Rising AI Pressure and Weak Q3 Performance Weigh on Capillary Shares
Capillary Technologies India has faced significant challenges recently, resulting in a sharp decline in its stock price. At the close on Thursday, shares were priced at ₹511, reflecting nearly six times its projected annualized revenue through December 2025.
– Stock Performance Decline: The stock has plummeted 35% from its peak three months ago, which includes a 15% drop following the announcement of its December quarter results on February 6.
– Revenue and Profit Concerns: The company, which offers a software-as-a-service (SaaS) platform aimed at enhancing customer engagement and rewards programs, is grappling with potential contractions in both revenue and profits. This is largely due to the escalating capabilities of artificial intelligence (AI) models.
– Disappointing Q3 Results: Capillary reported a 30% decline in net profit for the December quarter, compounded by increased depreciation and non-operating costs, which has left investors concerned about the firm’s financial health.
AI Disruptions and Strategic Response
Despite these setbacks, the management believes that AI disruptions may ultimately broaden their operational scope, particularly in analytics and campaign management. They anticipate that the impact of AI on their services will be somewhat limited due to:
– Ledger Approach: Capillary’s unique ledger model integrates deeply with client systems, resulting in significant switching costs for clients. This keeps customer interactions sticky and enhances client retention.
– Pricing Model Resilience: The company’s pricing strategy, based on transactions and user numbers rather than on operational staff like call center agents, reduces exposure to risks from AI automation.
In a recent earnings call, management noted that 60% of their costs are fixed. Hence, during periods of robust business performance, costs will scale slowly, which could enhance profitability. Capillary’s operating margin before depreciation and amortization (EBITDA margin) has already improved, reaching 13% in the first nine months of FY26 compared to prior years when an operating loss was recorded.
Client Acquisition and Future Growth
In the first nine months of FY26, Capillary acquired 12 new clients, resulting in an order book of ₹66 crore, up from ₹53 crore the previous year. The company actively pursues an inorganic growth strategy, such as their recent $20 million acquisition of SessionM, a loyalty business from Mastercard. This strategy aids in transferring existing clients to new products, thereby minimizing client loss risks.
Current Stock Valuation and Outlook
Currently trading at ₹511, Capillary’s stock price reflects a decrease in its price-sales (P/S) multiple, which fell from nearly 10 after its IPO in November 2025. While revenue traction is promising, investor focus remains on profit and margin trends.
Given the prevailing negative sentiment towards the technology sector, analysts expect the stock to remain under pressure and possibly trade below its IPO price of ₹577 in the short term.
In conclusion, while Capillary Technologies is encountering obstacles tied to rising AI pressures and weak quarterly performance, its strategic positioning through the ledger approach and targeted acquisitions may pave the way for potential recovery and growth in the future. Investors will be watching closely as the company navigates these challenges.