Reduce Firstsource Solutions Ltd for the Target Rs 280 by Emkay Global Financial Services Ltd
Firstsource (FSOL) posted in-line operating performance in 2Q. Revenue grew 2.6% qoq to $296mn (2.0% CC), in line with our estimate. EBITM expanded by 10bps qoq to 12.5%, in line with our estimate. FSOL signed 4 large deals (each with ACV of >$5mn) and added 17 new logos in 2Q (including 6 strategic logos). It aims to increase wins to 5–6 large deals per quarter through proactive deal shaping and deeper client engagement. Management raised the lower end of its FY27 CC revenue growth guidance to 10.5-13% (vs 10-13% earlier), implying CQGR of 1.9-4.9% over 3Q-4Q, and retained guidance EBITM of 12.25-12.75% (targeting 14-15% in next 2-3Y). It expects 2H to be stronger than 1H, resting on four factors: consistent large deal wins ramping up as planned, major banking client transition (where most people were onboarded in 2Q ahead of revenue), new logos added in 2Q, and a strong pipeline. We revise our FY27- 29E EPS by 0.3-1.3% considering the 2Q performance. We retain REDUCE while raising TP by ~4% to Rs280 (from Rs270), at 16x Sep-28E EPS.
Results summary
Revenue grew 2.6% qoq to $296mn (2.0% CC), in line with our estimate of $294mn (2.1% CC). EBITM expanded by 10bps qoq to 12.5%, in line with our estimate of 12.6%. This was despite absorbing the first phase of wage hikes and headcount additions. Reported PAT was Rs2.3bn, a tad below our estimate of Rs2.4bn. Headcount rose 8.3% qoq to 39,937, largely due to a major banking client transition and planned growth programs. What we like: Strong growth in BFS, healthy new logo addition. What we do not like: continued weakness in Healthcare.
Strong growth trajectory in BFS and EMEA
Revenue growth was led by BFS (9% qoq in CC terms), while Healthcare fell 2% and CMT and Diverse Industries stayed flat. Among geographies, growth in North America (NA) came in at 1% qoq in CC terms, while EMEA grew 7%. Growth in NA was led by BFS, while Healthcare reflected the timing of certain program ramps and transitions. EMEA growth was led by BFS, with good momentum also emerging in CMT.
Scaling non-linear growth through AI
FSOL continues to embed AI into its operating model through its proprietary Kairos AInative platform and ‘Intelligent Context Framework’, with adoption expanding across client engagements. This framework has been attached to ~50% of the top-50 clients and helps clients make faster decisions and shorten decision cycles. More than 50% of revenue is nonlinear, reflecting greater use of platform-led, outcome-based, and AIenabled delivery. The company aims to shift from traditional services to productized offerings by codifying and scaling domain expertise, workflows, and compliance capabilities across clients. Management expects this AI-led productization strategy to strengthen differentiation, improve revenue quality, deepen client relationships, and drive sustained medium-term margin expansion.
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