Executive Summary

Fractal Analytics is a high-quality, global analytics and AI-led services company entering the public markets at a time when anything labelled “AI” commands a scarcity premium. However, quality of business and quality of IPO pricing are two very different questions.

Our assessment: This is not a binary Apply/Avoid IPO. It is a tactical IPO, suitable for selective participation, not a long-term core portfolio compounder at the offer price.

IPO Snapshot

• IPO Dates: 9–11 February 2026

• Price Band: ₹857–₹900

• Issue Size: ~₹2,834 crore (materially downsized)

• Market Capitalisation (Post Issue): ~₹15,000 crore

• Grey Market Premium (GMP): ~6–8% (volatile)

📌 The downsizing of the issue itself signals valuation sensitivity and measured institutional appetite.

Business Model: What Fractal Actually Is

Fractal operates at the intersection of advanced analytics, AI modelling, and enterprise decision intelligence. Core revenue streams include:

• Long-term analytics and decision-science engagements

• AI-led optimisation and transformation projects

• Platform-assisted services (not pure SaaS)

Critical Clarification

❗ Fractal is not an AI product or SaaS company.
It is an AI-enabled services company with project-based and annuity-style revenues.

This distinction matters because:

• AI product companies scale non-linearly with software IP

• Services businesses scale linearly with talent and billing capacity

Valuations must reflect this structural reality.

Financial Quality Check

• Revenue Growth: ~25% YoY (healthy, not hyper-growth)

• Profitability: Recently turned profitable after prior losses

• Margins: Improving, but sensitive to wage inflation and client pricing

• Operating Cash Flows: Positive in the latest financial year

• Employee Cost Ratio: >55% of total expenses, confirming people-intensive services economics

📌 The business quality is real, but the cost structure and scalability resemble high-end services, not product-led platforms.

Valuation Reality Check

At IPO Pricing:

• P/E Multiple: ~75–80x FY25 earnings

• Embedded Assumptions: Sustained high growth + margin expansion + AI premium

Valuation Comparison (Perception vs Reality)

📌 Fractal is being priced closer to AI product firms while behaving economically like a high-end IT services company.

This valuation-perception gap is the single biggest risk in the IPO.

Key Risks (What Can Go Wrong)

1️⃣ Valuation Compression Risk

Even solid execution may not protect the stock if:

• Growth normalises

• AI sentiment cools

• Global tech multiples contract

2️⃣ Client Concentration Risk

• Top 5 clients contribute ~40% of total revenue

• Top 10 clients contribute over 55% of revenue

This limits pricing power and increases renewal risk during macro slowdowns.

3️⃣ Revenue Geography Risk

• North America: ~65%

• Europe: ~15%

• India & Rest: ~20%

Earnings remain exposed to US enterprise tech spending cycles.

4️⃣ Talent Cost & ESOP Dilution Risk

• Employee costs exceed 55% of total expenses

• A large ESOP pool remains outstanding, creating margin pressure and future equity dilution

5️⃣ AI Narrative Risk

If markets reclassify Fractal as a services company rather than an AI platform, valuation multiples may reset lower.

GMP & Listing-Day Expectations

Current GMP of ~6–8% suggests:

• No euphoric demand

• Valuation awareness already priced in

Possible Listing Scenarios

📌 This is not a “must-apply for listing pop” IPO.

What DRHP Tells Us That Headlines Don’t

🔍 The IPO is largely an investor monetisation event, with a significant portion structured as Offer for Sale rather than growth capital infusion.

🔍 IPO proceeds are not earmarked for large-scale AI product or proprietary IP development, reinforcing Fractal’s services-led DNA.

🔍 Revenue visibility is renewal-driven, as most client contracts are short-to-medium term with limited multi-year lock-ins.

🔍 ESOP-related dilution is a structural overhang, constraining operating leverage despite revenue growth.

🔍 The company faces routine commercial and employment-related litigations, though none are considered material to business continuity.

Who Should Apply

✅ Tactical investors targeting modest listing gains
✅ Investors seeking exposure to India’s first listed AI-led analytics firm
✅ Those comfortable with valuation-driven volatility

Who Should Avoid

❌ Long-term investors seeking margin-led compounding
❌ Investors expecting SaaS-style scalability and operating leverage
❌ Conservative investors sensitive to valuation risk

Post-Listing Strategy

If Allotted:

• >10% listing gains: Consider partial profit booking

• Medium term: Track client additions, margin stability, ESOP impact, and AI IP disclosures

• Long term: Re-evaluate after 2–3 quarters of listed financials

Final Fund Manager Verdict

Fractal Analytics is a strong, credible analytics franchise entering the market at a demanding valuation.
At IPO prices, the risk-reward favours selective participation, not blind conviction.

Bottom Line

Great company ≠ great IPO price.

Fractal Analytics deserves tracking — but patience may offer better entry points post listing.