Prabhudas Lilladher issued a buy rating for Fractal Analytics with a target price of Rs 1060. The firm reported steady Q2FY27 results, with growth led by HLS and BFSI sectors. While CPG fell, management expects a recovery. Strong product revenue and operating leverage helped the company maintain its positive outlook.

Prabhudas Lilladher's research report on Fractal Analytics Fractal delivered a steady Q2FY27 performance, with rev. growth of 3.8% QoQ CC and 10.3% YoY CC broadly in line with our est., while EBITDA margin remained flat QoQ, outperforming our expectation of a 130bps decline. Growth was led by HLS (+79% YoY) and BFSI (+30% YoY), while TMT returned to sequential growth (+5.6%) after five qtrs. of degrowth, with management expecting a gradual recovery through H2FY27. In contrast, CPG declined 7.1% QoQ amid vendor consolidation and macro-related challenges, although management expects sequential growth to resume from Q3.

The products business continued to gain traction, with license revenues growing 39% YoY to INR380mn (~4% of rev.), taking the annualized run rate to over INR1.5bn, while product RPO exceeded INR2.0bn. Management is targeting an annualized product rev. run rate of ~USD100mn over the next 12 quarters. On profitability, GM declined 225bps YoY to 44%, due to investments in senior AI engineering/FDE talent (-279bps) and wage hike (-216bps), partly offset by currency benefits (+270bps). However, operating leverage in SG&A helped protect EBITDA margins. Management expects GM to recover meaningfully in H2FY27 as wage-hike impacts normalize and incremental AI engineering capacity gets deployed.

While strong momentum in BFSI and HLS to support growth in H2, management expects TMT to maintain steady state. Outlook Accordingly, we maintain our FY27E/FY28E/FY29E CC rev. growth est. at 11.3%/16.5%/15.3%. However, we raise EBITDA margin est. to 17.5%/18.5%/19.3% from 17.0%/18.0%/18.7%, factoring in the Q2 beat and scope of improving billable FTE. We continue to value the company at 17x EV/EBITDA to arrive at a target price of INR 1,060 and maintain our BUY rating. For all recommendations report, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management.

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