Fractal Analytics: 5 Reasons PL Capital Sees 40% Upside on AI Platform and Margin Expansion
- 18th February 2026
- 02:30 PM
- 4 min read
Summary
PL Capital has initiated coverage on Fractal Analytics with a ‘Buy’ rating and a target price of ₹1,260, implying around 40% upside from current levels. The positive view is driven by structural AI demand, improving margins and scaling of its platform-led business. Shares saw a positive price reaction following the report.Mumbai | February 18
Fractal Analytics had a weak debut in the market earlier this week, listing below its IPO price of ₹900. Shares opened at ₹847.15 on NSE and ₹826.25 on BSE, reflecting cautious initial sentiment.
PL Capital has initiated coverage on the stock with a ‘Buy’ rating and a target price of ₹1,260, implying nearly 40% upside from current levels. The positive outlook is based on strong revenue growth, improving margins and increasing contribution from its AI-led platform business.
The stock gained nearly 7% on Tuesday following the initiation report.
Here are five key reasons behind PL Capital’s positive view on the company.
AI Expands the Addressable Opportunity
Artificial intelligence is reshaping enterprise technology spending. Instead of replacing traditional IT services, AI is expanding the overall opportunity by creating fresh demand in workflow redesign, legacy modernization, governance architecture and agent-based automation.
Management estimates that AI-led services could create a $300–400 billion incremental opportunity by 2030. Fractal operates directly in this application layer, supporting decision systems and enterprise transformation programs across consumer, financial services, healthcare and technology verticals.
As enterprises move from pilot programs to production-scale deployment, project sizes are increasing and engagements are becoming longer in duration. This shift supports greater revenue visibility and higher-value mandates.
Strong Client Metrics Support Revenue Visibility
Fractal has delivered steady execution over the past decade, recording approximately 27% USD revenue CAGR historically, with client retention of around 98% and net revenue retention above 120%.
Top accounts have grown at over 20% CAGR in recent years, with several clients moving into the $20 million-plus revenue bucket. This reflects deeper wallet share and strong cross-selling momentum within existing enterprise relationships.
Nearly 80% of the company’s revenue comes from existing accounts, with a high annuity-led mix. This reduces dependence on aggressive new client additions and provides strong visibility into medium-term revenue growth.
PL Capital estimates consolidated revenue CAGR of 19.3% over FY26E–FY28E, supported by continued traction in large accounts and scaling AI-led transformation mandates.
Margin Expansion Is the Key Trigger
The next phase of growth is expected to be margin-led.
EBITDA margins currently stand near 13%. They are projected to improve toward the high teens over the next few years as revenue growth decouples from headcount expansion, ESOP expenses moderate and the higher-margin SaaS-led Fractal Alpha platform gains scale.
A key contributor to this shift is Fractal Alpha, the company’s IP-led AI platform business. Unlike traditional analytics services that scale largely with manpower, Alpha follows a more productised model. As adoption increases, revenue from this segment can grow faster than operating costs, supporting operating leverage. Over time, a higher contribution from Alpha is expected to improve consolidated margin profile and earnings quality.
PL Capital estimates EBITDA and PAT CAGR of 30.9% and 44.5%, respectively, over FY26E–FY28E. As the share of IP-led and platform-based revenue increases, operating leverage is expected to strengthen further.
Balance Sheet and Return Ratios Improving
A portion of IPO proceeds is being used to reduce subsidiary debt, improving the balance sheet profile and net income visibility.
With improving margins and better capital efficiency, return on equity and return on capital employed are expected to move into mid-teen levels over the medium term.
Return on equity is projected to improve toward the mid-teens, reaching nearly 14% by FY28E as margins expand and capital efficiency improves.
Free cash flow generation is also projected to stabilise as earlier investment cycles moderate.
Valuation Does Not Fully Reflect Growth
At around 15x FY28E EV/EBITDA, the stock trades below the 22x multiple used in PL Capital’s valuation framework.
Given the combination of high-teen revenue growth, 30%+ EBITDA growth, improving margins and structural AI tailwinds, the current valuation does not fully reflect the medium-term earnings trajectory.
The valuation also appears reasonable compared with listed analytics and digital peers on a forward EV/EBITDA basis.
Key Risks to Monitor
Investors should note that the company derives a significant share of revenue from top clients and has meaningful exposure to the US market. In addition, while AI spending is structurally expanding, parts of enterprise AI budgets remain discretionary and could see temporary moderation in a macro slowdown.
For detailed report, click here.
