Summary
Capillary Technologies India Limited - Q3 FY26 Earnings Call Summary Friday, February 06, 2026 5:00 PM IST
Event Participants
Executives 3 Anant Choubey (ED, CFO & COO), Aneesh Reddy Boddu (Founder, MD & CEO), Sunil Jain (Head of Corporate Development)
Analysts 5 Hiral Sanghavi (Pioneer Investcorp), Nikhil Choudhary (Individual), Rishi Jhunjhunwala (IIFL Capital), Rohan Nagpal (Helios Capital), Srinivasu K (Individual)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue | ₹184 crores | +16% YoY; Nine-month revenue at ₹543 crores (+22% YoY). |
| Adjusted EBITDA | ₹30 crores | +24% YoY; Margin expanded to 16.4% from 15.3% YoY due to operating leverage. |
| PAT | ₹8 crores | -30% YoY; Impacted by ₹3.6 cr one-time costs (gratuity law change and IPO expenses). |
| Net Retention Rate (NRR) | 111% | Trailing 12-month basis; Organic NRR remains high at 115%. |
| Annual Recurring Revenue | ₹754 crores | +21% growth over March 2025; reflective of high subscription stickiness. |
| Gross Margin | ~70% | +150 bps YoY; Drivers include migration of low-margin acquired customers to core platform. |
| Cash Balance | ₹463 crores | Supported by 9M operating cash flow of ₹101 crores (142% of Adj. EBITDA). |
Geographic & Segment Commentary
- United States: Strong momentum with new order book growth and wins against traditional agencies. Performance is bolstered by the 1st January health insurance go-live cycle.
- Healthcare (Payer Space): Major go-lives on Jan 1, 2026, increased member base for a Top-5 customer by 50%. Management clarified zero exposure to Medicare/Medicaid rate risks, focusing on direct-payer/employer books.
- Inorganic Segment: NRR recorded at 96% due to deliberate contraction during migration. Strategic focus is on sunsets of legacy platforms (e.g., Brierley) to drive high ROC.
Company-Specific & Strategic Commentary
- AI Leadership (aiRA): Positioned as a “System of Intelligence” to replace manual agency delivery. 10-15 customers are currently in POCs, with a 3-month free-trial model to drive adoption.
- M&A Strategy: Continues to acquire competitors at 0.5x–1.5x revenue to migrate them to Capillary’s 70% gross margin platform. Currently holding multiple Letters of Intent (LOIs) for future deals.
- System of Record Status: Management emphasized high switching costs as they maintain the “bank ledger” for loyalty points. This ledger-based model insulates pricing from AI-driven “seat-based” pricing erosion.
- Innovation Focus: Shift toward gamification (badges, streaks) and conversational UI to reduce the need for specialized analysts at the client end.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Revenue Mix | High Subscription Focus | Target remains high-margin recurring software revenue over service-heavy models. |
| Margin Trajectory | Continued Expansion | Leverage expected as 60% of costs (Tech/Corp) grow only at inflation + minor team growth. |
| NRR Benchmarking | Top 10th Percentile | Aiming to maintain organic NRR above 115%, tracking with global Tier-1 SaaS peers. |
Risks & Constraints
| Risk | Context |
|---|---|
| AI Disruption | Risk of agents replacing software workflows; mitigated by Capillary’s role as a “System of Record” for financial ledgers. |
| Integration/Migration | Acquiring legacy platforms requires complex migrations; any delays can lead to higher churn in the inorganic NRR (currently 96%). |
| Regulatory Changes | Recent Direct Labour Code changes impacted PAT by ₹1.6 cr via one-time gratuity expenses; further legislative shifts remain a watchpoint. |
Q&A Highlights
AI Disruption vs. Augmentation
- Question: How does the emergence of AI agents like Claude impact the SaaS model? (Rishi Jhunjhunwala)
- Answer: Capillary is a system of record (ledger) rather than just a system of engagement; pricing is outcome-linked (transactions/members) rather than seat-based, providing insulation from AI seat-count reduction (Aneesh Reddy).
Financials & D&A
- Question: Why hasn’t EBIT expanded as fast as EBITDA? (Rishi Jhunjhunwala)
- Answer: Higher D&A (₹19 cr vs ₹13 cr YoY) is primarily due to the Kognitiv acquisition amortization; EBITDA margins are expanding via operating leverage (Anant Choubey).
Monetization of AI (aiRA)
- Question: How will aiRA contribute to NRR? (Rohan Nagpal)
- Answer: Currently a “force multiplier” for win rates against agencies; monetization will follow a 3-month free trial; active billing to start in coming quarters for 10-15 pilot customers (Aneesh Reddy).
Client Concentration & Vertical Risk
- Question: Is the US Healthcare payer space a risk given recent macro noise? (Rishi Jhunjhunwala)
- Answer: No exposure to Medicare/Medicaid; 50% member growth in key accounts realized on Jan 1, 2026; exposure is to commercial employer insurance (Aneesh Reddy).
Key Takeaway
Capillary Technologies delivered a solid Q3 FY26 with 16% revenue growth and significant EBITDA margin expansion to 16.4%, underpinned by a robust 115% organic NRR. While reported PAT was impacted by one-time IPO and regulatory labor costs, the underlying cash generation remains superior at 142% of adjusted EBITDA. Strategically, the company is successfully transitioning from being a pure “System of Record” to capturing more “System of Intelligence” TAM through its aiRA platform, effectively disrupting traditional marketing agencies. With a healthy cash pile of ₹463 crores and multiple M&A targets in the pipeline, the company is well-positioned for inorganic scaling. Looking ahead, management expects the 50% member growth in its healthcare vertical and the sunsetting of legacy acquired platforms to drive continued margin accretion through FY27.
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