Metrics raised 4
- TMT vertical growth: Q2 FY27 sequential growth expected
- Asper revenue: H2 FY27 much stronger (ARR +59% YoY to $9M)
- R&D spend: up to 10% of revenue over medium term
- Output/outcome/license mix: ~60% over next few quarters
Event Participants
Executives (6)
Anjali Garg, Ashwath Bhat, Pranay Agrawal, Satish Raman, Srikanth Velamakanni, Svetlana Joshi
Analysts (7)
Aditi Patil, Anish Khanal, Gaurav Rateria, Moez Chandani, Om Kavadi, Pritesh Thakkar, Sucrit Patil
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Revenue from operations | ₹912.5 crores (~$97 million) | +20% YoY, +3% QoQ; constant currency +9% YoY and -0.4% QoQ; TMT decline dragged headline growth |
| Revenue growth ex-TMT | 35–37% YoY | Management cited 37% in prepared remarks and 35% in Q&A; TMT declined 22% YoY |
| Vertical growth — Healthcare & Life Sciences | +69% YoY | Now second-largest vertical; AI foundations and transformation deals driving growth |
| Vertical growth — BFSI | +36% YoY | Banking & Financial Services; new practice leadership appointed |
| Vertical growth — CPG & Retail | +19% YoY | Largest vertical; steady growth; Asper live with 20 CPG clients |
| Vertical growth — TMT | -22% YoY | Bottoming out; healthy sequential growth expected in Q2 FY27 |
| Geographic growth | Europe +25%, Americas +24%, APAC & others -2% | Europe led; APAC impacted by TMT weakness and Middle East conflict |
| Net Revenue Retention | 117% | Up from 108% YoY; 0% churn from client base; new clients contributed 3% of growth |
| Client base (TTM revenue) | ₹1M+: 58; ₹5M+: 19; ₹20M+: 5 | Up from 54/18/4 YoY respectively; one TMT client slipped below ₹20M sequentially |
| Top 10 client concentration | 51.8% of revenue | Down from 55.9% YoY — de-risking while deepening client relationships |
| Gross margin | 45.7% | +29 bps YoY; rupee tailwind +273 bps offset by merit increase (-75 bps) and growth hiring (-169 bps) |
| Adjusted EBITDA margin | 16.8% | +189 bps YoY; adjusted EBITDA +35% YoY; SG&A down from 26.2% to 24.3% of revenue |
| Net income | ₹72 crores | +92% YoY; margin 7.9% (+296 bps YoY); ₹95.7 crores (10.5%) excluding associate share of loss |
| Diluted EPS | ₹4.09 | +78% YoY; ₹5.39 excluding share of loss of associate (Qure.ai) |
| R&D investment | ₹61 crores | +31% YoY; ₹41 crores (4.5% of revenue) expensed; focused on Cogentiq, Asper, Analytics Vidhya |
| Fractal Alpha segment | Loss of ₹14 crores | Revenue +20% YoY like-to-like (Analytics Vidhya +57%, Asper flat); gross margin 65%; loss widened from ₹4 crores on iqigai/EdTech integration |
| Asper ARR | $9 million | +59% YoY in dollar terms; H2 revenue expected stronger due to contract-to-revenue lag |
| Qure.ai revenue (associate) | ₹24 crores | +160% YoY; Fractal share of loss flat at ₹23 crores (vs ₹22 crores) |
| Cash from operations | -₹103 crores | Q1 seasonality from prior-year variable pay; 20% better YoY; cash conversion ~70% of EBITDA |
| DSO | 71 days | Improved 2 days YoY; billed AR ~54 days |
| Cash & cash equivalents | ₹1,639 crores (~$173 million) | Includes ₹689 crores IPO proceeds; long-term debt fully repaid in April 2026 |
| ROCE | ~13% | Management highlighted strong balance sheet position |
| License revenue / mix | 3% of revenue; 42% output/outcome/license | License revenue expected to rise; output/outcome mix target ~60%; Cogentiq revenue disclosure from next quarter |
Geographic & Segment Commentary
Healthcare & Life Sciences: Grew 69% YoY, becoming the second-largest vertical. Won one of the largest single programs in Fractal's history — building AI foundations and modernizing the data estate for a large healthcare player. Signed an MoU with Mumbai's BMC to pilot Vaidya.ai (Cogentiq Health) across public hospitals, with potential to become a citywide blueprint.
Banking & Financial Services: Grew 36% YoY; appointed Leandro as Chief Practice Officer. AI-led transformation deals with Cogentiq have been initiated across CPG and financial services clients.
CPG & Retail: Largest vertical, grew 19% YoY. Asper is deployed with 20 CPG clients; Cogentiq e-commerce product gaining traction.
Technology, Media & Telecom: Declined 22% YoY, dragging headline growth from 35–37% ex-TMT to 20%. Management sees the vertical bottoming out with healthy sequential Q2 growth driven by new deals from existing clients. Big tech's AI capex doubling is creating opex pressure and spend reallocation.
Europe: Grew 25% YoY, leading all geographies. A new head of Europe is being hired to further accelerate growth.
