Reduce Firstsource Solutions: target of Rs 370: Emkay

Emkay's research report on Firstsource Solutions

FSOL has signed an agreement for acquiring Pastdue Credit Solutions (PDC) – a UK-headquartered debt collection agency serving UK’s several market-leading companies, including banks, utility firms, telecom players, and government bodies – for a cash consideration of £22mn (1.3x P/S on FY24 basis). PDC’s revenue CAGR stood at ~17% over FY22-24, growing to £16.9mn in FY24 with operating margin of 20.1%. Per PDC’s 2024 Annual Report, revenue is expected to grow at least 25% in FY25. The acquisition aligns with FSOL’s long-term strategy, of building a differentiated collections business with strong sectoral depth and local delivery capabilities across the UK. It expands FSOL’s presence in the debt collection services business in UK which is more US-centric.

Outlook

We have not yet factored the acquisition into our estimates, pending more clarity on revenue/margin synergies and regulatory approvals. We retain REDUCE on the stock, and TP of Rs370 at 25x Jun-27E EPS.