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Anand Rathi
Firstsource Solutions (Buy)
CMP: ₹65.15
Target: ₹80
Firstsource Solutions Ltd is a provider of a range of business process management services across the customer life cycle delivered through transaction processing. The company’s segments include banking, financial services and insurance and non-banking, financial services and insurance.
Firstsource Solutions’ (FSOL) Q1 FY19 revenue came at $134 million, down 1.1 per cent q/q (about 1 per cent cross-currency impact as the UK contributes 45 per cent to revenue), up 5 per cent y-o-y. FSOL expects this to inch up toward 7 per cent in FY19. The positive was the 12.7 per cent EBITDA margin (up 47 bps q/q, 405 bps y-o-y), supported by higher revenue (collections and mortgage business) and deal ramp-ups in BFSI (banking, financial services and insurance), which provided better revenue productivity despite stable pricing. We raise our FY19e/FY20e earnings 6.5 per cent/6 per cent and our target price to ₹80, valuing the company at 13x PE (unchanged).
Risks: M&A-driven growth and great dependence on a few large deals.
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