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Firstsource Solutions Ltd>
  • CMP : 190.9 Chg : -6.65 (-3.37%)
  • Target : 110.0 (-2.65%)
  • Target Period : 12 Month
Company Update

06 May 2023

CC growth guidance of 2-5% for FY24…

About The Stock

Firstsource Solutions (FSL) provides business process services to BFSI, communication, media, tech and healthcare.

  • The company generates 66% revenues from the US and 33% from the UK
  • FSL is a domain driven BPM company, which has 150+ clients, including 17 Fortune 500 companies and nine FTSE 100 companies. The company has 23,018 employees across the US, UK, India and Philippines
Q4FY23 Results:

FSL reported decent numbers in Q4FY23.

  • Revenue increased 2.5% QoQ in CC terms & 3.8% in dollar terms
  • EBIT margins improved ~220 bps QoQ to 11.6%
  • Added 73 new clients in FY23
What should Investors do?

FSL’s share price has grown by ~1.8x in the past five years (from ~₹ 64 in May 2018 to ~₹ 113 levels in May 2023).

  • We change our rating on the stock from REDUCE to HOLD
Target Price and Valuation

We value FSL at ₹ 110 i.e. 12x P/E on FY25E.

Key Triggers for future price performance
  • Recovery in refinancing and collections volumes, which has been a weak link in the performance. We expect rupee revenues to increase at a CAGR of 8.9% in FY23-25E
  • Inorganic opportunities in adjacent capabilities may help to address the growth concerns
  • Margin recovery due to cost rationalisation programmes. We are currently estimating EBIT margins of 11.9% for FY25E
Alternate Stock Ideas

Apart from FSL, in our IT coverage we also like Persistent.

  • Consistent growth aided by continued strong TCV and inorganic opportunities
  • BUY with a target price of ₹ 5,170

Particulars

Particulars (₹ crore) Amount
Market Capitalization 13,305.6
52 week H/L (₹) 228.9/112.6
Equity Capital 697.0
Face Value (₹) 10.0

Price Chart

Recent Events & Key Highlights

  • Guidance for FY24: Revenue growth of 2-5% and EBIT margin of 11-12%
  • Key Risk: (i) Better than expected revenue growth (ii) Lower than expected margins

Research Analyst

Company Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 5 year CAGR (FY18-23) FY24E FY25E 2 year CAGR (FY23-25E)
Net Sales 4,098.6 5,078.0 5,921.1 6,022.3 11.2 6,423.7 7,137.3 8.9
EBITDA 628.9 799.0 959.8 826.5 12.5 976.4 1,134.8 17.2
Margins (%) 15.3 15.7 16.2 13.7 - 15.2 15.9 -
Net Profit 339.7 361.7 537.3 513.7 9.5 538.9 636.0 11.3
EPS (|) 4.9 5.2 7.6 7.3 - 7.7 9.1 -
P/E 23.1 21.7 14.9 15.4 - 14.7 12.5 -
RoNW (%) 12.3 12.9 17.7 15.3 - 15.1 16.6 -
RoCE (%) 11.1 15.4 14.5 14.5 - 15.0 16.6 -
Source: Company, ICICI Direct Research