PL Capital initiates Fractal with 'Buy'; bets on AI, strong account mining

Analysts at PL Capital have initiated coverage on the recent D-Street debutant Fractal Analytics with a ‘Buy’ rating, citing the company’s strong account mining capabilities, steady growth in top accounts, low dependence on new logos, and favourable positioning in artificial intelligence (AI), revenue growth management (RGM), and high-growth verticals.

 

Pritesh Thakkar and Sujay Chavan of PL Capital expect the company to sustain its growth momentum, with a turnaround in Fractal Alpha likely to support consolidated performance.

 

The brokerage has set a target price of ₹1,260 per share, valuing the company at 22x FY28E EV/Ebitda. The target implies a potential upside of around 40 per cent from the previous closing price of ₹900. Fractal Analytics made its stock market debut on February 17 after raising ₹2,840.16 crore through its initial public offering (IPO).

 

 

Fractal, the analysts said, has demonstrated consistent revenue performance over the past decade, clocking about 27 per cent CAGR in US dollar terms, alongside robust client retention of around 98 per cent, a strong sales engine, and R&D-led innovation.

 

“The cross-sell and up-selling efforts are clearly visible in net revenue retention (NRR) of over 120 per cent, clients graduating to the $20 million-plus bucket, and a 20 per cent-plus US dollar revenue CAGR (FY23–H1FY26) for top accounts. Fractal is now focusing on earnings before interest, taxes, depreciation, amortisation and management fees (EBITDAM) expansion from around 13 per cent in FY25 to 20 per cent,” the brokerage said in a research note.

 

PL Capital believes that the decoupling of revenue and headcount growth, moderation in ESOP costs, and improvement in high-margin SaaS revenue under Fractal Alpha will aid EBITDAM expansion going forward. However, it cautioned that higher R&D as well as sales and marketing spends linked to the commercialisation of products under the Alpha platform could exert pressure on margins beyond a threshold.

 

The brokerage estimates a CAGR of 19.3 per cent in US dollar revenue, 30.9 per cent in INR Ebitda, and 44.5 per cent in INR PAT over FY26E–FY28E. It also noted that valuations remain inexpensive at 15.1x FY28E EV/Ebitda.  CHECK Stock Market LIVE Updates

Besides these, the analysts pointed out the below factors behind their bullish call:

Strong account mining, recurring revenue: According to PL Capital, nearly 80 per cent of revenue comes from existing accounts, with about 98 per cent annuity-led revenue and a high NPS of around 77. “Backed by a robust sales engine of about 150 members, the company continues to scale wallet share, evidenced by multiple clients moving into higher revenue buckets and the doubling of the $5–10 million cohort over the past two years,” the brokerage said.

 

Top accounts growing; low new logo dependency: Fractal, the analysts said, systematically graduates accounts across tiers while broadening its base. Leadership expertise in AI, analytics, and enterprise transformation ensures sustained client engagement beyond single projects.

 

Well positioned in AI, RGM and high-growth verticals: According to PL Capital, Fractal’s engagements are centred on upstream AI architecture, combining data engineering, enterprise-grade customised reasoning models, and agentic AI. “With about 40 per cent of revenue coming from RGM and optimisation practices and over 50 per cent exposure to HLS and CPG, the company’s vertical and functional mix is well aligned to high-growth industry segments and AI functions,” the brokerage said.

 

Fractal.ai to sustain growth momentum: The brokerage highlighted that, excluding Neal Analytics, Fractal grew around 20 per cent year-on-year in INR terms in FY24. Fractal.ai posted a US dollar revenue CAGR of about 16 per cent over FY23–FY25, with notable contributions from HLS and TMT, outperforming consolidated growth.

 

Fractal Alpha turnaround to aid profitability: Analysts expect Fractal Alpha, which has historically weighed on consolidated profitability, to break even in FY27E. “With continued monetisation and scaling of its higher-margin SaaS businesses, though a relatively small contributor to overall margins, it is expected to provide incremental support to consolidated margins and enhance overall profitability over time.”

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