Dolat Capital is bullish on Firstsource Solutions has recommended buy rating on the stock with a target price of Rs 62 in its research report dated February 04, 2019.
Dolat Capital's research report on Firstsource Solutions
Firstsource (FSL) reported strong results, with a sequential revenue growth of 4.7% in CC terms (our estimate was 4%) and OPM gains of about 240bps QoQ at 11.2% (our estimate was 9.9%). The revenue growth was led by all round performance across segment and sustained robust growth in the mortgage business (accounts 19% of revenues and grew 34% QoQ and 114% on YoY basis). OPM make a strong comeback on robust operating leverage and normalization due to absence of one-time cost of about `170mn for the leadership change (recruit fee, exit/overlap cost of departing CEO). FSL has also narrowed down its guidance band - implies strong sequential growth rate (~4-5%; FY20 growth 7.5%-8.5%) and sustained OPM (guided OPM band 11%-11.2%).
Outlook
We believe the strategic initiatives devised by the new CEO may have a short-term impact on its profitability (OPM in FY19 was 12%), but would add more stability and drivers to the revenue profile. Post the earnings, we have kept our estimates largely unchanged and maintain our Buy rating on the stock with TP of ` 62 (valued at 10x PE on FY22E).
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