1) What does Fractal do? (Very simply)

Fractal builds AI and analytics products and services for large companies. They help big firms use data and machine learning to make better decisions — for example, improving marketing, predicting demand, or building AI tools that run inside a company’s operations. They sell both custom projects and product platforms to enterprise clients.

Who uses them? Big global brands — the RHP names firms like Microsoft, Apple, and others as customers. That’s a strong credibility signal: big clients use their tech.

2) How Fractal makes money (simple)

• Services & consulting: Big projects where they build custom AI solutions.

• Product platforms: Reusable AI softwares / platforms they licence.

• Support & subscriptions: Ongoing revenue for running and maintaining AI systems.

They have a mix of predictable subscription-style income and higher-margin project work.

3) Key numbers investors care about (from the RHP)

• IPO size & price band: Price band is ₹857–₹900 per share; total issue size (at upper band) ≈ ₹2,833.9 crore (mix of fresh issue and offer-for-sale).

• Anchor demand: They raised ~₹1,249 crore from anchor investors before the IPO — a sign big funds showed interest.

• Valuation signals: At upper price band, P/E based on FY25 diluted EPS is very high versus the index — this is a premium valuation for a fast-growing, high-margin AI company. (Price-band doc).

(The RHP contains detailed audited financials — revenue growth, margins, client lists and more. I used those figures to form the view below.)

4) Growth story (what’s good)

• Fast global demand for AI: Enterprises want AI; Fractal is positioned as a specialist.

• Large, reputable clients: Having top tech and Fortune clients reduces the sales risk vs a small unknown player.

• Focus on R&D / productisation: Part of IPO proceeds are for R&D and building product platforms — that can convert project revenue into recurring revenue over time.

5) Risks to watch (very important)

1. High valuation: The IPO multiples are rich. That means market expectations are high; the company must deliver strong growth to justify the price.

2. Client concentration: If a few large clients contribute a big chunk of revenue, losing one could hit growth. Check the RHP’s “Top 10 clients” table.

3. Competition & execution: Big consulting firms and other AI specialists compete; execution and product adoption matter.

4. Margins & scaling: Converting custom services into scalable, recurring products is hard and takes time. Investors pay for recurring revenue; until then, cashflows can be lumpy.

5. Macro & spending cycles: Enterprise IT budgets can slow in downturns — AI projects are often deferred in tough times.

6) Use of IPO proceeds (simple)

Fractal plans to use the money for:

• Repaying certain overseas debt,

• Expanding R&D and productisation,

• Setting up more offices and hiring, especially in India and the U.S.
  These uses are growth-oriented, but also partly for balance-sheet repair (debt repayment).

7) What I checked closely in the RHP (and you should too)

• Revenue growth trend and recurring revenue % (how much is subscription vs one-time projects).

• Gross margins & EBITDA margin trends (are they stable or volatile?).

• Client concentration (top 5/10 clients share).

• Employee costs & utilisation (AI talent is expensive and hiring plans affect margins).

• Related-party and promoter holding (founders’ stake post IPO; alignment matters).

8) Quick peer comparison (simple)

Fractal is domain-specialist (AI + analytics). For context, compare it with:

Takeaway: Fractal is more of a pure AI/analytics play versus broad IT players. That means higher growth potential if AI demand scales, but also higher expectation risk. (Note: pure-play listed AI companies are rare in India — Fractal is among the first large ones.)

9) IPO demand & listing expectation (what the market signals show)

• Anchor book was strong (~₹1,249 crore allocated to anchors) — indicates institutional interest.

• But valuation is premium. If retail/institutions expect immediate pop, they may not get it because the pricing is already rich. Expect moderate listing enthusiasm unless market sentiment changes.

10) My plain-English recommendation

• If you’re conservative or want quick listing gains: Skip or avoid. The valuation is high and listing pop is uncertain.

• If you’re a growth investor (3–5 year view), and you believe enterprise AI will keep growing fast, you can consider a small allocation — but only if you accept high valuation and execution risk.

• If you want lower risk: wait 2–3 quarters after listing; check revenue growth, margin stability, and client retention before buying more

⚠️ Disclaimer (Mandatory for IPO Recommendation Blog)

This document is issued by AG Analyst, a SEBI Registered Research Analyst (Registration No.: INH000011501).

The information provided in this blog is for educational and informational purposes only and does not constitute an offer, solicitation, or recommendation to buy, sell, or subscribe to any securities or IPO.

The IPO views, analysis, and opinions expressed herein are based on information available in the Draft Red Herring Prospectus (DRHP) / Red Herring Prospectus (RHP), publicly available sources, and other information believed to be reliable. However, no representation or warranty, express or implied, is made as to the accuracy, completeness, or reliability of such information.

Investment in securities, especially Initial Public Offerings (IPOs), is subject to market risks, including but not limited to volatility, liquidity risk, business risk, and regulatory risk. Investors are advised to read the RHP carefully, understand the risks involved, and consult their financial advisor before making any investment decision.

The views expressed are independent and unbiased and do not guarantee any specific return or performance. Past performance of the company or sector is not indicative of future results.

🔍 Conflict of Interest Disclosure

• The Research Analyst, its proprietor, or associates may or may not have financial interest or holdings in the securities discussed at the time of publication.

• The Research Analyst has not received any compensation from the company mentioned in this IPO for issuing this analysis.

• The Research Analyst has not managed or co-managed the public issue, nor received any merchant banking, brokerage, or underwriting fees from the issuer.

• The Research Analyst has not received any consideration from the issuer or its associates for preparation or publication of this report.

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