Buy Firstsource Solutions; target of Rs 45: Dolat Capital
Dolat Capital is bullish on Firstsource Solutions has recommended buy rating on the stock with a target price of Rs 45 in its research report dated May 27, 2020.
May 28, 2020 / 03:04 PM IST
Dolat Capital's research report on Firstsource Solutions
Firstsource (FSL) reported below expectation results, with a sequential revenue growth of 0.6% in CC terms (our estimate was 1.5%) due to weakness in healthcare segment (COVID impact - USD6mn) and OPM decline of about 40bps QoQ at 10.8% (our estimate was 11.2%). Healthcare segment de-grew by 1.3% QoQ as Providers clients faced decline in government funding in Feb and reduced number of elective surgeries and Payers volume got impacted as it witnessed lesser filling of claims. Customer Mgmt grew 3.2% QoQ but will see some impact as client re-prioritized spends. Mortgage business (up 2.2% QoQ) expects maximum demand tailwinds due to re-financing volume as lockdown ends and Collections should witness demand once economic activity picks up pace coupled with Forbearance and default support to aid demand.
Considering the positive vertical commentary, and MoM improvement in demand/supply situation in Q1, we believe the challenges are temporary and FSL should see strong recovery Q2 onwards. Factoring the same and attractive dividend yield (~7%) we maintain our Buy rating on the stock with TP of Rs45 (valued at 8x PE on FY22E).
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