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FSOL’s Q4 results were broadly in line with our estimates. Revenue growth of 4.7% QoQ was slightly higher than our estimate of 3.9% QoQ, while EBITM of 11% was in line. Both, revenue growth and logo additions have been broadbased across geographies and verticals. It guided 10-13% CC YoY growth for FY25, considering strong deal intake in FY24 (highest-ever ACV win) and robust pipeline (25% growth in Q4). FY25 guidance factor-in the impact of QBSS acquisition and residual offshore shift in top clients, implying a CQGR of 2-3%. It plans to frontload investments in sales (expanded team size by ~33% in 6M), capabilities (leadership and solutions), and brand positioning. Management aims to deliver USD1bn organic revenue run rate by FY26-end (implied CQGR of ~2.8%), and expand EBITM by 50-75bps each year over the medium term after the investment phase. We cut FY25-26E EPS by 2-4% to factor-in the Q4 performance, slightly weaker margin trajectory, and QBSS acquisition. We maintain ADD with a TP of Rs220/share at 20x Mar-26E EPS.

Results Summary

Revenue grew 4.7% QoQ (4.2% CC) to USD201mn, slightly higher than our estimate of USD199.5mn. Growth was broad based across all verticals — BFS (1.7% QoQ CC), Healthcare (3%), CMT (8%), and Diverse industries (7%). From geographies perspective, both US and UK grew 4% QoQ in CC. EBITM expanded ~30bps QoQ to 11%, in line with our estimates. Margin expansion was aided by normalization of the salary hikes undertaken in Q3. CMT and Healthcare margins contracted by 110bps and 190bps QoQ, respectively, while BFS margin expanded 200bps QoQ. Despite the offshore shift, top clients grew 13.8% QoQ on the back of additional business win. FSOL added 9 new logos in the quarter (6 in BFS, 2 in Healthcare, and 1 in CMT), with a total of 41 logos during FY24. It added 1,993 employees in Q4 (up 7.7% QoQ). What we liked: Broadbased growth in Q4, highest ACV win, steady FY25 guidance. What we did not like: Net debt remains largely unchanged at the end of FY24 at Rs6.04bn vs Rs6.16bn YoY.

Earnings Call KTAs

i) While the revenues were largely flat in H1, the company has seen growth acceleration in H2FY24. It has accelerated its participation in the cost optimization, revenue generation, and technology & process transformation agendas of clients. ii) Company added 9 new logos in Q4 and Management highlighted that the new logos are coming at deal sizes over 60% higher than last year. iii) BFSI, up 1.7% CC QoQ, was impacted by elevated interest rates, but clients continue to focus on cost optimization to drive efficiency in operations. iv) It also witnessed increased volumes in collection services with card issuers, credit card spending reaching record highs, and delinquencies also on the rise. v) A large transformational deal from one of its longstanding clients (announced in Q3) is well on track for ramp up. vi) Healthcare grew 3% CC QoQ in Q2. It announced 2 large deals in Q3, which have ramped-up well. While there was a minor impact in provider business due to a sudden drop in transactions in Q4, it was more than offset by increased volume on the payer side. vii) FSOL acquired QBSS for a cash consideration of USD39.2mn (EV/Sales: 2.65x). QBSS, headquartered in Chennai, provides RCM services for healthcare service providers and its intermediaries in the USA. The market for RCM solutions is estimated at USD25bn and is growing at double digits per year. viii) Despite the offshore shift in top clients, CMT grew 8% CC QoQ, aided by additional business and strong growth outside top clients. ix) Diverse vertical grew 7% CC QoQ, benefitted by strong demand in Energy & Utilities. x) In the US, the company expects growth to be driven by healthcare, CMT, and BFS, given the strength of FY24 exit pipeline.

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