Sharekhan recommended hold rating on Firstsource Solutions with a target price of Rs 45 in its research report dated November 02, 2017.
Sharekhan's research report on Firstsource Solutions
The numbers of Firstsource Solutions Limited (FSL) are not strictly comparable on QoQ basis as the company divested some of its domestic businesses during Q1FY2018. During Q2FY18, FSL reported another quarter of better-than- expected operating performance against our modest estimates for Q2FY2018. Operating profit margin (OPM) improved by 110BPS QoQ (ahead of our estimates) despite Rs 3.5 crore (one-off) shutdown costs relating to domestic business, led by improved profitability in ISGN business along with 7.6% QoQ decline in operating expenses. Better-than-expected OPM resulted in net profit beat, that grew 5.1% QoQ to Rs68.8 crore in Q2FY18. The company’s revenue declined by 0.9% QoQ on constant currency (CC) basis, largely in-line with our expectation. On a reported basis, FSL’s revenue declined by 0.5% QoQ to Rs.873.0 crore owing to divestment of domestic business. On comparable basis (excluding the domestic business), the revenues increased by 3.1%QoQ to Rs850.8 crore, while OPM expanded by 160bps QoQ to 13.2% in Q2FY2018.
Outlook
we maintain our Hold rating with a revised price target of Rs.45. However, any favourable corporate event to unlock the value for minority shareholders would be an upside trigger.
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