Fractal Analytics IPO final day: AI hype fades and GMP collapses - Why are experts raising valuation concerns?

Can the buzz around artificial intelligence translate into strong stock market returns, or is valuation the real deciding factor? The Fractal Analytics IPO enters the final day of bidding and the response for the Rs 2,833.9 crore IPO has been rather muted. The issue, priced between Rs 857-900 per share, closes at 5 pm today. As this mainboard issue closes today, let’s take a look at the key things investors need to know of the issue – Fractal Analytics IPO: Grey market trend turn muted One of the first indicators retail investors track is the grey market premium (GMP), and here the signals are subdued. Unlisted shares of Fractal Analytics were trading at around Rs 907 in the grey market, a premium of just Rs 7 over the upper price band of Rs 900. That translates into an estimated listing gain of less than 1%. Interestingly, the GMP has been slipping since the IPO opened. On the first day, it indicated a premium of around 1.44%, which cooled to 0.89% on the second day, and has now edged lower. However, it is worth noting that grey market trends are unofficial and can change quickly based on market sentiment. Fractal Analytics IPO: Subscription so far on Day 3 The IPO, which opened earlier this week (February 9), has not seen aggressive bidding so far. By the second day, the overall subscription stood at around 20% At the time of writing, the issue was subscribed 0.28 times so far on Day 3. Fractal has reserved 75% of the issue for qualified institutional buyers (QIBs), up to 15% for non-institutional investors (NIIs), and up to 10% for retail investors. Shares worth Rs 600 million have also been set aside for employees. Fractal Analytics IPO: The big valuation concern Deven Choksey Research, in its IPO note, said, “The company operates in a dynamic environment which highly prone to technological disruptions, although we find the management dynamic which toggle the environment and sustainable manage the growth and operational efficiencies over the next 3-5 years. We expect the company to significantly leverage its revenue per employee as the business scales with newer applications and clientele. Based on our prima facie back of the envelope calculations we assess the Rev/EBITDA/PAT at 18%/46%/62% respectively over next two years which will translate to forward FY28E PE of 22x. We believe this leaves a significant leg room for growth and one can think for looking at this company from a long-term perspective actively tracking the technological advancements pertaining to the AI systems.” Geojit Investments also highlighted the expensive valuation, noting, “At the upper price band of Rs 900, Fractal is valued at a P/E of 70x for FY25 and a P/E of 109x (annualised) for FY26E, reflecting an expensive valuation.” At the same time, it pointed to Fractal’s global client base and sector exposure, recommending the issue for high-risk investors with a long-term horizon. Anand Rathi, however, flagged valuation risks in its report, stating, “On the valuation front, based on annualized FY26 earnings, the company is seeking a P/E of 79x times, and a post-issue market capitalization of approximately Rs 1,54,736 million, making the issue appears to be richly priced. Additionally, insourcing by clients especially with the advent of AI tools could lead to loss of clients and impact the company’s business model.” The brokerage added that despite these concerns, it has assigned a Subscribe-long Term rating, citing Fractal’s client relationships and sector presence. Fractal Analytics IPO: What happens after the bidding closes? The allotment is expected to be finalised on February 12. Refunds for unsuccessful applicants and credit of shares to successful bidders demat accounts are likely on February 13. The listing is scheduled for February 16. Fractal Analytics IPO: Understanding the business Fractal Analytics was founded in 2000. The company operates in the enterprise AI and analytics space. In simple put, the company helps large companies use data and artificial intelligence tools to improve decision-making. The company’s services span multiple industries and functions, combining technical AI capabilities with domain expertise. The IPO is entirely a fresh issue. The company plans to use the funds for business expansion and other corporate purposes. The minimum lot size is 16 shares, and bids can be made in multiples of 16 thereafter. Conclusion So, should you bid on the last day? The answer depends on your objective.