Published on 14/11/2017 3:48:24 PM | Source: Emkay Global Financial Services Ltd

Accumulate Firstsource Ltd For Target Rs.49.00 - Emkay

Posted in Broking Firm Views - Long Term Report | #Firstsource Ltd #IT Sector #Broking Firm Views Report #Quarterly Result #Emkay Global Financial Services Ltd.


*  International revenues at Rs8,242mn increased by 3.3% QoQ while overall revenues at Rs 8,730mn, down 0.6% QoQ or 1.3 % YoY, were tad lower than our expectations of Rs 8,883mn owing to lower domestic revenues

* EBITDA margins at 12.6% improved by 110bps sequentially (V/s our expectation of 60bps QoQ improvement) supported by operational turnaround in ISGN business; Net profit at Rs 688mn (up 5% QoQ / down 3.4% YoY)

* Management retain its outlook of inline with industry revenue growth for FY18E (on like to like basis i.e. excluding domestic business); improved profitability of ISGN business and exit from domestic business to support margin improvement going ahead

* While reported numbers appear weak (owing to partial exit from domestic business), the underlying business progress is on track. Retain ACCUMULATE with TP of Rs49 as we roll forward to FY20 (based on target P/E multiple of 8.5x)

Decent operating performance driven by operating margin beat

International revenues at Rs8,242mn increased by 3.3% QoQ while overall revenues at Rs 8,730mn, down 0.6% QoQ or 1.3 % YoY, were tad lower than our expectations of Rs 8,883mn owing to lower domestic revenues (Sep’17 quarter included only 1 month revenues post partial sale of domestic business V/s our estimate of two months revenues). EBITDA margins at 12.6% improved by 110bps sequentially (V/s our expectation of 60bps QoQ improvement or consensus estimate of 11.3% EBITDA margins) supported by ~140bps decline in SG&A expenses while gross margins declined by ~30bps QoQ. Net profit at Rs 688mn (up 5% QoQ / down 3.4% YoY) were tad ahead of our estimate of Rs 672mn aided largely by operating margin beat. Amongst verticals, BFSI led growth with 7.2% QoQ growth while revenues from Telecom/media and Healthcare vertical declined by 5.7%/1.1% QoQ respectively. Headcount at 19,914 people declined by 5,099 people QoQ with 6,280 people decline in India while 461 people increase outside India.

Keep earnings estimates unchanged; reiterate ACCUMULATE

We keep our earnings estimates for FY18/19E largely unchanged at Rs4.3/Rs5 respectively. We introduce FY20 EPS at Rs5.8 with 9.8% YoY US$ revenue growth and 13.2% EBITDA margins. While reported numbers appear weak (owing to partial exit from domestic business), the underlying business progress is on track (read as growth in international business and operating margin improvement). Retain ACCUMULATE with TP of Rs49 as we roll forward to FY20 (based on target P/E multiple of 8.5x).

 

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