Fractal Analytics Q2 FY27 Earnings Call: First $100M Quarter, Net Income Jumps 139%

Fractal Analytics Ltd held its Q2 FY27 earnings call on November 03, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

First $100M Quarter, Entirely Organic, Profitability Outpacing Revenue

• Revenue of Rs.957 crore crossed $100 million for the first time — up 20% YoY and 5% QoQ (10% YoY / 4% QoQ in CC), entirely organic; H1 FY 2026-2027 revenue of Rs.1,869 crore, up 20% YoY (10% CC).
• Adjusted EBITDA grew 30% YoY — margin of 16.2% (+123 bps YoY), outpacing 20% revenue growth; SG&A leveraged from 27% to 23.6% of revenue despite 5% absolute growth.
• Net income of Rs.79 crore, up 139% YoY — margin 8.3% (+413 bps); diluted EPS of 4.48 (+132% YoY); ex-associate (Cure.ai) net income of Rs.102 crore (10.7% of revenue, EPS 5.76).
• Gross margin of 44%, down 225 bps YoY — AI engineering talent investment -279 bps, merit increases -216 bps, weaker rupee +270 bps; drag sits in delivery expense (FDE build-out), not research spend.
• R&D investment up 13% YoY to Rs.60 crore — 6.3% of revenue (Rs.40 crore expensed, remainder capitalized), mostly directed at Cogentic and Asper.
• Cash of Rs.1,728 crore (incl. mutual funds and FDs) as of 30 September 2026, including Rs.608 crore of remaining IPO proceeds; trailing 12-month operating cash flow of Rs.407 crore, up 11% YoY; DSO rose 5 days to 76 days, expected to return to historical range by end of FY 2026-2027.

HLS Leads at +79%; TMT Turns After Five Quarters of Decline; CPG Muted

• Healthcare & life sciences grew +79% YoY — the growth leader; CEO Srikanth Velamakanni attributed vertical divergence to industry dynamics (adoption, complexity, macro) rather than Fractal's execution, describing healthcare as an extremely complex industry that will benefit significantly from AI.
• BFSI +30% and "others" (energy/travel/industrial) +47% YoY — HLS and BFSI delivered strong growth for a third consecutive quarter.
• CPG & retail, the largest vertical, grew +11% YoY — and declined sequentially; management cited Q1 FY 2026-2027 budgetary "surge" seasonality, high inflation, and consolidation among large CPG players, which delayed some contract signings; management did not confirm any specific project discontinuation.
• TMT grew +6% sequentially — turning positive after five consecutive quarters of sequential decline; management expects the recovery to continue through Q3 and Q4 FY 2026-2027, noting most of Fractal's TMT work is with the commercial organizations of TMT clients, which it described as "AI starved".
• Geographic growth (YoY): Americas +22%, Europe +20%, APAC +7% — in Q2 FY 2026-2027.
• Client metrics strengthened — NPS of 76; net revenue retention of 115% (vs 112% in Q2 FY 2025-2026) plus 5 points from new clients; 58 clients above $1 million in annual revenue (20 above $5 million); top-10 concentration fell from 53.2% to 51.7% of revenue.

Agentic AI Platform Gaining Traction; FDE Build-Out Sets Up the Inflection

• Cogentic (agentic AI platform) is "doing really well" — all revenue license-based; management claims it beats existing alternatives, including clients building in-house, in competitive situations; depth applications include Cogentic Invoice-to-Cash and Cogentic CX (voice API at very competitive rates).
• Management aspiration: Cogentic to become the default way Fractal delivers all services — as that becomes the norm, it expects meaningful improvement in overall economics and views Cogentic as a very significant growth lever over the next few quarters and years.
• Frontier labs are routing inbound leads to Fractal — one (cited as Cogentic CX) brings Fractal in where its voice AI solution cannot cover client requirements; a second routes leads for product activation and enterprise "harness" build-outs; Fractal was also named retail CPG partner of the year with Microsoft, and its AWS work is expanding.
• Revenue mix by AI theme (management's rough framing, no precise breakup) — ~60% AI transformation, ~35% enterprise knowledge/context layer, ~5% redesigning work itself; by problem solved: ~40% client revenue growth, ~30% operational effectiveness, ~10-15% R&D/innovation, ~10-15% day-to-day performance management, under 5% sustainability/ESG.
• Management cited a 48% quarter-over-quarter reduction in the cost of intelligence from foundation models — implying a 93% decline over a year — and expects a significant scale-up of enterprise AI in FY 2027-2028, with revenue-per-employee improving meaningfully in that fiscal.
• Revenue per billable FDE marginally up in rupee terms, slightly lower in dollars — attributed to deliberate capacity build-ahead (hiring, acqui-hire and deep AI-engineering M&A), not pricing.

