionally to what we have done a in last one or two quarters. Yeah.
Samir Dhir
It is possible. I mean, what you said is absolutely right, but it is also possible that they can decide to ramp-up and fight the deep-sea type of threats harder. So it’s very hard to predict,, to be honest, but it is possible. That’s why the industry is going through cyclical cycle right now because as you know, the innovations are happening literally every one or two months. So people are adjusting and adapting their strategies in almost real-time basis right now it,
Hasmukh Vishariya
Got it. Thanks a lot.
Operator
Thank you. We’ll take our next question from the line of Vipul Kumar Anukh Chandsha from Sumangal Investment. Please go-ahead
Unidentified Participant
Sir, employee cost has also gone up substantially quarter-to-quarter and year-over-year also. So that is due to the — it is attributed to this client. So what explains that?
Jagannathan Chakravarthi Narasimhan
Exactly. This to the one-time settlement to the employees for this client. And also there is a salary increases there.
Unidentified Participant
So can you quantify both the factors, sir, if it is possible?
Jagannathan Chakravarthi Narasimhan
Yeah. Salary increase had an impact of around 75 bps on the — in this quarter in our EBITDA. The rest is come from this one-time settlement
Unidentified Participant
So one-time settlement means the employees which were earmarked for this project, so you let them go with one-time payment means how it worked.
Jagannathan Chakravarthi Narasimhan
Yes, yes, yes. They are — they are in a different geography, nearshore geographies. So as per the regulation, we have to give a notice period for them and we have to pay the money for them in one-time to rescue the impact of the downfren, we have settled with the employees and given them the money.
Unidentified Participant
So in 4th-quarter, employee cost will normalize?
Jagannathan Chakravarthi Narasimhan
Yeah, except for the salary increase impact, otherwise other things will normalize.
Unidentified Participant
Okay, sir. Thank you very much.
Jagannathan Chakravarthi Narasimhan
Yeah.
Operator
Thank you. We’ll take our next question from Surbi Saragi from Smiths Capital. Please go-ahead.
Unidentified Participant
Hello. Sir, my question is, can you quantify the one-time expenses incurred during the quarter and — and also can you give some revenue and margin guidance for the next quarter and next financial year?
Jagannathan Chakravarthi Narasimhan
Yeah. The total impact we said is 3.6 percentage impact this quarter. In. In that 75 bps is because of salary increase, the balance is because of this one-time settlement. And next quarter, just now added that we will have a revenue degrowth. Degrowth is at company-level, this is because of this particular customer full-quarter impact as well as quant seasonal impact. So we will have a degrowth of 2.5% to 3.5 percentage for next quarter degrowth. So margin, while all this one-time, we are expecting it to bounce-back next quarter.
Unidentified Participant
Okay. And sir, next year,
Jagannathan Chakravarthi Narasimhan
Next year clear comment out during the year-end time man.
Unidentified Participant
Okay. Okay, sir. Thank you.
Operator
Thank you. Ladies and gentlemen, in order to ensure management is able to answer queries from all participants, kindly restrict your questions to two at a time. You may join back the queue for follow-up questions. We’ll take the next question from the line of Mayank Babla from ENAM AMC. Please go-ahead.
Mayank Babla
Thank you for taking my question. Am I audible?
Jagannathan Chakravarthi Narasimhan
Yeah, yeah.
Operator
Yes, ma’am.
Mayank Babla
Yeah. Sir, given the recent unfortunate and unforeseen developments in the ramp-down, by how many quarters can we expect the $500 million aspiration to be pushed back earlier it was FY ’26 and mid-FY ’27. Now that would be delayed, right?
Samir Dhir
Yes,, great question. I think candidly provide an update after the quarter. We’re just waiting for this customers ramp-down to stabilize right now. I think there will be a one or two-quarter impact we expect, but we’ll provide you probably a more formal answer around about the next earnings call, Matt. We think at this point it’s about a quarter or two impact?
Mayank Babla
And my second question would be these large high-tech sort of clients that we’ve seen impacting our business. These companies are with very deep pockets. So can you help us reconcile it? Why would they cut-down IT spends to and shift them to a sort of capex on AI, if you can help us or understand them.
