Hold Firstsource Solution; target of Rs 31: ICICI Direct

ICICI Direct's research report on Firstsource Solution

Firstsource Solution (FSL) reported a mixed set of Q4FY20 numbers. While revenues increased 2.6% QoQ and 11.7% YoY, EBIT margins fell 40 bps QoQ, 154 bps YoY to 10.8%. The increase in revenue was led by 6.8% QoQ growth in telecom & media vertical and 1.7% QoQ increase in BFSI. Overall debt has increased by Rs 290 crore to Rs 836 crore in FY20.

Outlook

We expect near term revenues to be impacted by pricing pressure in healthcare and challenges in top client. This is expected to dent Q1FY21E revenues by 10% QoQ. This sharp drop in Q1FY21E is expected to impact FY21E revenues and margins. As a result, we revise our FY21E revenues and EPS estimates downwards. In addition, we believe the debt will remain elevated due to higher DSO days. Hence, we downgrade the stock from BUY to HOLD with a revised target price of Rs 31.