/** Title: Fractal FY26: Growth, Margin Expansion and a Platform-led Pivot */

Fractal FY26: Growth, Margin Expansion and a Platform-led Pivot

Fractal Analytics closed Q4 FY26 with a combination that markets rarely get in the same quarter: strong growth and sharper profitability. Revenue from operations in Q4 FY26 rose 17 percent year on year to INR 886.3 crore, while net income more than doubled to INR 115.8 crore. The net income margin expanded to 13.1 percent, reflecting both operating leverage and a leaner cost mix.

For the full year FY26, revenue from operations increased 19 percent year on year to INR 3,299.7 crore. Net income grew 30 percent to INR 286.8 crore. Management also highlighted that net income excluding share of loss of associates was INR 357.1 crore, up 43 percent year on year. The year mattered for another reason as well. It was Fractal’s first full fiscal year as a listed company, and it ended with a debt-free balance sheet after the company repaid long-term debt using IPO proceeds post March 31, 2026.

Q4 FY26: Profitability inflects as revenue scales

The quarter’s story was margin expansion across key layers. Q4 FY26 gross margin was 48.2 percent and adjusted EBITDA margin was 22.1 percent. Operating EBIT, defined by the company as excluding other income, share of loss of associates and exceptional items, increased 53 percent year on year to INR 143.6 crore.

Management attributed the gross margin performance to three moving parts: a positive shift in engagement mix toward output-based contracts, price increases and productivity improvements, benefits from a weaker rupee, and an offsetting impact from annual merit increases. At the adjusted EBITDA level, the CFO noted that a UK grant benefit and variable pay adjustments improved Q4 margin by 147 basis points, and stated that some of these benefits may or may not repeat.

The operating metrics used by the company continued to remain supportive. Net revenue retention in the Fractal.ai segment was 112 percent in Q4, while Net Promoter Score for Fractal.ai reached 81, the highest level reported by the company.

FY26: Growth led by existing clients, with vertical mix shifts

FY26 revenue grew 19 percent year on year and management said the entire growth was organic. On a constant currency basis, the company reported 13 percent growth for the year. A key internal signal was net revenue retention of 117 percent, and the CFO stated that 17 percent out of the 19 percent growth came from existing clients.

Fractal.ai continued to have a diversified industry base. In FY26, CPGR contributed 37 percent of Fractal.ai revenue and grew 12 percent, remaining the largest vertical. Healthcare and life sciences expanded 66 percent and became the second largest vertical on a quarterly run-rate basis, as management said. BFSI grew 32 percent and TMT declined 1 percent for the year.

The TMT performance was the most visible drag. Management cited two specific client situations: a large client that entered a joint venture with another provider and reduced work with Fractal sharply, and an enterprise software client going through restructuring which constrained expansion and led to contraction. In Q4, management also mentioned that the company could not recognize some revenue due to data-led delays.

Geographically, the Americas remained the largest billing region, accounting for 67.3 percent of Fractal.ai revenue in FY26. Europe was the fastest-growing region with 34 percent growth, while APAC and Others declined 3 percent for the year. In Q4, APAC growth returned to 7 percent.

Cash, balance sheet and the investment posture

Fractal generated INR 409.0 crore of cash flow from operations in FY26, up 3 percent year on year. The company highlighted CFO conversion at 70 percent of adjusted EBITDA. Working capital increased by INR 86 crore during the year, driven primarily by trade receivables, which management said was in line with revenue growth. Days sales outstanding improved to 72 days in FY26 versus 74 days in FY25.

Cash and cash equivalents including mutual funds and fixed deposits were INR 2,052 crore as of March 31, 2026, and the company noted IPO proceeds of INR 957 crore. Management stated the company used IPO proceeds after March 31, 2026 to fully repay long-term debt, leaving the company debt free.

The year also included a clear reinvestment stance. FY26 R and D investments were 6.4 percent of revenue as per the investor presentation, and the CFO stated total R and D investments of INR 212 crore, with INR 134 crore expensed in the P and L, which represented 4.1 percent of revenue.

Strategy: Three pillars, one platform, and a push toward outcome pricing

Management spent substantial time framing the market context and Fractal’s positioning in enterprise AI. The company described the next phase of the AI cycle as AI-led transformation inside complex enterprises, and positioned itself around three go-to-market pillars.

The pillars are AI-led Transformation, AI Foundations, and AI Work and Workforce. All three are stated to be powered by Cogentiq, the company’s agentic AI platform. Management argued that repeatedly building on one platform can make service delivery more compounding and more software-like in economics.

The pricing model transition is another deliberate shift. Management said it expects to move engagements toward output-based, outcome-based and license-driven structures, and stated it expects these categories to constitute 60 percent of revenue in the next two to three years. Management also quantified gross margin differences: output and outcome-based pricing provides a 5 to 7 point gross margin uplift versus input-driven pricing, while license-driven gross margins are materially higher.

On the call, management stated that overall license revenue is currently about 3 percent of company revenue and the company aims to increase license-driven revenue to 20 percent by 2030. The company also connected this mix shift to longer-term margin expansion.

Products and IP-led businesses: Early scale, improving financial profile

The investor presentation and call highlighted multiple products and research-led initiatives, including Flyfish.ai, PiEvolve, and Vaidya 2.0, along with Cogentiq as the platform layer. Flyfish.ai was described as deploying 35 plus coordinated agents across the sales lifecycle. PiEvolve was described as an evolutionary agentic framework for machine learning and made available internally to employees with an onboarding program being designed.

Fractal Alpha, which includes Asper.ai and Analytics Vidhya, continued to scale. FY26 segment revenue was INR 90.8 crore, with the investor presentation showing a 69 percent revenue CAGR from FY23 to FY26. The segment remains loss-making, but losses narrowed further. Adjusted segment results improved from INR minus 25.7 crore in FY25 to INR minus 14.6 crore in FY26. Management also stated on the call that Asper has about 15 CPG customers and that both Asper and Analytics Vidhya serve 15 plus clients each.

Takeaways for investors

Fractal’s FY26 results combined healthy organic growth with margin resilience, and Q4 FY26 delivered an outsized improvement in net income. Key operating indicators such as net revenue retention and NPS suggest deeper client relationships, while the company’s debt-free balance sheet and meaningful cash reserves provide flexibility.

The next set of investor questions sits around execution of the mix shift. Management has articulated a clear target for increasing output, outcome, and license-based revenue, and has quantified why this matters for margins. At the same time, the quarter included some margin benefits that may not repeat, and the TMT vertical still reflects concentration risk in specific client relationships.

If the company delivers on its stated shift toward platform-led and outcome-linked engagements while maintaining growth momentum, FY26 may read as the starting point of a structurally different phase, not just a good year of numbers.