Samir Dhir
Yeah, it’s a great question again, I’ll tell you, I think actually what we think it is happening, we’re not sure, but let me give you our estimate of this. So most of these high-tech customers are buying hardware to drive AI from a NVIDIA chip buying perspective and processing power buying perspective. The consumption is really going there. So they are freeing a lot of capital on the opex side to buy the hardware capability because it’s a race to build the hardware engine at this point in time for many of them. Now given what has just happened recently, the question that came up earlier on deep, how will that impact, how will they calibrate, it’s hard to predict. But that’s the cyclical nature of the world we are living in right now that at one end, they want to accelerate their spend to improve their customer experience using AI.
On the other end, they want to buy hardware to have more capability to from a processing power perspective. So right now, we are on a cycle that the hardware purchase is a bigger premium in their world for next one or two quarters, but we’re pretty sure that at some point in time the tide will turn-over on the software development side yet again. But that’s candidly the situation as we see, these are cash-rich companies, they are not customers in distress or in trouble.
They are just diverting their investment dollars to a pocket of investment that they want to make in the short-term. And they are really recalibrating. I’m sure you’re seeing it, they’re recalibrating across literally every quarter. And that’s why companies like us have to adapt to their needs. And unfortunately, while in the first-half of the year, we gained in this second-half of the year, we’re going to lose out, but that’s the nature of doing this business.
Mayank Babla
Okay. Got it, thank you. Thank you for answering my question.
Operator
Thank you. We’ll take our next question from the line of Prolin Nandu from Edelweiss Public Alternatives. Please go-ahead.
Prolin Bharat Nandu
Yeah, Sameer and team. I hope I’m audible. Yeah. So yeah, so a lot of contradiction, right, coming on the call. At one-side, we want to be leaders in AI. On the other side, we are losing customers because of their spends in AI. So do you think this is something which will continue going-forward or does it require a very critical assessment of our plans, the quality of our plan because, see, this unfortunate event has happened twice, one on the new deal side, now on the existing client side. So we understand that you are a smaller company in overall theme of things versus our peers. But such kind of a things We haven’t heard from any peers, right, that high-tech you know, slowing down or customer doing a certain kind of a withdrawal. So how should one think about it? And does it require a very deep internal introspection about the quality of plants that we have and at the same time, you know-how do we think about new deal wins as well, right? I mean what — how should — how should one deal with this contradiction?
Samir Dhir
Yeah. So I don’t know this — I will Call-IT contradiction. I think I will Call-IT uncertainty candidly. The client that we’re talking about has been with Sonata for over 30 years. So this is not a net-new client. Now as you know, every enterprise in the marketplace is really figuring out their strategy with AI. Did we — any one of us new deep four weeks back? Probably the answer is no. Did any one of us know autonomous co-pilots three months back? The answer is no.
So I think as these newer technologies coming, customers are going to adapt and we have to react with them. As this is a sprint and not a — this is not a — this is a marathon and not a sprint for us. So you have to stay-in the game with the customers for the long-term because some of these customers when they grow back, you tend to enjoy. And companies of our stage and size and scale, we are relatively a smaller-sized company compared to many other countries that you calibrate against. But also keep in mind that we have grown faster than many other industry peers. So when you in that leak to grow faster, you will have odd quarter and I know this one too many bumps in this year, earlier with the healthcare client and now with the high-tech client.
But those are expected if you want to play in that league. If you want to play safe, then I think there are other ways to play safe out. And like I said earlier, this is not a net-new client. It’s not like we are adding to the risk profile of the business. It’s just unfortunate that in a year we had two customers, one at the beginning of the year — one at the tail-end of the year where we had some ramp-down. So I wouldn’t Call-IT contradiction.
I just think it’s uncertainty that we face. And it’s also visible like I said earlier. If you recall, a year back, the entire industry was talking about banking is slowing down and there was a big discussion on banking, I’m sure you recall that. Now including our commentary, banking is going well for us. But can any one of us predict in six months where banking industry will be? I think it’s very hard to predict right now because the demand pattern and the industry patterns are changing quite dramatically.That’s how candidly we see it. We don’t think it is adding to the risk profile like you illustrated. I think it’s the nature of the business that we are in and the industry that we serve in. And the client also is not a small client, but they are one of the largest client in high-tech space?
Prolin Bharat Nandu
Yeah, I appreciate that, Sameer. So just since, let’s say we heard from this client, have we been able to talk to some of the other clients and assess that this is a risk which might be developing in some of the other clients, some of our other relationships as well. Have been — we’ve been able to do that since we have heard from this client on the direction in which they want to go?
Samir Dhir
Yeah. No, it’s a great question again. See, in our TMT vertical, we have total of five clients. So we don’t have a — again, based on our size, it’s not a big spread. Now the other four that we have, we don’t see that risk right now because this is the largest client in that TMT sector. But have we assessed the same risk for other clients we have. But to be honest, if you look at our largest banking customer or our largest healthcare customer, tomorrow they want to build-up their own datacenter and start buying NVIDIA chips, of course, their strategy can change and hence it can have a still a trickle-down impact on us. Candidly, can we predict that? I don’t think the answer is yes, because it is a very customer-specific decision at this point in time.
Do we expect AI to continue to have a little bit of this impact off and on in some clients? We do think it will happen, especially for the larger companies. Most of the clients of Solarta candidly by and large are the mid-tier market customers. So we don’t see those customers having this impact, but the larger customers will of course have an impact as they calibrate and recalibrate and recalibrate the strategy.
Prolin Bharat Nandu
All right. That’s it from my side. Thanks a lot and all the very best.
Samir Dhir
Thank you.
Operator
Thank you. Next question is from the line of Dipesh from Emkay Global. Please go-ahead.
Dipesh Mehta
Thanks for the opportunity.
Operator
Deepesh, please use your handset mode. You’re not very clear.
Dipesh Mehta
Is it better now?
Operator
Yes. Please go-ahead.
Dipesh Mehta
Hello. Yeah, I just want to get first about the demand environment. I think if you can help us understand any change you witnessed in-demand environment? And it would be preferable if you can give sector some comments about demand compared to, let’s say, three months there? Second question is about the margin. Now the top — one of the large clients which you said in high-tech is likely to face some headwinds because of their AI productivity kind of thing.
Any implication you’re expecting margin on sustainable basis in that account? And how one should we expect your Q4 margin trajectory compared to where we are? And last question is about the — our expectation about, let’s say earlier H2 to be better than H1 and then growth to excellent entering into FY ’26 and returning to low-20 margin. If you can give some sense around it, how we expect growth to play-out overall? Thank you.
Samir Dhir
Thank you, Deepesh. Let me cover. I think there’s lots, lots of questions and then let me try and-answer one-by-one. So from an industry point-of-view, the demand pattern is very different, Deepesh. If you look at our current results as well as if you look at slightly one or two quarters ahead, we think healthcare life sciences and banking financial services will continue to do well for us. So feel pretty good about those two verticals right now. And Healthcare Life Sciences, we have maintain that trajectory for at least three, four quarters. We think for the foreseeable future, we don’t see any significant headwinds coming our way. In fact, good growth coming our way in healthcare life sciences.
Banking financial services, we think we are going to have a solid growth in the next one or two quarters. So that sector is looking pretty well for us. Keeping aside the quant seasonality of Q4, in general, the banking will continue to be strong for us. There’ll be a short-term impact in Q4 because of quant seasonality, but going into Q1, I think banking will be in a solid platform again. Retail industry is candidly under a lot of pressure right now. The retailers are talking about it, their essential retail sales are down, the high inflation impact continues to be within the retail industry. So we don’t expect retail to bounce-back anytime soon. I think we’ll continue to see flattish to marginally upgrowth in the retail sector.
The fourth sector is TMT. TMT for us is a tale of two cities. We have one large clients and maybe four or five other smaller clients. In the smaller clients, we expect growth to continue the way we have been growing. But the large client, at least for a quarter-out with Q4, we think there is a — there is a demand pressure and hence what Jagan talked about minus 2.5% to minus 3.5% growth for the company-level next quarter. It is a little premature for us to talk about what will happen to this client in Q1. But we think sometime late Q4, early Q1, they should come back on — back on-track, but we’ll probably provide a more finite update in the next call.
So that’s on the first part of the question, Deepesh. The second part of your question around the margin profile for Q4, like Jagan said, I think we expect a large part of the margin recovery happen next quarter, except for the compensation-related that we have seen this quarter. The large part of the onetime impact will not be the next quarter. So we should be coming back on our high-teens EBITDA profile going into next quarter and — and that should be pretty — that should be doable for us. As far as the H2 is concerned, yes, you’re right. I think we talked about in H1 that H2 will be stronger and candidly Q3, we have a 4.4% constant-currency Q-on-Q growth, which I think is — we’re pretty pleased about that. Had this large client not ramped down, which was an unexpected thing to happen in mid to late November, we’ve probably clocked a very strong Q4 as well.
But minus of this large client, we have pretty good growth going into next quarter, but this one significant impact is diluting the overall results of the company, which is unfortunate and we couldn’t have predicted it, but that’s what we faced with. I hope I forgot question is about sorry, you had many parts of your question. I hope I answered all of them. If I miss anything, please call-out.
Dipesh Mehta
Yeah. So broadly, let’s say on the margin part, now we indicated by Q1 at least we will be to low-20s. Are we confident to return back to low-20s kind of margin profile in Q1 or because of the client-specific challenges what we face, now low 20 may get delayed? And last part is about corn earn-out related thing. If you can give some sense about, let’s say, what kind of revenue they made in calendar ’24 and how one should look earn-out kind of thing, if you can provide some clarity because considering the target what we set for earn-out when revision happened earlier or whether we expect any reversal to happen? Thank you.
Jagannathan Chakravarthi Narasimhan
Okay. For the first part of the question, Dipesh, about early ’20 margin. We are still making an assessment of the impact of the large client, we will get a clarity during the course of Q4. We will keep you posted about that when we are coming back-in Q4 itself about the Q1 reaching the margin level. At present, we will, as I mentioned earlier, the one-time impact we will recover back-in Q4, but reaching to the early ’20 because of the large client impact, we will wait for the full impact to be known in Q4 and then come back to you and update you on that debate. The second part of it is About Quant turnover. We are still working with Quant earlier management to the extend up the SPA. We are still negotiating with them. We will give an once the negotiation is over and we get into a concrete area about their — the near — their future impact of that, we will come and update you on what is that they have achieved and also give an update to you. Since the process is not complete, we are waiting for that process to complete. The SPA is still March 2025 already the old one. So we will wait for — for the full completion of the SPA negotiation and give an update to you on that. The third question, can you repeat that again?
Dipesh Mehta
No, so just want to understand what would be the revenue of calendar ’24 because that is what we indicated 100 million kind of target what we gave today to get the earn-out. If you can give us what is the actual number they achieved?
Jagannathan Chakravarthi Narasimhan
No, it is still — the audit is going on,. Once it is completed, we will give an update to you. The quantum for the quant purposes, limited review purpose they have seen it, but for the whole year, the audit is going on. So once the audit is complete, we’ll give an update on that. Yeah. This also depends on the future negotiation, Deepak. So let both be completed. Before March, we are expecting it to complete. So we’ll come back and update you in Q4 results time. We will give an update — full update on that.
Operator
Thank you. We’ll take the next question from the line of Mihir Manohar from Carnalian AMC. Please go-ahead.
Mihir Manohar
Yeah, hi. Thanks for giving me the follow-up. I wanted to understand this. I mean how does it work? I mean there is this — so we have — the analys are going out, which are there for this particular plant, we are paying them one-time cost. Now does it get reimbursed to us or it doesn’t get reimbursed because largely there could have been — I think it’s a basic question, but there should have been a period or a reimbursement happening. So how does that one?
Jagannathan Chakravarthi Narasimhan
Yeah, actually there is no, the client doesn’t compensate for this because that’s how the model works for it. We have to, whenever the opportunity comes in we will be able to deploy people and take it up with the people. It’s a — it’s not exactly a T&M model, it is actually a — like a fixed-price kind of a model. So there will be a — when the project is ramped down, our project is it stopped. So we will have a very short notice period of time. But there is being a foreign geography and nearshore geography, there are — there are regulatory requirements.
So we have to settle with the employees. That is a kind of a risk in the margins of the project whenever we have taken that. And this is how the operations happen. So we have taken — taken the — we have been to abide by the regulatory requirements of that particular geography. And for the best practices, we have taken a settlement with employees and then closed that. And the — there will be some amount, some notice period and some amount of a benefit flow also for us in this. That is why the revenue was not that much impacted in this quarter from the customer, the full-quarter impact will be known only by next quarter.
Mihir Manohar
Sure, sure. You mentioned next quarter 2.5% to 3.5% of a degrowth considering quant as well as this account going down. In account going down, down, what could be the growth?
Jagannathan Chakravarthi Narasimhan
Pardon?
Mihir Manohar
I mean, how should we see the growth next quarter ex of this ramp-down? I mean considering the quant seasonality, but without considering ramp-down of this account, what can be the growth in 4th-quarter?
