AI Momentum Strong — But Can Fractal Deliver?

Introduction

Fractal Analytics Limited is a premier global company offering Data, Analytics, and Artificial Intelligence (DAAI) solutions. The idea that gave birth to Fractal originated from the desire to help enterprises make better decisions, informed by data. The business sits across AI, engineering, and design thinking. The solutions it offers include AI consulting, data engineering, decision intelligence, and analytics to help clients drive business value from data and to help scale AI across the enterprise.

Business Structure

Fractal operates under two main segments: 

• • Fractal.ai - This is the core business segment, which enables large enterprise clients with AI-enabled products and services that solve complex business problems through the Cogentiq platform - pragmatic integration of generative AI, predictive analytics, and human-centred design. The focus area is large "Must Win Clients (MWC)", which generally represents enterprises with greater than $10 billion in revenue or greater than $20 billion market cap.
    
  • Fractal Alpha - These are the company's innovation and incubation students, along with creating independent AI product businesses and foundational models. Some current successful startups are Kalaido.ai and Vaidya.ai. These startups are meant to scale as independent commercial products to create long-term value beyond services in the Fractal portfolio.

Fractal cultivates long-term, high-value relationships with clients (top client engagement has spanned multi-year timelines). Fractal combines domain specialists, prompt engineers, data engineers, human-centred design teams, and clients' capabilities in order to ensure innovative solutions are actually adoptable and lead to measurable business impact.

Vision and Mission

Fractal envisions powering every human decision in the enterprise in a responsible way using AI. Specifically, Fractal's mission is to enable enterprises to leverage their data as a sustainable competitive advantage by embedding AI across all layers of the decision-making process

Market Landscape

The DAAI Market Opportunity - Enterprise adoption of AI and analytics is accelerating across industries, from CPG and retail to healthcare and BFSI. The third-party DAAI services market also continues to grow – organisations continue to outsource the development and deployment of advanced models for enterprise adoption. Fractal combines consulting, foundation models and a product platform (Cogentiq) to target the end-to-end needs of large enterprises going through AI transformation.

Competitive Landscape  - A fractal business firm holds two archetypes:   

• • Diversified IT Services Players – broad IT/cloud/ERP firms for which analytics is merely one vertical. 
  • Product-focused AI/SaaS Players - Companies selling licensed AI software plus associated services. 

Fractal's hybrid model, which combines deep consulting with proprietary IP and foundation models, seeks to capture value in strategy, implementation and product adoption. This enables Fractal's business model to sit comfortably between generalist IT firms and pure software vendors. However, this model requires rigorous investment in talent development, R&D capability and selective M&A.  

Financial Performance

• Significant Top-Line Growth:  Revenue increased from ₹8,732 million (FY21) to ₹27,654 million (FY25) — 3x growth over 4 years. Company reached 18% CAGR (FY23–FY25) and 25.9% YoY growth in FY25, driven by enterprise ramp-up and scaling of the AI platform. 
• Transition to Profitability:  The company moved from a phase of significant investment to sustainable growth. 
  • FY21 PAT: ₹359m; 
  • FY22: Loss of ₹1,484m (expenses related to acquisition); 
  • FY23: Profit of ₹1,944m (one-time benefit of ₹5,239m); 
  • FY24: Loss of ₹547m (normalized loss);
  • FY25 Profit of ₹2,206m (recovery of operations + smaller exceptional benefit ₹270m); 
• Cost & Efficiency: Employee benefits were ₹20,048m (FY25), the largest cost  reflecting investment in talent. 
• Operating cash flow improved from –₹306m (FY23) → ₹1,595m (FY24) → ₹3,970m (FY25), evidence of improving efficiency of operations and control of cash. 
• Strength of the Balance Sheet: Total assets: ₹28,576m, Equity: ₹17,654m, Goodwill: ₹3,582m, Accounts Receivable: ₹5,848m (FY25) are evidence of a strong financial structure and client growth. 
• People & Organization- The workforce grew from 4,221 (FY23) to 5,254 (FY25).  and Attrition improved from 23.7% to ~16%, an indication of improving stability and retention of employees. 

Overall Summary: Fractal has transitioned from a volatile business to being a steady operator, driven by consistent revenue growth, profit normalizing towards industry average rates, strong cash flows, and a balance sheet  all establishing Fractal as a leader in AI-led analytics that is poised for scalable growth.

Peer Comparison 

Fractal has been compared to both Tata Elxsi (design and engineering leader, high margins) and LatentView (analytics consulting delivery, profitable growth). The key differences include: 

• • Growth: Fractal's FY25 revenue growth is expected to be ~25.9% YoY, which is robust growth, indicating a strong ability to scale. LatentView has also shown strong growth, whereas Tata Elxsi has more moderate growth. 
  • Margins: Fractal has materially lower EBITDA/PAT margins than Tata Elxsi and LatentView lead, which is likely due to investments Fractal has made in R&D and building foundation models (and recently acquiring Accellor). 
  • Business Mix: Tata Elxsi is vertically designed (heavy into transportation/automotive); LatentView is a focused analytics consultancy; Fractal, as a hybrid, has the goal of end-to-end AI control. 
  • Risk Profiles: Fractal's margin dilution is the trade-off for building proprietary IP and platform capability, whereas peers emphasize leveraging operational leverage and profitability (LatentView) or industry specialization and brand (Tata Elxsi)

IPO Details

• Fractal Analytics Limited has submitted its Draft Red Herring Prospectus (DRHP) for an IPO of ₹49,000 million, made up of a ₹12,793 million fresh issue and an offer for sale (OFS) of ₹36,207 million by other shareholders, including TPG Fett Holdings and Quinag Bidco.
• The company may also look to a pre-IPO placement of up to ₹2,558 million, which will reduce the fresh issue size if placed.
• The date for the IPO, the price band, and the offer dates, including the anchor investor bidding date, are yet to be finalised.
• The proceeds from the fresh issue are primarily to be used for repayment of borrowings of Fractal USA, investments in R&D and sales in Fractal Alpha, to set up new office premises, to acquire laptops, and to fund future acquisitions and strategic initiatives.
• The IPO is to be managed by leading BRLMs, including Kotak Mahindra Capital, Morgan Stanley, Axis Capital, and Goldman Sachs. MUFG Intime is the registrar to the IPO. 
  

Growth Opportunities

1. Large Organisations' AI Adoption - Large organisations are still in the early adoption phase of AI. Fractal's approach towards MWCs and the transition of use cases to platformised offerings (CogentIQ provides future high-margin recurring revenue fragments).   

2. Foundation Models and Products (Fractal Alpha) - Proprietary models (Kalaido.ai, Vaidya.ai), if monetised, lead to software-like, scalable revenue and higher margins relative to pure services. 

3. Cross-selling within Existing Wallets - Established, deep client relationships (top 10 clients: 53.8% revenue in FY25) provide cross-sell and growth opportunities through functions and geography. 

4. Scale via Strategic M&A - Targeted acquisitions can yield domain expertise and accelerate product roadmaps and geography, but the ability to integrate is imperative. 

5. Partnership with Hyperscalers and Platforms - Partnerships can accelerate solution delivery, expand distribution, and reduce infrastructure friction for clients. 

Key Risks 

• Client Concentration: Approximately 53.8% of revenue comes from the top 10 clients; loss or downsizing by a key client would materially impair revenue.
• Dependence on Talent & Cost Inflation: Employee costs dominate expenses; upper-tier AI talent recruitment and retention are critical.
• Acquisition Integration Risk & Use of Goodwill: Significant goodwill (₹3,582m) and a history of acquisitions require caution for impairment and integration risk.
• Currency Risk: Revenue is largely denominated in USD, and costs are primarily denominated in INR; therefore, currency fluctuations can impact margins.
• Legal / Contingent Liabilities: Contingent liabilities and labour litigation could generate unexpected costs or impact the company's reputation.
• Profitability Volatility & One-offs: The past few years reflect the material impact on profit after tax due to exceptional items; investors should consider the previous two years and adjust for a reasonable number for normalised earnings.
  
  

Future Forecast

Revenue Growth Estimates

The forecast employs three growth trajectories—16.7% (Bear), 18% (Base), and 19% (Bull) CAGR — which are derived from industry projections along with Fractal's competitive advantages in AI-led products, global enterprise clients, and scalable platforms. This assumption is the basis of the estimates for Fractal's FY30 revenue potential across all cases.

Margin Expansion Estimates

PAT margins are estimated to gradually increase to 8% (Bear), 10% (Base), and 12% (Bull), reflecting the combined effects of efficiency gains, operational leverage, and increasing mix of recurring and IP-led revenues. Margins directly influence the estimated profitability (PAT) projection for FY30.

Valuation Multiple Estimates

The P/E multiples in use—65x, 68x, and 70x—are derived from expected improvements gained through efficiency from scale, profitability, and investor confidence in enterprise AI. The P/E multiple takes the estimated profitability and applies it in a turn of the projected earnings to estimate the future value under each scenario.

Bringing together the revenue growth rates, modest margin expansion, and assumptions about the valuation multiples, the model presumes an FY30 value of ₹31,099 Cr (Bear) to ₹55,433 Cr (Bull). Even in the case where the estimates are more conservative, there is significant upside, while the base case suggests a creation of value in a fully grown franchise through the key drivers of sustained revenue growth and margin expansion, bolstered by strong AI-driven demand.

What Conservative Investors Should Consider

• Adjusted metrics: focus on operating EBITDA excluding large one-offs and non-cash ESOP charges.
• Customer cohort health: retention trends and expansion revenue from MWCs.
• Evidence of R&D monetisation: pilot conversions, subscription uptake on Cogentiq, licensing, or recurring revenue from foundation models.
• Disciplined capital allocation post-IPO: identifiable M&A criteria and milestones in R&D identified for transparency.

Conclusion

Fractal Analytics has a strong specialist offering in a rapidly growing enterprise AI market. The company has demonstrated strong top-line growth, strong client relationships, and an ambitious strategy of combining consulting expertise with proprietary platform and model IP. The IPO appears well timed to de-leverage the balance sheet, increase product and R&D investment, and provide liquidity to shareholders. 

That said, Fractal’s investment thesis is predicated on execution in its ability to convert product development and foundation models into materially scalable and higher margin revenue path; articulate its ability to mitigate talent and client concentration risks; and avoid purchase accounting-related goodwill impairments as the company integrates future acquisitions From the standpoint of investors, Fractal represents a growth-oriented opportunity, but one requiring execution value to be added. Fractal will be appreciated by investors looking for exposure to enterprise AI’s still very long runway, but must be viewed through careful examination of valuation, as normalized profitability (and eventual product monetization after the IPO) all need to be established. This share is currently available for investors through Sharescart, making access seamless for those looking to participate in Fractal’s growth story.