Firstsource Solutions - Q1FY21 Company Update - ICICI Securities

Firstsource Solutions (FSL) reported 5.6% QoQ decline in reported dollar revenues, 4.3% QoQ decline in constant currency terms. The revenue decline was mainly due to 36.3% QoQ fall in top client partly offset by 13.0% QoQ increase in Top 2-5 clients. Vertical wise, Communications Media & Tech declined 33.2% QoQ mainly due to decline in top client partly offset by 13.0% QoQ growth in BFSI clients. EBIT margin improved 20 bps QoQ to 11.0%. Going forward, the company expects revenues to improve and has guided 6-10% YoY growth in FY21E revenues in constant currency terms. The company also expects operating margins in the range of 11.0-11.5%.

Valuation & Outlook

FSL has seen healthy margins despite a significant fall in revenues. Going forward, we expect revenues to improve led by increased contribution from top client, new logo wins in BFS & media & communication, traction in UK BFS & retail business and improvement in mortgage business. Also, the strategy of increased penetration in technology segment, cross selling of platforms business and hiring of leaders to boost its digital business will be long term driver of revenues. Further, we expect healthy traction in margins to continue in coming quarters. Based on this, we revise our revenue, EPS estimates upwards, prompting us to upgrade the stock from HOLD to BUY with a revised target price of Rs. 66/share (10x FY22E EPS).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Firstsource_CoUpdate_Aug20.pdf

Shares of FIRSTSOURCE SOLUTIONS LTD. was last trading in BSE at Rs.52.3 as compared to the previous close of Rs. 54.4. The total number of shares traded during the day was 275182 in over 1320 trades.

The stock hit an intraday high of Rs. 55.45 and intraday low of 50.2. The net turnover during the day was Rs. 14484041.

Source : Equity Bulls

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