Should high-risk investors bet on Fractal Analytics IPO?

Synopsis

Fractal Analytics is set to raise significant funds through its IPO. The company plans to use the proceeds for debt repayment and business expansion. While its revenue has grown and it turned profitable, investors should note the high valuation and dynamic AI market. The promoter stake will decrease post-listing. This IPO is for those with a higher risk tolerance.

ET Intelligence Group: Fractal Analytics, a pure-play enterprise data analytics and artificial intelligence (AI) company, plans to raise ₹1,024 crore through fresh equity to repay debt and to cover R&D and sales and marketing costs. It will also raise ₹1,810 crore through an offer for sale. The promoter group's stake will fall to around 17% after the IPO from 18% on a fully diluted basis. The company spends 5-7% of revenue on research and development (R&D) compared with around 2% for traditional IT services companies, reflecting focus on cutting edge technology. However, the company operates in a highly dynamic AI segment and any unfavourable technological developments may affect its business potential amid high client concentration. Given this and rich valuation, the IPO looks more suitable for investors with high risk appetite.

Business

The company provides solutions pertaining to the AI transformation from ideation to adoption encompassing functional areas such as analysing and predicting customer behaviour, product development, and executive decision making. The US is its major market, contributing over two-third to revenue. The company's offerings are divided in two segments-Fractal.AI, which contributes over 97% to revenue and the rest is from Fractal Alpha. Over half of the Fractal.AI revenue comes from top 10 clients.

Agencies

New Frontiers: The co, which provides solutions pertaining to the AI transformation from ideation to adoption, turned profitable in FY25

Financials
Fractal turned profitable on a reported basis in FY25 after posting losses in the previous years excluding exceptional items. The company management attributed the losses to the ESOP cost, which was 8% of revenue in FY23. This proportion fell gradually in subsequent years to 2.9% in FY25 and to 1.7% in the first six months of FY26. As the company has covered most of its employee base of 5,722 in the ESOP plan, the ESOP expenses are expected to reduce further in the coming years. The company's revenue rose steadily to ₹2,765.4 crore in FY25 from ₹1,985.4 crore in FY23. It reported a net profit of ₹220.6 crore in FY25. The operating margin before depreciation and amortisation (Ebitda margin) fluctuated between 4% and 22% between FY23 and FY25. It was at 11.9% in the six months to September 2025.

Valuation

The company shows seasonality in business with the second half of a fiscal year contributing more to revenue. Therefore, based on the annualised six-month net profit till September 2025, the post-IPO price-earnings (P/E) works out to be around 110 on a fully diluted basis whereas the FY25 P/E is lower at 67. Latent View Analytics, which also deals in AI driven analytics and consulting, trades at a forward P/E of around 46 based on annualised diluted EPS for nine months to December 2025.

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