Capillary Technologies' record is a study in contrasts: a ₹150 crore swing to positive operating cash flow and clean audit opinions sit alongside a profit pool that is 94% locked in subsidiaries and two acquisitions that have yet to prove their economics. The headline cash generation is real, but the quality of the profit it supports is not yet established.
Key findings
- Operating cash flow turned positive, but other income and subsidiary profits dominate the P&L
Major- Consolidated operating cash flow swung to ₹150 crore in FY26 from negative ₹46 crore in FY25, which management attributed to upfront billing and collections. Other income of ₹39 crore made up 76% of pre-tax profit of ₹51 crore, while consolidated PAT of ₹52 crore against standalone PAT of ₹3 crore placed 94% of profit at subsidiaries. The holding company paid no dividend during the year. ROCE was 5.3%, though management cited a "cash return on invested capital" of 22%. - Two acquisitions added significant goodwill, with the larger deal closing after the reporting date
Major- Capillary Technologies LLC acquired Kognitiv Solutions Inc. effective 1 May 2025 for Canadian Dollar 23.44 million, recognising goodwill for the assembled workforce and estimated synergies. A second agreement to acquire Session M Inc. from Mastercard for USD 20.00 million was signed on 24 February 2026 and closed effective 1 May 2026, priced at "like 0.5x revenue" with management expecting break-even in year one. - Internally generated software is capitalised, and one-off items shaped reported profit
Minor- The company capitalises internally generated software development costs and amortises them over three years. Share-based payment expense of ₹4.02 crore was excluded from Employee benefit expenses and recognised in Investments, while total share-based payment expense recognised in the P&L was ₹67.80 crore. Deferred tax assets on the Parent Company’s unabsorbed depreciation of ₹45.01 crore and the Group’s Indian tax losses of ₹92.16 crore remain unrecognised because management assessed future taxable profits as not probable. Reported profit included ₹25 crore of exceptional income from a churn indemnity clause in the Kognitiv acquisition and ₹1.82 crore for restructured employee compensation following the Labour Codes notification. - Promoter voting power carried two ESOP resolutions despite institutional opposition
Minor- In the January 2026 postal ballot to ratify the ESOP 2021 scheme, 100% of promoter votes were cast in favour while 49.74% of public-institutional votes were cast against. A March 2026 ballot to extend the scheme to subsidiary employees saw 55.90% of institutional votes opposed, again carried by 100% of promoter votes cast in favour. The Head of Finance resigned effective 5 June 2026 and the Head of Corporate Development resigned effective 31 July 2026. - Audit opinions are clean, with recurring procedural observations on server backups and audit trails
Minor- The statutory auditor issued an unqualified opinion and an unmodified internal financial controls opinion for FY26, and CARO responses confirmed no benami proceedings, no wilful defaulter declaration, no fraud, and no loan defaults. The auditor noted that daily backups of electronic books were not maintained on servers physically located in India and that it could not comment on database audit-trail operation for the third-party accounting software because the Type 2 report lacked direct database-level edit logs. - The group operates through 10 wholly owned offshore subsidiaries with a layered structure
Minor- As of 31 March 2026, the company had 10 wholly owned subsidiaries outside India with no associates or joint ventures, and the former Singapore parent ceased to be the holding company upon listing on 21 November 2025 while continuing as promoter with 49.70% equity. Subsidiaries act as Limited Risk Distributors for the loyalty platform. The SessionM acquisition was completed directly and through step-down subsidiary Capillary Technologies LLC, while the Kognitiv acquisition involved funds advanced to Capillary Pte. Ltd., which invested in Capillary Technologies LLC, which then acquired Kognitiv.
What to watch
- Forensic audit outcome. A forensic audit by KPMG Assurance and Consulting Services LLP covering suspected unauthorised banking transactions was approved by the Audit Committee on 31 July 2026.
- Cash flow sustainability. Whether the ₹150 crore FY26 operating cash flow is sustained, given the FY25 negative CFO of ₹46 crore and management's attribution to upfront billing.
- Subsidiary profit upstreaming. Whether the 94% of consolidated PAT residing at subsidiaries is upstreamed via dividend, given the holding company paid no dividend in FY26.
- Goodwill impairment. Impairment testing of goodwill on the Kognitiv and SessionM acquisitions, with first full-year carrying values in the FY27 Annual Report.
- Deferred tax asset recovery. Recovery of unrecognised deferred tax assets on ₹45.01 crore of unabsorbed depreciation and ₹92.16 crore of tax losses depends on future taxable profits, assessed as not probable as of 31 March 2026.
Bottom line: This is a disclosed and audited record with a genuine cash flow turnaround, but the profit that cash flow supports is thin at the standalone level and concentrated in subsidiaries that have yet to return capital. The two acquisitions completed within a year add goodwill that has not been tested, and the promoter's voting control sits against institutional opposition on compensation matters. Watch the forensic audit result, the cash flow trend, and whether the subsidiary profit pool begins to flow to the holding company.