Buy Firstsource Solutions; target of Rs 170: Emkay Global Financial

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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26 Aug, 2025 12:21

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Emkay Global Financial's report on Firstsource Solutions

FSOL delivered an in-line operating performance in Q4. Revenues grew by 5.2% QoQ to USD205.5mn (5.2% CC), but organic revenue growth remained muted. EBITM declined by 70bps QoQ to 11.3%, broadly in line with our estimates. FSOL has guided for FY23 revenue growth of 7-10% YoY (organic 1-4%; guidance assumes 18-21% growth excluding mortgage biz and acquisitions contribution). It has guided for 10.5- 11% EBITM for FY23, factoring in a sharp decline in the mortgage business, a time gap to pass on higher inflation costs and amortization costs owing to acquisitions. Healthcare grew by 5.4% QoQ, led by continued traction in HPHS. BFS grew by 6.9% QoQ, aided by acquisitions. CMT grew by 2.2% QoQ, driven by growth in the top client and continued traction in digital media and Tech clients. We cut FY23E/FY24E EPS by 13%/5%, factoring in weak FY23 guidance, which will also weigh on the stock’s performance in the near term.

Outlook

However, we expect the stock to bounce back gradually as investors gain confidence in a sustainable recovery in sequential revenue growth from Q2FY23. Retain Buy with a revised TP of Rs170 (earlier Rs180) at 17x Mar’24E EPS.

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