Fractal Analytics Q3 FY27 Earnings Review

Key Highlights

• Fractal Analytics reported a revenue growth of +5.0%/14.0% QoQ/YoY, below our estimates, due to softness in CPG and TMT verticals.
• Fractal.ai, accounting for 98% of revenue, grew at a healthy pace of +7.7%/20.9% QoQ/YoY.
• Segmental margin expanded by +170bps QoQ, driven by Fractal.ai's growth.

Revenue Performance

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• Fractal Analytics revenue growth was impacted by:
  • Softness in CPG vertical, driven by macro-oriented factors.
  • Weakness in TMT vertical, attributed to structural and client-specific issues.
  • Encouraging growth in other verticals, up ~27% YoY.
• Fractal.ai's growth was driven by a healthy pace of +7.7%/20.9% QoQ/YoY.

Segmental Performance

• Fractal Alpha reported a sequential softness of -13.3%/+29% QoQ/YoY, due to consol margin dilution of ~50bps QoQ.
• The company is pivoting from traditional billing to an output-based model, which contributes a marginal portion to overall billings.

Outlook

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• Fractal Analytics trades at 18x/14x EV/EBITDA FY27E/FY28E.
• We assign a target price of Rs. 1,110, based on a 20x EV/EBITDA multiple for FY28E.
• Recommendation: BUY.