Fractal Analytics Limited

Fractal Analytics Limited reported a revenue of INR 912.5 crore for Q1 FY27, marking a 20% year-on-year growth and 3% quarter-on-quarter growth. In constant currency terms, revenue growth was 9% year-on-year. Net income for the quarter grew by 92% to INR 72 crore, with the net income margin expanding by 296 basis points year-over-year to 7.9%. Adjusted EBITDA margin reached 17%, an increase of 189 basis points year-over-year, reflecting improved operational efficiency.

The Healthcare and Life Sciences (HLS) vertical was the leading growth driver, expanding by an exceptional 69% year-over-year, becoming the second-largest industry vertical. Banking and Financial Services grew 36% year-over-year, and CPG and Retail, the largest vertical, grew 19%. However, the Technology, Media, and Telecom (TMT) vertical experienced a 22% year-over-year decline, which significantly impacted overall headline growth. Management indicated that the TMT performance is 'bottoming out' and anticipates 'healthy sequential growth' in the next quarter.

Gross margin expanded by 29 basis points year-over-year to 45.7%, primarily benefiting from rupee weakness (+273 bps), despite negative impacts from annual merit increases (-75 bps) and increased headcount (-169 bps). Selling, General & Administrative (SG&A) expenses as a percentage of revenue reduced from 26.2% to 24.3%. The company invested INR 61 crore in research and development, 31% higher than the previous year, with INR 41 crore (4.5% of revenue) expensed, focusing on platforms like Cogentiq, Asper, and Analytics Vidhya.

The Fractal Alpha segment, which includes Asper.ai and Analytics Vidhya, saw its revenue grow 20% year-over-year on a like-to-like basis, but reported a segment loss of INR 14 crore. This increased loss is largely attributed to investments in integrating iqigai and EdTech teams into Analytics Vidhya. Asper's Annual Recurring Revenue (ARR) grew 59% to $9 million as of June 2026, with revenue expected to accelerate in the second half of the fiscal year. Qure.ai, an associate company, reported a 160% year-over-year revenue growth to INR 24 crore, and its backlog has substantially increased to over INR 100 crore, indicating improving profitability.

Fractal is strategically organized around AI-led business transformation, AI foundations, and AI workforce transformation, addressing a 'multi-trillion-dollar opportunity.' Management emphasized the importance of trust in AI, leveraging data assets for context layers, and transforming entire workflows. Partnerships with key players like Databricks, OpenAI, and Anthropic are becoming increasingly critical, with five of the largest deals this quarter originating through a partner, signaling a shift in how companies procure AI services.

The company continued to deepen its client relationships, with the number of clients contributing over INR 1 million, INR 5 million, and INR 20 million in TTM revenue increasing year-over-year. The contribution from the top 10 clients decreased from 55.9% a year ago to 51.8% in Q1 FY27, indicating successful de-risking of client concentration and a broader revenue base.

Fractal fully repaid its long-term debt in April 2026 using proceeds from its IPO, maintaining a strong balance sheet. As of June 30, 2026, cash and cash equivalents stood at INR 1,639 crore or $173 million. Days Sales Outstanding (DSO) improved by 2 days to 71 days. While cash from operations was negative INR 103 crore due to the payment of variable pay for the previous fiscal year, it was 20% better compared to the same period last year.

Management aims to increase the proportion of output/outcome/license-based revenue from the current 42% to 60% over the next few quarters, indicating a strategic shift towards higher-value engagements. The company also plans to increase its R&D spend to 10% of revenue, which will be funded by expanding gross margins. A key focus is on improving the conversion of R&D investments into revenue at a faster pace.