Fractal Analytics IPO debut falls short as India's first AI company faces valuation concerns

Fractal Analytics' muted IPO debut signals persistent AI fears in India | TechCrunch

As India's first AI company to IPO, Fractal Analytics didn't have a stellar first day on the public markets, as enthusiasm for the technology collided with jittery investors recovering from a major sell-off in Indian software stocks. Fractal listed at ₹876 per share on Monday, below its issue price of ₹900, and then slid further in afternoon trading. The stock closed at ₹873.70, down 7% from its issue price, lending the company a market capitalization of about ₹148.1 billion (around $1.6 billion). That price tag marks a step down from Fractal's recent private-market highs. In July 2025, the company raised about $170 million in a secondary sale, at a valuation of $2.4 billion. It first crossed the $1 billion mark in January 2022 after raising $360 million from TPG, becoming India's first AI unicorn. Fractal's IPO comes as India seeks to position itself as a key market and development hub for AI in a bid to attract investment amid increasing attention from some of the world's most prominent AI companies. Firms such as OpenAI and Anthropic have been engaging more with the country's government, enterprises, and developer ecosystem as they seek to tap the country's scale, talent base, and growing appetite for AI tools and technology. That push is on display this week in New Delhi, where India is hosting the AI Impact Summit, bringing together global technology leaders, policymakers and executives. Fractal's subdued debut followed a sharp recalibration of its IPO. In early February, the company decided to price the offering conservatively after its bankers advised it to, cutting the IPO size by more than 40% to ₹28.34 billion (about $312.5 million), from the original amount of ₹49 billion ($540.3 million). Founded in 2000, Fractal sells AI and data analytics software to large enterprises across financial services, retail and healthcare, and generates the bulk of its revenue from overseas markets, including the U.S. The company pivoted toward AI in 2022 after operating as a traditional data analytics firm for over 20 years. Fractal touted a steadily growing business in its IPO filing, with revenue from operations rising 26% to ₹27.65 billion (around $304.8 million) in the year ended March 2025 compared to a year earlier. It also swung to a net profit of ₹2.21 billion ($24.3 million) from a loss of ₹547 million ($6 million) the previous year. The company plans to use the IPO proceeds to repay borrowings at its U.S. subsidiary, invest in R&D, sales and marketing under its Fractal Alpha unit, expand office infrastructure in India, and pursue potential acquisitions.

Fractal Analytics sees margin expansion, strong cash flows post IPO; healthcare and AI to drive growth

AI and advanced analytics firm Fractal Analytics expects profit margins to improve further after its IPO, backed by rising license-led revenue, operating leverage and strong demand from healthcare and consumer sectors, its co-founders said in an interaction with ET Now. Responding to a question on profitability outlook, Co-Founder Pranay Agrawal said the company already operates at healthy gross margins and expects further expansion as it increases license-based revenue through its AI platforms, including Cogentiq and its Alpha initiatives. "We already enjoy pretty healthy gross margins. As we drive more license-based revenue, we expect gross margins to improve further," Agrawal said. He added that Fractal has made significant investments in sales infrastructure and general administration (G&A), which are not expected to scale proportionately with revenue growth. This operating leverage, he noted, should lift EBITDA margins over time. Co-Founder Srikanth Velamakanni highlighted that Fractal's adjusted EBITDA margin stood close to 20% in the last quarter. "We expect margins to remain healthy going forward. We are significantly profitable and generate strong cash flows," Velamakanni said. The company generated nearly ₹500 crore in cash from operations last year and expects similar levels of cash generation in the current financial year. Fractal is particularly optimistic about the healthcare and life sciences sectors. Agrawal noted that healthcare continues to expand as a share of the US economy and is among the largest job-creating sectors. With AI adoption accelerating across healthcare systems, insurers and life sciences companies, Fractal sees sustained opportunity. "Healthcare is one of the sectors that will benefit most from AI-driven efficiencies and better economics," he said, adding that the company will continue to invest in solutions, client relationships and AI-powered applications on Cogentiq. Beyond healthcare, the company remains positive on consumer packaged goods (CPG), which continues to be one of its largest verticals. Addressing concerns about potential risks from AI-led deflationary pressures, Velamakanni said global technology spending is likely to increase rather than contract. Currently, technology spend accounts for roughly 4.5% of revenue for large global corporations, he noted. "No major CEO is looking to reduce tech spend. In fact, that number could rise from 4.5% to 6%," he said. Historically, AI addressed about 10% of overall tech spending. That addressable market has now expanded to nearly one-third of total tech expenditure, implying that roughly 2% of global revenue could become AI-driven opportunity. While AI compresses timelines and enhances productivity -- making technology inherently deflationary -- Velamakanni believes the net impact will be expansionary due to broader adoption and higher enterprise spend. "Opportunities are immense. We do not see major risks in terms of growth or profitability," he added. With improving margins, strong operating cash flows and expanding AI adoption across healthcare and consumer sectors, Fractal Analytics expects to maintain profitability momentum in the post-IPO phase. The company's strategy hinges on scaling platform-led revenue, deepening industry vertical expertise and capturing a growing share of global AI technology budgets.

