Buy Firstsource Solutions - Motilal Oswal

Firstsource Solutions Limited (FSL) (FSOLIN; Mkt Cap USD 207m, CMP Rs 21.6, Buy)

Motilal Oswal recommends to BUY Firstsource Solutions Limited (FSL) (CMP:21.6, Mcap: $207 mn) with 1 year target price of 30 - 8x FY12E earnings. MBP – 22.75

INVESTMENT ARGUMENTS:

Domestic BPO business to improve margins – margins likely to improve by 75 bps during FY10-FY13E

Barclays Card to improve outlook for other businesses – New business worth around Rs 100 crore and 700 persons, to improve outlook for onsite and offshore business during FY12E.

Strong cash flows to ease leverage situation by FY12E – Cash Flow worth ~450 crore net of capex to ease net debt/equity ratio from 0.8 to 0.6 during FY10-FY12E.

Valuations and View: FSL currently trades at 7x/6x of FY11E/FY12E earnings, which is at around 40%-75% discount to globally listed BPO companies. We believe the valuation gap should reduce owing to improving fundamentals. Recommend BUY with a target price of Rs 30 – 9.7x/8x of FY11E/FY12E earnings – discount of 12%-70% to globally listed players.

Source : Equity Bulls

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