Reduce Firstsource Solutions: target of Rs 350: Emkay Global Financial

Emkay Global Financial's research report on Firstsource Solutions

Firstsource (FSOL) delivered yet another quarter of strong topline growth in Q3FY25; revenue grew 7.6% QoQ CC, compared to our growth estimate of 6.9%. Growth was led by Ascensos (incremental 2 months of contribution), but remained broad based across verticals. Growth remained broad based across 3 core verticals in North America, while companies continue to face significant cost pressures in the UK. EBITM of 11.1% was a tad lower than our estimate. Deal wins remained steady, with the pipeline close to an all-time high. The management has upped its FY25 revenue guidance again to 21.8%-22.3% (from 19.5%-20.5% previously), implying sequential growth of -0.4% to +1.2% in Q4, which seems a reasonable ask given the ramp up of recently won deals and healthy pipeline.

Outlook

The company retained EBITM guidance of 11%-11.5% for FY25. We trim FY25-27E EPS by 0-2% factoring in the Q3 performance and revised guidance. We maintain REDUCE, given the rich valuations, with an unchanged TP of Rs350 at 25x Dec-26E EPS.