Fractal Analytics reported a flat revenue growth for the first quarter of FY27, missing analyst expectations due to a downturn in the TMT sector. Despite the slow start, the company maintained growth in other segments and reported higher profit margins compared to last year. ICICI Securities has initiated coverage on the stock with a price target of INR 1,090.
Detailed Coverage
Fractal Analytics released its financial results for the first quarter of the 2027 fiscal year, revealing mixed performance across its business segments. While the company saw an 8.7% revenue increase compared to the same period last year, its quarter-on-quarter revenue growth was effectively flat at -0.3%. This result did not meet the expectations set by ICICI Securities, which had projected a 3.1% growth for the period.
Impact of the TMT Sector Decline
The primary reason for the revenue shortfall was a sharp decline in the Technology, Media, and Telecom (TMT) segment. This division saw its revenue drop by 13.3% quarter-on-quarter and 29% year-on-year in US dollar terms. For investors, this highlights the company's current dependence on the performance of its TMT clients. However, when the TMT segment is excluded, the rest of the business performed strongly, showing a 4.1% growth quarter-on-quarter and a 24.4% rise year-on-year in dollar terms, suggesting that demand in other areas remains intact.
Operational Metrics and Margin Trends
Despite the TMT-related pressure, the company’s internal business health metrics remain stable. The Net Revenue Retention (NRR) rate, which measures the revenue generated from existing clients, was reported at 117%. Additionally, the company saw a 5.7% quarter-on-quarter increase in revenue from its 'More With Less' (MWC) client category. A shift in contract structure is also visible, with outcome and output-based contracts now accounting for 42% of total business. This move toward these contract types is often used by companies to build long-term relationships and improve predictability in earnings. Furthermore, year-on-year profit margins have shown expansion, indicating better cost management compared to the previous year.
Outlook and Monitorables
ICICI Securities has initiated coverage on the company with a target price of INR 1,090, applying a 37x earnings multiple based on projected FY28 earnings of INR 29.6 per share. Moving forward, the company's ability to diversify its client base beyond the TMT segment will be a key factor for investors. The execution of the five large deals recently secured through partner channels will also be important to watch, as these are expected to contribute to future revenue stability. Investors should continue to monitor whether the TMT segment stabilizes in the coming quarters and if the trend toward higher-value, outcome-based contracts can continue to support overall margin levels.