Fractal Analytics sees margin expansion, strong cash flows post IPO; healthcare and AI to drive growth

Synopsis Fractal Analytics expects better profits after its IPO. This is due to more license-based income and growth in healthcare and consumer sectors. The company is profitable and generates strong cash. Technology spending is set to rise, with AI playing a bigger role. Fractal sees immense opportunities and no major risks to its growth or profitability. AI and advanced analytics firm Fractal Analytics expects profit margins to improve further after its IPO, backed by rising license-led revenue, operating leverage and strong demand from healthcare and consumer sectors, its co-founders said in an interaction with ET Now. Margins to expand as license revenue scales Responding to a question on profitability outlook, Co-Founder Pranay Agrawal said the company already operates at healthy gross margins and expects further expansion as it increases license-based revenue through its AI platforms, including Cogentiq and its Alpha initiatives. “We already enjoy pretty healthy gross margins. As we drive more license-based revenue, we expect gross margins to improve further,” Agrawal said. He added that Fractal has made significant investments in sales infrastructure and general administration (G&A), which are not expected to scale proportionately with revenue growth. This operating leverage, he noted, should lift EBITDA margins over time. Co-Founder Srikanth Velamakanni highlighted that Fractal’s adjusted EBITDA margin stood close to 20% in the last quarter. Live Events You Might Also Like: Seen as Indian investor's gateway to AI play, what went wrong with Fractal Analytics IPO? “We expect margins to remain healthy going forward. We are significantly profitable and generate strong cash flows,” Velamakanni said. The company generated nearly ₹500 crore in cash from operations last year and expects similar levels of cash generation in the current financial year. Healthcare emerges as key growth driver Fractal is particularly optimistic about the healthcare and life sciences sectors. Agrawal noted that healthcare continues to expand as a share of the US economy and is among the largest job-creating sectors. With AI adoption accelerating across healthcare systems, insurers and life sciences companies, Fractal sees sustained opportunity. You Might Also Like: Fractal Analytics shares list at 3% discount to IPO price on bourses “Healthcare is one of the sectors that will benefit most from AI-driven efficiencies and better economics,” he said, adding that the company will continue to invest in solutions, client relationships and AI-powered applications on Cogentiq. Beyond healthcare, the company remains positive on consumer packaged goods (CPG), which continues to be one of its largest verticals. AI spend to rise, not shrink Addressing concerns about potential risks from AI-led deflationary pressures, Velamakanni said global technology spending is likely to increase rather than contract. Currently, technology spend accounts for roughly 4.5% of revenue for large global corporations, he noted. You Might Also Like: Why new-age IPOs are seeing shrinking issue sizes, slashed valuations “No major CEO is looking to reduce tech spend. In fact, that number could rise from 4.5% to 6%,” he said. Historically, AI addressed about 10% of overall tech spending. That addressable market has now expanded to nearly one-third of total tech expenditure, implying that roughly 2% of global revenue could become AI-driven opportunity. While AI compresses timelines and enhances productivity — making technology inherently deflationary — Velamakanni believes the net impact will be expansionary due to broader adoption and higher enterprise spend. “Opportunities are immense. We do not see major risks in terms of growth or profitability,” he added. Outlook With improving margins, strong operating cash flows and expanding AI adoption across healthcare and consumer sectors, Fractal Analytics expects to maintain profitability momentum in the post-IPO phase. The company’s strategy hinges on scaling platform-led revenue, deepening industry vertical expertise and capturing a growing share of global AI technology budgets. (You can now subscribe to our ETMarkets WhatsApp channel) (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. 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