IGI Logo

Top client de growth impacts revenues…

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

* The company generates 68% revenues from the US and 31% from the UK

* FSL has witnessed healthy revenue improvement (up 19% YoY in FY21) and 100 bps improvement in EBIT margins in FY21

Q1FY22 Results: FSL reported Q1FY22 results.

* US$ revenues increased 0.7% QoQ to US$201

* EBITDA declined 30 bps QoQ to 12.1%

* PAT increased 2.8% QoQ to | 134.5 crore

What should investors do?

FSL’s share price has grown by ~4x over the past five years (from ~| 48 in Jul 2016 to ~| 197 levels in July 2021)

* We downgrade the stock from BUY to HOLD

Target Price and Valuation: We value FSL at | 220 i.e. 22x P/E on FY23E.

Key triggers for future price performance:

* Improvement in provider, collection segment, diversification in CMT segment, new logo wins, focus on client mining cross selling of platforms business and hiring of leaders bodes well for long term revenue growth

* Reiterated growth guidance of 15-18% in CC terms in FY22E. We expect dollar revenues to increase at a CAGR of 18% in FY20-23E

* Bake in 93 bps improvement in EBIT margins to 12.7% over FY21-23E led by outcome based provider revenues, improvement in digital segment, higher offshoring and revenue growth.

Alternate Stock Idea: Apart from FSL, in our IT coverage we also like Mastek.

* Growth in new logo acquisition, increasing deal size, expansion of sales & marketing and market share gains to drive revenues

* BUY with a target price of | 2,900

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer