Why Sonata Software Share Price is Falling

'When it rains, it pours.'

This phrase explains that when troubles begin, they rarely come alone. Instead, they arrive in waves, hitting one after another. This phrase aptly applies to shareholders of Sonata Software.

Sonata Software is a mid-sized IT services company specialising in digital transformation, cloud solutions, and software development.

It caters to clients across industries, helping businesses adapt to modern technology trends. Despite being a strong player in its niche, the company's stock performance has been under stress for quite some time.

The company's share price is facing persistent pressure, and the situation has only worsened in recent months.

Over the past year, its stock has plummeted by 43.2%. The fall accelerated in the last one month, with a 24.3% decline. The past five days have been particularly harsh, with the stock nose diving 18.8%.

Investors are left wondering-why is Sonata Software share price crashing?

What new pressures have emerged?

Let's take a closer look at the key factors dragging down Sonata Software share price.

#1 Mixed Quarterly Results

In the third quarter of financial year 2025, Sonata Software reported a revenue of Rs 28.4 billion (bn). This represented a 31% jump from the previous quarter and a 14% increase compared to the same period last year.

The revenue growth was largely driven by strong performances in certain business verticals, particularly in its domestic IT services and platform-based businesses.

However, despite this top-line growth, the company struggled to maintain profitability due to multiple financial pressures.

Net profit for the quarter came in at Rs 1.1 bn, reflecting a 1.4% drop from the preceding quarter. While the decline may appear marginal, it raised concerns among investors, as the company was expected to maintain a steady profit trajectory.

The primary factor behind this decline was margin erosion, which stemmed from a sharp reduction in services provided to its largest client.

The unexpected ramp-down in client demand had a direct impact on Sonata Software's earnings, leading to a weaker-than-expected bottom line.

In addition to the loss of revenue from its key client, the company also provided a one-time discount to this client, which further dented its profitability. The discount was likely offered to retain business and maintain long-term relations, but it came at the cost of reduced earnings in the short term.

Moreover, Sonata Software's operating expenses increased, further weighing on its margins. One of the key factors behind this rise in costs was higher employee-related expenses, including salary increments and settlements for staff associated with the impacted project.

The company also incurred additional costs linked to senior management bonuses, which contributed to the margin squeeze.

Overall, while revenue growth remained strong, Sonata Software's profitability took a hit due to.

#2 Dull Outlook

Looking ahead, Sonata Software expects a sequential decline in revenue in the fourth quarter of fiscal year 2025. This projected downturn is largely attributed to continued weakness from its largest client.

The impact of this client ramp-down, which was already evident in Q3, is likely to extend further, putting additional pressure on Sonata's revenue and profitability.

The company has indicated that the negative effects of this slowdown will persist throughout the remainder of Q3 and the entirety of Q4, making the short-term outlook challenging.

The loss of business from this key client is not only affecting revenue but also hurting overall margins. The reduced workload means an under utilisation of resources, including employees and infrastructure, which could lead to further cost inefficiencies.

Although Sonata has taken measures to control expenses, the margin recovery is expected to be gradual. Investors and analysts remain cautious, as a prolonged downturn from a major client can have ripple effects on Sonata's financial performance.

Despite these short-term hurdles, the company remains optimistic about its recovery prospects. Sonata expects that the client ramp-down will stabilise and contribute to revenue growth once again by the first quarter of the next financial year.

What Next?

Sonata Software is focusing on modernisation and digital transformation to drive future growth.

It aims to reach US$ 1.5 bn in revenue by FY27 while maintaining international EBITDA margins in the low 20s and growing its domestic business gross contribution by 12% annually.

To achieve this, Sonata is securing large enterprise deals. In Q3 FY25, it won contracts for cloud and data transformation in the US transportation sector and AI-driven ERP modernisation for a European mining company. Its pipeline remains strong, with 44% of large deals linked to fortune 500 clients.

The company is also expanding its artificial intelligence and automation capabilities. Its Harmoni.AI framework has helped build a US$ 58 m pipeline, while investments in Microsoft fabric have added US$ 73 m in potential deals.

Sonata continues to strengthen its partnerships with Microsoft and AWS, generating US $ 650 m in annual revenue from Microsoft-related services. It is also expanding its AWS capabilities through cloud migration and automation.

Despite these efforts, the client ramp-down in the TMT sector is expected to cause a 2.5-3.5% sequential revenue decline in Q4 FY25. The company expects recovery in late Q4 or early FY26 but faces uncertainty.

While the long-term outlook is positive, Sonata must execute its plans efficiently to regain investor confidence.

Its success in scaling AI-driven services and converting its pipeline into revenue will determine how quickly it can overcome short-term pressures.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

How Sonata Software Share Price has Performed Recently

In the past five days, Sonata Software share price has tumbled 18.8%. In the last month, it has slipped 24.3%.

In the last six months, its share price has fallen 26.4%. Additionally, in the last one year, its share price has tumbled 43.2%.

The stock touched its 52-week high of Rs 867.1 on 27 February 2024 and a 52-week low of Rs 442 on 11 February 2025.

About Sonata Software

Sonata Software is an Indian information technology services company, based in Bangalore.

It provides services in business intelligence and analytics, application development & management, mobility, cloud, social media, testing, enterprise services, and infrastructure management services.

For more details about the company, you can have a look at Sonata Software company fact sheet and Sonata Software quarterly results on our website.

For a sector overview, read our software sector report.

You can also compare Sonata Software with its peers on our website:

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