Fractal Analytics IPO: Lofty valuations reflect pure-play AI scarcity premiums, say analysts

Fractal Analytics

• Fractal Analytics IPO opens Feb 9 with price band of Rs 857 to Rs 900 per share
• IPO size cut by 42 percent to Rs 2,834 crore after investor feedback
• Valuation seen as expensive; SBI Securities assigns Neutral rating due to risks

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Fractal Analytics, India’s first pure-play artificial intelligence (AI) company to tap the public markets, will command steep valuations at the upper-end of its price band, according to analysts, given its scarcity premium.

Fractal Analytics is positioned as a Decision Intelligence player, combining AI-led services with incubated SaaS offerings. They support large global enterprises with data-driven insights and assist them in their decision-making through their end-to-end AI solutions.

The IPO is set to open for retail subscription on February 9th, with a price band of Rs 857 to Rs 900. Following the issue, the market capitalisation is likely to be between Rs 14,790 crore and Rs 15,480 crore.

“At the upper band of Rs 900, valuations look expensive at around 79x post-FY25 P/E, but this reflects a scarcity premium for a listed AI platform,” Swastika Investmart said, adding that the stock is best suited for high-risk, growth-focused investors with a three-to-five-year investment horizon looking to ride the global GenAI cycle.

SBI Securities was more cautious, flagging valuation concerns despite the company’s niche positioning in data analytics and AI. At the upper price band of Rs 900, the brokerage said the issue is valued at a FY25 P/E multiple of 78.9x on a post-issue basis, which it views as elevated given relatively modest growth metrics.

The firm pointed to an 18 percent revenue CAGR between FY23 and FY25 and 20 percent year-on-year growth in the first half of FY26, alongside persistently high attrition levels of over 15 percent.

The brokerage also cautioned that increased insourcing by clients, especially with the growing adoption of AI tools, could pose risks to Fractal’s business model. “Considering the elevated valuation, we assign a Neutral rating to the issue and would like to track the performance of the company for a few quarters post listing,” SBI Securities said.

Fractal Analytics trims IPO size

Fractal Analytics has already scaled back its initial public offering by 42 percent, reducing the issue size to Rs 2,834 crore, down from the earlier proposed issue size of Rs 4,900 crore. The upper end of the price band had earlier been set at Rs 1,110 per share.

Explaining the decision, the firm's CEO Srikanth Velamakanni said the revision was made following feedback from bankers and institutional investors. They advised pricing the issue more attractively to ensure strong post-listing performance.

“At that price, investors indicated they preferred to stay invested in Fractal for the long term and were reluctant to sell,” Velamakanni said to Moneycontrol. “Since existing shareholders did not want to dilute as much, we decided to reduce the overall size of the IPO.”

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