Fractal Analytics Sees Margin Expansion and Strong Cash Flows Post-IPO; healthcare and AI to drive growth

AI and advanced analytics company Fractal Analytics expects profit margins to improve further post-IPO, supported by rising license-driven revenues, operating leverage and strong demand from healthcare and consumer sectors, its co-founders said in an interaction with ET Now.

Margins increase as licensing revenues increase

Responding to a question on its profitability prospects, co-founder Pranay Agrawal said the company is already operating with healthy gross margins and expects further expansion as it increases license-based revenues through its AI platforms, including Cogentiq and its Alpha initiatives.

“We already have quite healthy gross margins. As we generate more license-based revenues, 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 commensurate with revenue growth. This operating leverage, he noted, should boost EBITDA margins over time.

Co-founder Srikanth Velamakanni highlighted that Fractal’s adjusted EBITDA margin was almost 20% in the last quarter.

“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 of cash from operations last year and expects a similar level of cash generation in the current fiscal.

Healthcare is emerging as the main growth driver

Fractal is particularly bullish on the healthcare and life sciences sectors.Agrawal noted that healthcare continues to grow as a share of the U.S. economy and is one of the largest job-creating sectors. As AI adoption accelerates across healthcare systems, insurers and life sciences companies, Fractal sees sustainable opportunities.

“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, customer relationships and AI-powered applications on Cogentiq.

In addition to healthcare, the company remains bullish on consumer packaged goods (CPG), which remains one of the largest verticals.

AI spending should increase, not shrink

Addressing concerns about potential risks of AI-induced deflationary pressures, Velamakanni said global technology spending is likely to rise rather than contract.

Currently, spending on technology represents roughly 4.5% of revenue for major global companies, he noted.

“No major CEO wants to reduce technology spending. In fact, that number could rise from 4.5% to 6%,” he said.

Historically, AI has accounted for about 10% of total technology spending. That addressable market has now grown to nearly a third of total technology spending, implying that roughly 2% of global revenues could become AI-driven opportunities.

As AI compresses timelines and increases productivity – making technology inherently deflationary – Velamakanni believes the net impact will be expansive due to broader adoption and higher business spending.

“The opportunities are huge. We don’t see any major risks in terms of growth or profitability,” he added.

Outlook

With improving margins, strong operating cash flows and increasing adoption of AI in the healthcare and consumer sectors, Fractal Analytics expects to maintain profitability momentum in the post-IPO phase. The company’s strategy is based on scaling platform-driven revenues, deepening vertical industry expertise and capturing a growing share of global AI technology budgets.