Buy Fractal Analytics; target of Rs 1060: Prabhudas Lilladher

Moneycontrol • 1 day ago

Original source

Key Investment Pillars

  • Fractal Analytics is expected to deliver steady growth, driven by strong momentum in BFSI and HLS segments, with revenue growth of 10.3% YoY and 3.8% QoQ.
  • The company's products business is gaining traction, with license revenues growing 39% YoY to INR 380 mn, and an annualized run rate of over INR 1.5 bn.
  • Management expects Fractal Alpha to reach breakeven by the end of FY27, driven by products demand, and aims to reach USD 100 mn in annualized product revenue in ~3 years.
  • Operating leverage in SG&A helped protect EBITDA margins, which came in at 15.7%, outperforming expectations of a 130bps decline.

Thesis Validation Checklist

  • Investors should watch for sequential growth in the TMT segment, which has turned positive after five quarters of degrowth.
  • The company's ability to maintain its growth momentum in BFSI and HLS segments will be crucial.
  • Fractal Analytics' progress in reaching its annualized product revenue target of USD 100 mn will be an important signal.
  • The company's EBITDA margin expansion, driven by operating leverage and improving billable FTE, will be a key indicator of its profitability.