Seen as Indian investor's gateway to AI play, what went wrong with Fractal Analytics IPO?

Fractal Analytics debuted below issue price as muted retail demand and valuation concerns overshadowed its AI positioning. Despite institutional support, high multiples, volatile margins and IT sector weakness capped listing gains. Long-term prospects hinge on revenue consistency, attrition control and converting AI capabilities into scalable, recurring earnings growth over time. Fractal Analytics, widely billed as Indian investors' gateway to the artificial intelligence theme, made a subdued stock market debut on February 16, listing at Rs 876 on the NSE, a 2.7% discount to its issue price of Rs 900. The stock fell further in afternoon trade, trading nearly 5% below the offer price. The soft listing can be puzzling for a company positioned at the heart of one of the fastest-growing global sectors. Investor demand set the tone, as it was quite muted for the first few days, and the IPO only sailed through on the last day, thanks to institutional investors. The Rs 2,840 crore offer was subscribed 2.66 times overall, in which Qualified Institutional Buyers subscribed 4.18 times. However, the Non-Institutional Investor segment was subscribed to just 1.06 times and the retail portion only 1.03 times, reflecting limited enthusiasm outside institutional circles. The muted retail response proved significant on listing day. One of the main reasons for this, analysts say, is the age-old valuation concerns. At the upper price band of Rs 900, the stock was valued at a FY25 post-issue P/E multiple of 78.9x, according to SBI Securities. While revenue grew at an 18% CAGR between FY23 and FY25 and rose 20% year-on-year in the first half of FY26, profit growth and margins were less consistent. The company's profit after tax stood at Rs 220.6 crore in FY25, but historical earnings volatility and elevated attrition levels, at 16.3% in FY25 and 15.7% in the first half of FY26, added to investor caution. SBI Securities had assigned a neutral rating ahead of listing, stating that "considering the elevated valuation, we would like to track the performance of the company for a few quarters post listing." The broader market backdrop did not help either. IT stocks have corrected sharply in recent weeks amid concerns that generative AI tools could reduce demand for traditional outsourcing and analytics services. For a company marketed as an AI pure play, that paradox was again a mystery. It could also be that some analysts, like Lakshmishree, said that while AI represents a growth engine, it also introduces disruption risks, including the possibility of clients building more capabilities in-house. Ravi Singh, Chief Research Officer at Master Capital Services, said the weak opening was largely sentiment-driven. "The institutional segment showed interest, but retail participation was modest. In the current market environment, valuation discipline is very important," he said. Fractal operates in two major segments: Fractal.ai, which offers AI-driven services and products through its platform Cogentiq, and Fractal Alpha, which incubates independent AI businesses. The company counts marquee names such as Citibank, Costco, Franklin Templeton, Mars, Mondelez, Nestle and Philips among its clients, with the top ten customers contributing more than half of its revenue. Client stickiness has been strong, with an average tenure of more than eight years among its largest accounts. Singh said that from a long-term perspective, the company remains well-positioned to benefit from the global AI opportunity. Lakshmishree also highlighted the long-term structural theme but cautioned that rapid advances towards more autonomous AI systems could disrupt traditional analytics models. Even so, it noted that Fractal's established niche and client relationships offer competitive strength. For short-term investors who entered purely for listing gains, the soft debut signals that immediate upside may be limited. However, for long-term investors with a higher risk appetite, the listing discount could offer a more reasonable entry point compared to IPO pricing, provided they are comfortable with near-term volatility, according to Singh. The key monitorables over the next few quarters will be revenue growth consistency, margin expansion, attrition trends and clarity on how much of its AI capability translates into scalable, recurring revenue. Investors will also watch whether large clients increase spending on AI transformation projects and whether Fractal can protect pricing in a rapidly evolving landscape. The global AI market is projected to reach $310 billion by FY30, offering a significant runway. Fractal's challenge will be converting that opportunity into predictable earnings growth at a valuation that justifies investor confidence. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.) (You can now subscribe to our ETMarkets WhatsApp channel)