Buy Firstsource Solutions; target of Rs 66: ICICI Direct

ICICI Direct's research report on Firstsource Solutions

Firstsource Solutions (FSL) reported 5.6% QoQ decline in reported dollar revenues, 4.3% QoQ decline in constant currency terms. The revenue decline was mainly due to 36.3% QoQ fall in top client partly offset by 13.0% QoQ increase in Top 2-5 clients. Vertical wise, Communications Media & Tech declined 33.2% QoQ mainly due to decline in top client partly offset by 13.0% QoQ growth in BFSI clients. EBIT margin improved 20 bps QoQ to 11.0%. Going forward, the company expects revenues to improve and has guided 6-10% YoY growth in FY21E revenues in constant currency terms. The company also expects operating margins in the range of 11.0-11.5%.

Outlook

Further, we expect healthy traction in margins to continue in coming quarters. Based on this, we revise our revenue, EPS estimates upwards, prompting us to upgrade the stock from HOLD to BUY with a revised target price of Rs 66/share (10x FY22E EPS).

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