Americas: Grew 24% YoY, close behind Europe.
APAC & Others: Declined 2% YoY, impacted by TMT weakness and the Middle East conflict.
Fractal Alpha (Asper.ai + Analytics Vidhya): Like-to-like revenue grew 20% YoY — Analytics Vidhya +57%, Asper flat. Asper ARR up 59% to $9 million. Segment gross margin 65%; segment loss widened to ₹14 crores from ₹4 crores due to iqigai and EdTech team integration into Analytics Vidhya.
Qure.ai (Associate): Revenue grew 160% YoY to ₹24 crores; backlog improved from ~₹20 crores to ₹100+ crores YoY. Fractal's share of loss was flat at ₹23 crores.
Company-Specific & Strategic Commentary
AI go-to-market reorganization: Fractal reorganized into three vectors — AI-led Transformation (AIT), AI Foundations (AIF), and AI Work & Workforce (AIW) — under a new Chief Commercial Officer, Matt. Management expects growth to "dramatically accelerate" once the new structure settles.
Cogentiq platform: Product-led AI platform with industry solutions for underwriting, e-commerce, supply chain, and customer service; early wins with 10+ clients across industries. License revenue is 3% of total revenue and expected to rise; Cogentiq revenue disclosure to begin next quarter.
Partnerships: Strategic partnerships with Databricks, OpenAI, and Anthropic; five of the quarter's largest deals came through partners; 42 trailing-twelve-month joint engagements. Partnership-led revenue remains small but is a key growth vector.
Client de-risking and deepening: Top-10 client concentration fell from 55.9% to 51.8% of revenue; NRR up to 117% (from 108%); NPS 77 (from 73); Must-Win Clients now contribute 85% of revenue (up from 79%).
R&D discipline: ₹61 crores invested in Q1 (+31% YoY); management targets R&D up to 10% of revenue over time, funded only by expanding gross margins, with emphasis on faster R&D-to-revenue conversion.
Pricing model shift: Output/outcome/license mix at 42% of revenue, targeted to reach ~60% over the next few quarters as AI enables bolder outcome-based deals.
CFO transition: Ashwath Bhat's final earnings call after 5.5 years; successor identification is in progress, with details to be shared on completion.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| TMT vertical growth | Sequential growth expected in Q2 FY27 | Bottoming out; driven by new deals from existing clients already secured in the pipeline |
| Overall revenue growth | Acceleration as TMT stabilizes; ex-TMT growth 35–37% | Q1 acknowledged as underachieved; new go-to-market structure under CCO Matt expected to drive faster growth |
| Asper revenue | H2 FY27 much stronger | ARR +59% YoY to $9M; subscription revenue recognition lags contract signing |
| Operating margins | Continued YoY improvement | Q1 is seasonally the weakest quarter; full merit-increase impact (~120–130 bps P&L) hits Q2 |
| R&D spend | Up to 10% of revenue over medium term | Increases funded only by expanding gross margins; R&D-to-revenue conversion being accelerated |
| Output/outcome/license mix | ~60% over next few quarters | Currently 42%; AI enables larger outcome-based deals |
| Cogentiq / license revenue disclosure | New reporting from Q2 FY27 | License revenue currently 3% of revenue; Cogentiq and overall license revenue to be reported separately |
Risks & Constraints
| Risk | Context |
|---|---|
| TMT vertical weakness | -22% YoY in Q1; big tech AI capex nearly doubling is squeezing opex budgets. Management expects bottoming, but one TMT client already slipped below the ₹20M TTM threshold; sustained recovery is not guaranteed. |
| AI-driven work compression | AI is pushing ad hoc analysis and dashboard work "to zero." Management expects new AI-led demand to more than offset the shrinkage, but the transition creates near-term revenue volatility and demands rapid go-to-market repositioning. |
| Competitive intensity | The AI-led market is expanding but attracting many players (consulting, tech services, BPM). Management flags execution — not demand — as the binding constraint on growth. |
| Fractal Alpha segment losses | Segment loss widened from ₹4 crores to ₹14 crores YoY on iqigai/EdTech integration into Analytics Vidhya. Operating leverage expected as the unit scales, but timing is uncertain. |
| Qure.ai associate losses | Fractal's share of loss was ₹23 crores in Q1; improvement depends on H2-weighted revenue and conversion of the ₹100+ crore backlog (vs ₹20 crores last year). |
| Q1 cash flow seasonality | Operating cash flow was -₹103 crores due to prior-year variable pay payout; cash conversion to EBITDA ~70%. This annual Q1 pattern recurs. |
| Wage inflation | Annual merit increase effective June 1, 2026, will hit Q2 with the full three-month impact (~120–130 bps at P&L level; 75 bps gross margin impact in Q1). |
| CFO transition | Ashwath Bhat departing after 5.5 years; successor not yet announced — near-term leadership transition risk in the finance function. |
Q&A Highlights
TMT recovery visibility
- Question: What drives confidence in healthy sequential TMT growth in Q2 — work from existing clients or new client wins? (Gaurav Rateria, Morgan Stanley)
