Aniket PujariThe management is citing investor scepticism towards AI complexity and the need for market education as it prepares for a market debut at a lower valuation.
“Investors don’t understand complexity. They don’t like complexity. And there’s a huge need to just educate the market on AI because there are not a lot of AI stocks out there,” Srikanth Velamakanni, founder of Fractal Analytics, told Mint in an interview.
According to Velamakanni, category creators have to go through that fire. “While there’s a broader understanding that AI is great and AI is going to change everything, etc., most people don’t understand how AI works in the enterprise, and how AI can change enterprise performance significantly, and how companies can use AI to dramatically improve their revenues and the productivity and things like that,” he said.
“So that I felt was the big gap, and we attempted to explain to the investors that the AI excitement in the world needs to be translated into enterprise performance, and you need a fractal or a Palantir kind of company to actually make this happen,” he added.
On Wednesday, the company announced its price band for the IPO at ₹857-900 per share, implying an indicative valuation of ₹15,473 crore or $1.86 billion, according to Mint‘s calculations.
This valuation would signify a 24% markdown from the company’s previous fundraising in July 2025, where it was valued at $2.44 billion. At that time, Fractal had raised $170 million from investors, including Trust Investment Advisors, White Oak Capital Management, Gaja Capital, and Neo Asset Management.
Mint reported on 3 February that Fractal trimmed the size of its public issue after investors, including private equity majors Apax Partners and TPG Capital, decided to sell a smaller stake due to a lower-than-expected valuation amid uncertain market conditions.
“I expect that many more companies will get created in India, which are AI-first, which are taking AI and using AI to transform the world in their own niche way. And it’s good if Fractal is a company that sort of establishes an easier path for the rest,” Velmanakanni added.
Fractal, which caters to a wide pool of global clients, is banking on fundamental growth levers. An industry report by Everest Business Advisory India said that in 2024-25, enterprises allocated an estimated 40.3% of their total global digital services spend, worth about $449 billion, to third-party services.
“While recent macroeconomic conditions may have pushed enterprises to develop more in-house capabilities, the share of third-party spend is expected to continue to increase at an estimated 9.4% compound annual growth rate by 2029-30,” the report read.
Tempered expectations
The AI unicorn now plans to raise ₹2,834 crore, 42% less than the planned ₹4,900 crore, its red herring prospectus filed on 2 February showed.
The IPO now has a fresh issue size of up to ₹1,024 crore, a 20% reduction from the draft papers. The offer-for-sale component has been halved to a maximum of ₹1,810 crore. In this, Apax has cut its share sale by 40% to ₹880 crore. TPG, meanwhile, slashed its OFS size by 78% to ₹450 crore. The company has also not raised any pre-IPO funds, despite weighing a ₹256-crore round.
Despite a markdown in valuation and an IPO trim, Fractal’s use of proceeds has not changed on the surface. As noted in the draft filing, the company still plans to utilize ₹265 crore for investments in its subsidiary, Fractal USA, and for debt repayment. From the remaining amount, ₹355 crore will be used for research and development and for the sales of its product Fractal Alpha. In addition, ₹57 crore will be used to purchase laptops, and ₹121 crore to set up new offices in India.
This means that the remaining unallocated amount, originally intended for funding inorganic growth and general corporate purposes, will decrease from ₹475 crore to ₹225 crore.
“We are identifying companies that are using AI in a specific vertical sense, or they’re doing some superb AI, R&D with which they build something which we feel can directly complement and augment what we’re doing at an agentic, cogentic platform, and we would like to strengthen,” Velamakanni said on the acquisitions they are scouting for.
Its listing will be the latest in the line of the few mainboard IPOs that tapped the country’s subdued primary market this year. Only three companies launched mainboard IPOs in January: Shadowfax Technologies, Amagi Media Labs, and Bharat Coking Coal. This was down from the 10 listings in December, as weak market conditions were exacerbated by trade and geopolitical uncertainties.
Fractal provides AI solutions such as customer relationship management analytics, cognitive automation, quantum computing, and machine learning operation services. Its clients range from financial services and health to insurance and retail markets worldwide, with 65% of its revenue coming from the US market.
Its consolidated revenue from operations rose 20% year-on-year to ₹1,559 crore for the six-month period ended September 2025.
The firm’s earnings before interest, taxes, depreciation, and amortization stood at ₹200 crore, up 50%. Its margin against the top line was 12.8%, up from 10.3% a year ago.
Its profit stood at ₹71 crore, registering a 3% decline from the year-ago period’s ₹73 crore, mainly because the previous period had a higher deferred tax credit component of ₹23 crore, versus the current period’s ₹0.5 crore.
Currently, the firm uses around 6.1% of the revenues towards R&D spend, and this is likely to go further up, Velamakanni said. “To make our company future-proof from tech disruptions, we will invest more in R&D,” he added.
