Buy Firstsource Solutions; target of Rs 100: Dolat Capital Market

Dolat Capital Market's research report on Firstsource Solutions

Firstsource (FSL) reported above expectation results, with a sequential revenue growth of 13% at $160mn (DE: 8%) led by sustained traction in BFSI Vertical (up 15% QoQ in $ terms) and very sharp recovery in CMT segment (clocked 31% QoQ growth). Strong offshore led growth led to OPM improvement of about 40bps QoQ at 11.4% (DART estm: 11.1%). Robust growth performance and healthy client wins (added 15 client wins in Q2, 10 in Q1) led to upgrade in revenue guidance for FY21 to 9- 12% (from 6% to 10% growth in CC terms). OPM outlook kept intact at 11.0% to 11.5%, as company expect further need for investments in new vertical/capabilities and increased cost on talent (in mortgage).

Outlook

Strong upgrade in guidance (growth leader across IT&ITeS names in FY21), robust client additions, improved profitability, widened bandwidth & market opportunities, reducing client concentration, generous payouts (imply 5% yield) and compelling valuations (~10x on TMF basis) makes a strong case for re-rating of the stock. Thus, we maintain our Buy rating with TP of Rs100 (valued at 12x on FY23E).

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