Product Run-Rate +39% YoY; Qure.ai Rebuilding After USAID Shock

• Products revenue of Rs.38 crore in Q2 FY 2026-2027 (4% of total) — portfolio run-rate above Rs.150 crore/year, up 39% YoY; products RPO over Rs.200 crore as of Q2 FY 2026-2027.
• Fractal Alpha revenue of Rs.34 crore, up 40% YoY and 41% QoQ (32% YoY CC); adjusted segment loss of Rs.10 crore with 54% gross margin; Analytics Vidhya B2B build-out weighed on margins, expected to normalize by end of FY 2026-2027.
• Product revenue target of roughly $100 million run-rate in about 12 quarters from the call (≈ FY 2029-2030) — tied to a roadmap of products/licensing reaching 20% of revenues (period unspecified); management said the ramp is non-linear by design, with product revenue expected to rise sequentially from ~4% to 5%, 6%, 7% over the next few quarters beginning Q3 FY 2026-2027.
• PricingOne transaction closed 2 November 2026 — gives Asper a foothold in Europe; a pricing-focused acqui-hire was recently completed.
• Qure.ai (31.5% associate holding, no further investment planned) revenue of Rs.28 crore, up 82% YoY — but Fractal's share of loss was Rs.23 crore in Q2 FY 2026-2027; the Trump administration's DOGE program completely shut down USAID in FY 2026-2027, causing Qure.ai revenue to decline precipitously.
• Qure.ai rebuilding via stronger US and Europe businesses — strong pipeline and backlog for the remainder of FY 2026-2027; management views the stake as "hugely positive" to Fractal's overall value, though the market effectively assigns potentially negative valuation to the stake because Qure.ai losses drag down Fractal's profitability-focused valuation.

Large-Deals Team in Build-Out; M&A Pipeline "Very Decent"

• 6 clients each generating more than $20 million — up from 4 in Q2 FY 2025-2026; new client additions running at about 1 every 10 days, with win rates moving in the right direction.
• Dedicated large-deals team being set up — to pursue larger transactions involving enterprise knowledge/context layers; deal sizes are rising for Fractal, contrary to the broader tech-services trend; large deals are not a meaningful part of current revenue growth but management expects them to become a very meaningful part of future revenue growth.
• Partnership-led revenues expected to become more meaningful — management made strengthening the partnership muscle a priority in FY 2026-2027 after under-capitalizing on the opportunity in FY 2025-2026.
• M&A: "quite active" with a "very decent pipeline" and a board keen to explore — targets include deep AI engineering talent with strong local presence across geographies and industry-specific deep expertise; deals must increase Fractal's "right to win" and deliver a multiplicative, not merely additive, impact on future growth potential.
• Capital allocation framework: maximize revenue growth while taking Fractal.ai EBITDA as close to 22% (period unspecified) — CEO Srikanth Velamakanni described this as an implicit/explicit agreement maintained with investors throughout the company's history.

Margin Recovery From Q3; Alpha Break-Even in FY 2027-2028; No Numeric Guidance

• Gross margin expected to recover as early as Q3 FY 2026-2027 and further in Q4 FY 2026-2027 — management expects a "quite significant" recovery in Q3-Q4 FY 2026-2027, aided by seasonality (gross margins typically lowest in Q1) and FY 2026-2027 wage hikes shifted to June, which concentrated the impact in Q2.
• Profitability improvement expected across Q3-Q4 FY 2026-2027 and all of FY 2027-2028 — with a "decent improvement" by Q4 FY 2026-2027 on both sequential and YoY bases; management reiterated the IPO commitment to continuously improve profitability, calling healthy profitability levels "within arm's length".
• Fractal Alpha approaching break-even as early as end of FY 2026-2027 — and breaking even certainly in FY 2027-2028, with robust sequential growth at higher margins expected over Q3-Q4 FY 2026-2027.
• CPG expected to grow sequentially in Q3 and Q4 FY 2026-2027 — with YoY growth, currently "not as spectacular as we would like", expected to be much better by FY 2027-2028.
• G&A discipline maintained — ran at ~12% of revenue in Q1 and Q2 FY 2026-2027; management reiterated a model of growing G&A at roughly half the rate of revenue growth (period unspecified), with SG&A leverage playing out across FY 2026-2027 and FY 2027-2028.
• Management said enterprise AI adoption floodgates have not opened yet — Fractal stands ready to capitalize when they do; no forward numeric guidance was provided on the call.