Are Sonata Software Ltd. latest results good or bad?

Sonata Software Ltd. has reported its financial results for the second quarter of FY26, revealing a complex operational landscape. The company achieved a net profit of ₹120.19 crore, reflecting a quarter-on-quarter increase of 9.92% and a year-on-year growth of 12.87%. This indicates a strong performance in profitability despite the challenges faced in revenue generation. However, net sales for the same period were ₹2,119.30 crore, which represents a significant quarter-on-quarter decline of 28.53% and a year-on-year decrease of 2.33%. This sharp drop in revenue marks the lowest quarterly sales since March 2024, raising concerns about the sustainability of growth and demand within the IT services sector. The operating margin, excluding other income, improved to 8.15%, up from 5.38% in the previous quarter, which suggests effective cost management and operational efficiency. The PAT margin also expanded to 5.67% from 3.69%, indicating a positive trend in profitability metrics. Despite the revenue challenges, Sonata Software's return on equity (ROE) remains robust at 24.89%, showcasing strong capital efficiency. The company maintains a net cash position, reflecting its financial stability and ability to navigate market uncertainties. Overall, the results present a paradox where profitability has improved, but the significant revenue contraction raises questions about future growth prospects. The company saw an adjustment in its evaluation, reflecting the mixed operational performance amidst broader sector challenges. Careful monitoring of demand recovery and revenue stabilization will be essential for assessing the company's trajectory moving forward.