Detailed Narrative
Healthcare Vertical Emerges as Primary Growth Engine
The Life Science and Healthcare segment delivered a standout performance with 78% YoY revenue growth in Q3 FY26. This surge was attributed to strategic investments in building specialized capabilities and the launch of Vaidya 2.0, a verticalized foundation model for healthcare. Management noted that Vaidya 2.0 is the first model to achieve a 50+ score on the OpenAI HealthBench (Hard), positioning Fractal as a leader in medical multimodal reasoning.
Profitability Milestone and Margin Trajectory
Fractal crossed the ₹100 crore quarterly PAT milestone, a 10% YoY increase despite a significant jump in losses from associate company Qure.ai (₹19 crore vs ₹3 crore). Gross margins expanded to 47.2%, driven by a shift toward output-based contracts and productivity improvements. Management expects further EBITDA expansion as SG&A and ESOP charges (which fell from 4.9% to 2.8% of revenue) continue to decline as a percentage of sales.
Resilience in 'Must Win Clients' Strategy
The company's focus on 'Must Win Clients' (MWCs)—enterprises with >$10B revenue or >$20B market cap—continues to pay off, with the count reaching 127. These clients now contribute 83% of total revenue, up from 81% in FY25. The high Net Revenue Retention of 114% underscores Fractal's ability to expand existing relationships, even as it added 8 percentage points of growth from new client additions during the quarter.
R&D as a Competitive Moat
Fractal maintains a high R&D intensity, investing 6-8% of revenue into AI research and product development. Key outputs include PiEvolve, an agentic engine for autonomous machine learning, and Cogentiq, the company's agentic AI platform. Management argues this investment creates a defensible moat against generic IT services firms that lack proprietary AI models and deep domain-specific 'dark data' access.
Navigating Macro Headwinds in CPG and TMT
The CPG and Retail vertical, Fractal's largest at 36% of revenue, saw a modest 14% growth due to tariff-related uncertainties and macroeconomic volatility. Similarly, the TMT segment experienced a 2% degrowth, and APAC declined 6%, both linked to specific restructuring at a large telecom client. Management views these as isolated incidents rather than structural shifts, maintaining that overall client churn remains healthy at approximately 1%.