Powered by: Motilal Oswal
10-06-2022 03:15 PM | Source: ICICI Direct Ltd
Reduce Firstsource Solutions Ltd For Target Rs.95 - ICICI Direct
News By Tags | #872 #4458 #3961 #409 #1302

Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel

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

* The company generates 70% revenues from the US and 27% from the UK

* FSL is a domain driven BPM company, which has 150+ clients, including 17 Fortune 500 companies and nine FTSE 100 companies. The company has 26,557 employees across the US, UK, India and Philippines

Q1FY23 Results: FSL reported weak numbers.

* US$ revenues declined 5.1% QoQ in CC terms and 7.1% in dollar terms

* EBIT declined ~340 bps QoQ to 8%

* Revenue guidance revised downward to 2-4% in CC for FY23

What should investors do: FSL’s share price has grown by ~3.1x over the past five years (from ~| 34 in August 2017 to ~| 105 levels in August 2022).

* We change our rating from HOLD to REDUCE

Target Price and Valuation: We value FSL at | 95 i.e. 12x P/E on FY24E.

Key triggers for future price performance:

* Recovery in refinancing and collections volumes, which has been a weak link in the performance. We expect dollar revenues to increase at a CAGR of 4.4% in FY22-24E

* Inorganic opportunities in adjacent capabilities may help to address the growth concerns

* Margin recovery due to cost rationalisation programmes. We expect EBIT margins to decline 130 bps in FY22-24E

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

* Consistent growth aided by continued strong TCV and inorganic opportunities

* BUY with a target price of | 4,200

 

To Read Complete Report & Disclaimer Click Here

 

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

SEBI Registration number is INZ000183631

 

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