Jagannathan Chakravarthi Narasimhan
No, this is like a difficult to tell you now what will be the total impact of it. We have made a guesstimate as of whatever data we have. The quant will be the major portion of it in this — under this customer will be also have an impact on this 2.5% to 3.5%. If not, it must-have been much lesser the impact is.
Mihir Manohar
Okay. So impact is more driven
Operator
By also by request you to join back the queue please as we have other participants waiting. Thank you.
Jagannathan Chakravarthi Narasimhan
The definitely had an impact which we know if without this customer, we may not have got this kind of de-growth.
Mihir Manohar
Sure, that’s it clear.
Operator
Thank you. Ladies and gentlemen, in interest of time, we request you to restrict to two questions at a time, please. We’ll take our next question from the line of Abhishek Shindharkar from InCred Capital. Please go-ahead.
Abhishek Shindadkar
Hi, thanks for the opportunity. My first question is to Sameer. Sameer, just wanted to understand this ramp-down.
Operator
Sorry to become. Are you listening to the webcast as well, please? Can you shut that off? We are getting an echo.
Abhishek Shindadkar
No, I’m not. No, I’m not listening to the webcast. I’ve just logged into the normal call. Is this better now?
Operator
Yes, yes. Please go-ahead.
Abhishek Shindadkar
Okay. My first question is to Sameer. Sameer, just wanted to understand, the timelines in terms of the communication from the large client in terms of ramp-down and projects cancellation, so on and so forth. Can you just help us understand the timelines? Was it like towards the start of the quarter, mid or towards the end? That is first question. The second question is to Jagan, sir. Is this a new margin reset for the company and-or do you think margins can go back to at least 17% 18%? And just third bookkeeping question is, was there any deal transition cost that we incurred for the business that grew in the quarter? Thank you for taking my question.
Samir Dhir
Yeah. So let me take the first part, Abhishek. So the timeline of this was pretty much very progressively in the course of the quarter. We started seeing the discussion start in November timeframe and then we were of course negotiating with them because there was a ramp-down as well as a discount. And it built-up progressively. I would say those impact started trickling in towards the later part of November and a full-quarter December. That’s a broad way to think about it. Because it was like Javin said, on-site geography is not in India, we had to — we had to handle the employee and their severance-related costs in the course of the quarter. So that’s how it’s progressed. I’ll turn it to Jagen for the second and the third question.
Jagannathan Chakravarthi Narasimhan
Yeah. Abhishek, as we mentioned earlier, the one-time costs we will recover back-in Q4 to that extent the market recovery will happen. So as I mentioned, out of 3.6% degrew margin this quarter, 0.75% is because of salary increase and the balance is because of one-time cost that will — we are expecting it to come recover back-in Q4. What was your third question, Abhishek? Any deal de cost we have incurred.
Abhishek Shindadkar
My third question was about –
Jagannathan Chakravarthi Narasimhan
No, we have not incurred anything good afternoon. No, no, we are not incurred.
Abhishek Shindadkar
I’m sure we are not incurred. Okay, fair enough. Understood. Thank you for taking my question, sir.
Operator
Thank you. We’ll take our next question from the line of Jalaj from Swan Investments. Please go-ahead.
Jalaj Manocha
Thanks for the opportunity.
Operator
Jalaj, please use your hand. Yes, now it is clear. Please go-ahead.
Jalaj Manocha
Thanks for the opportunity. One thing more, so with regards to the vertical split, I do see there is some slowdown specifically in retail and manufacturing also. Could you talk about what is exactly happening there? And in the headcount, if I were to see sequentially it has increased. So were these people not on our payroll or how should I understand specifically for the projects which have been ramped-up?
Samir Dhir
Yeah,. So like I said earlier, in the retail, so big step-back. Healthcare and banking are on a good growth trajectory for us. We have maintained that and I think we continue that growth momentum to continue for the foreseeable future. Retail because of the high inflation, we have continued to talk about that retail is going slow for us and retail manufacturing by and large, given the portfolio size we are, they pretty much intertwined and we think that will contribute into stress and pressure in time to — in time to come as well.
Will it — will it de-grow no, but will it grow significantly no. I think it will be a marginal growth in retail. We’ll see significant growth in healthcare and we’ll continue to see significant growth in banking. That’s how we think about this industry — industry pattern. Second question that you had is sorry, I forgot. What was second question?
Jalaj Manocha
Absolutely headcount, so I see sequentially the internationals business has been a growth, but those people who have been ramped down or those have moved out.
Samir Dhir
Yes,
Jalaj Manocha
But not on the payrolls or how should I
Samir Dhir
They were very much part of the payroll. They were pretty much part of the payroll, especially in outside geographies. If you recall, we talked all year round that the second-half of the year will grow well for us. So while you’re seeing a 150 FTE increase, it would have been a significantly more if this unplanned headcount did — an unplanned rundown didn’t happen And that would have continued to contribute for a full-quarter impact of our growth. That’s what the — what we were seeing, but in the last one or two months, we started seeing this ramp-down hitting us. So what you see is a net ramp-down after this impact, otherwise, the headcount would have been slightly higher than what you’re seeing right now.
Operator
Thank you. We’ll take our next question from the line of Deepesh from Emkay Global. Please go-ahead.
Dipesh Mehta
Yes, thanks for the opportunity again. And sir, I just want to understand from business operate at higher-margin than company. Considering the seasonality what we are highlighting about next quarter, do you expect the margin benefit will not be fully reflective of the one-off post recovery considering the seasonality
Jagannathan Chakravarthi Narasimhan
Yes Dipesh there will be an impact of quant revenue drop on the margin to some extent but we are not able to make a full assessment of that now but most of the one-time cost we will require it back yeah.
Dipesh Mehta
So considering the margin trajectory, I think where we are already real, how one should look at it because low-20s is what we aim for. Now single client-related plus minuses, one or two-quarter is fine, but your headcount addition is, let’s say, way ahead of your revenue growth. If I look from that perspective. Utilization also I’m not sure, let’s say, how to look at it, but you added Q-o-Q headcount while you expect significant growth next quarter in terms of revenue. And some of the other lever also in terms of on-site offer and other mix, if I look at it. So considering some of those things, how one should look your margin trajectory and you also said low-20s, we will revisit or enter end of Q4 kind of opening. But over medium-term, do you think any risk to low-20s kind of margin profile what we always aspire it to be or you are comfortable for medium-term, low 20 kind of margin profile?
Jagannathan Chakravarthi Narasimhan
Yeah,, one thing we have to want to highlight to you is, although Quant’s margin profile was there, rest of our — because of this particular customer ramp-down, our on-site revenue portion is onsite mix is coming down and offshore is going up. That will also help us to recover some margin back next quarter,. So secondly, yes, or the one-time cost is going to help us come bounce-back, which is almost like a no major portion of the 3.6 crores in that.
So that we are expecting that recovery to fully happen in the next quarter. Some impact of Quant revenue de-growth for next quarter can be there on my margin, but we don’t expect that to be a major element on the recovery path of it, but thereably there can be some — some impact, some small impact can be there. The — so we expect that we will come very, very close to the quarter two EBITDA margin levels in Q4, very close to that plus or minus 50 basis-points is the range, Deepek.We are expecting that to come near there. And from there, we will be able to — we will be able to grow the margin in Q1. Once we know the exact situation of the particular customer, where are we hitting, we will give an update to update towards the early 20s by end of this quarter, quarter Q4,.
Operator
Thank you. We’ll take our last question from the line of Vipul Kumar Anupchan Shah from Sumangal Investment. Please go-ahead.
Unidentified Participant
Sir. So my last question is regarding we don’t have any legal protection regarding this ramp-down, sir.
Jagannathan Chakravarthi Narasimhan
No, this is a customer regular commercial contract and all these because they are a very large customer, they will — these kinds of protection may not have. And we are — no, the prospect with the customer is very-high. We don’t want to do a short-term problem by and doing something and kill the business in the long-term angle, yeah, because they are going to continue to be a large customer for us and they will continue to grow in the good prospect for us in future. These are all very, very short-term and impact of that. We expect this will settle down in a quarter or two and then we may recover back the business soon from the customer.
Operator
Thank you. Ladies and gentlemen, we’ll take that as the last question for today. I now hand the conference over to Mr for closing comments. Over to you, sir.
Samir Dhir
Thank you, yesh and thank all the participants for dialing-in today. And I also want to take this opportunity for all the Sonatis globally for their hard work and diligent efforts to keep moving Sonata forward and connect with all of you in a quarter’s time again. Thank you. Thank you all.
Operator
Thank you. On behalf of Sonata Software Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines