Buy Fractal Analytics Ltd for the Target Rs.1,250 by Choice Institutional Equities
Business Overview:
Fractal Analytics is a global AI and advanced analytics company that enables enterprises to drive data-led decision-making through a combination of AI consulting, technology services, and proprietary software platforms. The company operates through two business segments - Fractal.ai, which houses its core AI services and product offerings, and Fractal Alpha, which incubates and scales emerging ventures. With deep expertise across data, analytics, and AI, Fractal helps organisations solve complex business challenges, enhance operational efficiency and accelerate growth. The company serves a diversified roster of blue-chip clients, including Citibank, Costco, Franklin Templeton, Mars, Mondelez, Nestlé, and Philips, and counts a majority of the Magnificent Seven technology companies among its customers, underscoring its strong positioning in the global AI ecosystem.
How is FRACTAL set to outgrow peers despite macro challenges?
Fractal is well positioned to outgrow peers despite macroeconomic headwinds, supported by its pure-play focus on AI, data, and analytics areas that remain strategic investment priorities for enterprises. The company continues to see strong momentum in AI and Agentic AI-led engagements, backed by a growing portfolio of proprietary platforms and accelerators. As enterprise AI adoption evolves from pilot programs to large-scale deployments, Fractal is well placed to capture a disproportionate share of AI spending, supporting growth rates that are likely to remain ahead of the broader IT services industry.
Why Invest in FRACTAL?
FRACTAL’s key bets:
(1) Fractal is well-positioned in one of the fastest-growing sub-segments of global IT spend – DAAI market.
(2) Growth driven by Magnificent Top 7 client accounts & Must Win Clients acquisition
(3) Fractal has developed AI/analytics platforms (e.g., Cogentiq) and repeatable use-case accelerators.
(4) Meaningful monetisation optionality through platforms and IP – Vaidya, Kalaido.ai, Project Ramanujan, and Fathom R1-14B.
(5) Strong pricing power and AI expertise make Fractal a high-quality, resilient growth story. Fractal’s healthy NRR of 112%, improving revenue productivity and strong traction in platform-led businesses such as Asper and Analytics Vidhya underscore robust client mining and growing monetisation of its AI-led offerings. Coupled with sustained investments in R&D and improving profitability, the company is effectively balancing innovation with growth, positioning it to capitalise on accelerating enterprise AI adoption and platform-driven transformation opportunities. We expect Revenue/EBIT/PAT to grow at a CAGR of 21.4%/44.6%/46.5% over FY26–FY29E. We maintain our ‘BUY’ rating deriving a DCF-based target price of INR 1,250 on an implied PE of 31x based on FY28E EPS of INR 40.4.
Valuation: We currently have a ‘BUY’ rating on the stock with a target price of INR 1,250.
Key Risks:
Weakness in TMT segment: The recent weakness in the TMT segment was driven by client-specific issues that have largely flowed through the P&L and are not expected to persist going forward.
Competition: Competition from IT consulting firms, BPO, niche analytics players, can pressurise growth and pricing.
Low EBIT Margin: Fractal’s subdued EBIT margin reflect deliberate investments in R&D (~6.2% of revenue), AI platforms such as Cogentiq, Vaidya.ai and LLM Studio, along with acquisition integration costs.
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
