Fractal Analytics: Target Price Set at Rs 1040 by Prabhudas Lilladher

Fractal Analytics Reports Mixed Q4 Performance, Adjusts Guidance

Fractal Analytics' Q4 performance was a mixed bag, with revenue growth of 3.7% quarter-over-quarter (QoQ) in Indian rupee (INR) terms falling short of Prabhudas Lilladher's estimate of 8.3%. However, the company's EBITDA margin expanded sharply by 530 basis points (bps) QoQ, exceeding the research firm's estimate of 260 bps improvement.

The revenue miss was largely attributable to weakness in Fractal.ai, particularly within the Technology, Media, and Telecommunications (TMT) vertical, which declined sharply by 14% QoQ due to client-specific issues. In contrast, the company's ex-TMT business reported strong growth of 27.5% year-over-year (YoY) in FY26, validating healthy growth within other pockets.

Fractal's Alpha segment, which accounts for approximately 3% of revenue, continues to scale with losses steadily narrowing. This is attributed to a growing mix of intellectual property (IP)-led and license-linked revenues through Asper.ai and Cogentiq. Management remains confident of robust medium-term growth, driven by accelerating enterprise AI adoption, which will expand Fractal's addressable opportunity.

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On the margins front, the company is focusing on driving fee-per-project (FPP)/output/outcome-based constructs from the current level of approximately 40% to 60% of revenue over the next three years. Additionally, unit economics played out strongly in FY26, with revenue per billable Full-Time Equivalent (FTE) increasing by 5% YoY. This gives confidence to drive better margins for FY27E and FY28E.

However, given the Q4FY26 revenue miss and challenges in the TMT segment, Prabhudas Lilladher has reduced its FY27E/FY28E consolidated revenue growth estimates to 16.4%/16.9% from 21.5%/22.7% earlier.

Consolidated Revenue Growth Estimates Comparison

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The research firm has, however, raised its EBITDA margin estimates to 17.0%/18.0% from 15.9%/16.9%, driven by strong Q4 margin performance. Additionally, it is narrowing losses from associates for FY27E/FY28E, given Qure.ai reaching a steady state.

Prabhudas Lilladher values Fractal Analytics at 20x Enterprise Value (EV)/EBITDA, arriving at a target price of INR 1,040. As a result, the research firm has downgraded the stock to HOLD from BUY.