- Answer: Recovery is driven by new deals from existing clients, with a significant pipeline already secured. Management will stop commenting on client-specific issues and is taking accountability for performance. (Srikanth Velamakanni)
TMT client concentration and FY27 outlook
- Question: The count of ₹20M+ TTM clients fell from 6 to 5 sequentially — is this a TMT client? Has the FY27 outlook changed after Q1? (Om Kavadi, Avendus Spark)
- Answer: Confirmed — a TMT client slipped below ₹20M TTM; YoY comparison (5 vs 4) is the better lens. Q1 underachieved; go-to-market was reorganized under new CCO Matt into AIT/AIF/AIW vectors, and growth should "dramatically accelerate" once the new structure settles. (Srikanth Velamakanni)
TMT decline drivers and industry demand
- Question: Is the TMT decline due to competitive intensity or clients pausing discretionary spend? Is industry growth still around 16–17%? (Moez Chandani, Ambit)
- Answer: Big tech has nearly doubled AI capex, squeezing opex budgets and shifting spend toward capex; management took "most of the blame" on execution. AI-led TAM is expanding as tech budgets rise from ~4.5% toward 6% of revenue, but competition is intensifying. (Srikanth Velamakanni)
Cogentiq deal structure and revenue trajectory
- Question: Are Cogentiq deals product-led or services-led? What revenue contribution is expected by FY27 end? (Gaurav Rateria; Aditi Patil, ICICI Securities)
- Answer: Cogentiq deals are completely product-led, with underwriting, e-commerce, supply chain, and customer service products; 10+ clients signed. License revenue is 3% of revenue and expected to rise; Cogentiq revenue reporting will be introduced next quarter. (Srikanth Velamakanni)
Segment restatement and wage increase mechanics
- Question: Is the Fractal Alpha loss increase an integration-related one-off? Will the merit increase impact be fully felt in Q2? (Pritesh Thakkar, PL Capital)
- Answer: Not a one-off — iqigai and EdTech investments were moved from Fractal.ai to Analytics Vidhya with FY26 restated; operating leverage will emerge as the unit scales. Merit increase was effective June 1 across the company: Q1 carries one month (
75 bps gross margin), Q2 will carry three months (120–130 bps at P&L level). (Ashwath Bhat)
R&D intensity and pricing mix
- Question: How should R&D as a % of sales trend over the medium term? Where is the output/outcome/license mix headed? (Om Kavadi, Avendus Spark)
- Answer: R&D will rise toward 10% of revenue, funded only by expanding gross margins; R&D-to-revenue conversion is being accelerated. Output/outcome/license mix stands at 42%, targeted to reach ~60% over the next few quarters. (Srikanth Velamakanni)
Execution priorities and financial risks
- Question: What are the top 2–3 execution priorities and biggest risks on client adoption and competition? What financial risks remain (data privacy, costs, payment cycles)? (Sucrit Patil, Eyesight Fintrade)
- Answer: Three-pronged strategy — AI-led transformation, AI foundations, AI workforce transformation; leadership hires across verticals; internal talent upgrade to match demand shape. Balance sheet is strong: DSO 71 days (~54 days billed AR), cash conversion ~70% of EBITDA, ROCE ~13%; cybersecurity rated in the highest category by Black Kite. (Pranay Agrawal; Ashwath Bhat)
Fractal Alpha losses, Qure.ai, and margin trajectory
- Question: Why did Fractal Alpha loss widen from ₹4 crores to ₹14 crores, and how is Qure.ai growing? EBITDA margin dipped sequentially from ~22% to 17% — how will it trend? (Anish Khanal, Eternalis Capital Trust)
- Answer: Loss widened on Analytics Vidhya product investments (iqigai/EdTech); historically segment losses narrow as revenue scales, and Asper's 59% ARR growth supports H2 acceleration. Qure.ai revenue grew 160% with backlog up from ₹20 crores to ₹100+ crores YoY; share of loss flat at ₹23 crores. Q1 is seasonally the weakest margin quarter — YoY improvement (15% → 17% EBITDA) is the right comparison. (Ashwath Bhat; Srikanth Velamakanni)
Key Takeaway
Fractal reported Q1 FY27 revenue of ₹912.5 crores (+20% YoY, +9% constant currency), with headline growth dragged by a 22% decline in TMT; ex-TMT growth was 35–37%. Profitability improved sharply: adjusted EBITDA margin rose 189 bps to 17%, net income grew 92% to ₹72 crores (7.9% margin), and gross margin held at 45.7% despite wage inflation. Client quality strengthened — NRR reached 117%, top-10 concentration fell to 51.8%, and five of the quarter's largest deals came through partnerships with Databricks, OpenAI, and Anthropic. Healthcare & Life Sciences led verticals at +69% YoY, and the company won its largest-ever single program to build AI foundations for a major healthcare player while piloting Vaidya.ai (Cogentiq Health) with Mumbai's BMC. Management guided TMT to sequential growth in Q2 and expects overall growth to accelerate as the go-to-market reorganization under new CCO Matt settles. Watch items include Fractal Alpha segment losses, Qure.ai associate losses, AI-driven work compression, and the CFO transition.