Buy Firstsource Solutions; target of Rs 90: Anand Rathi

Anand Rathi 's research report on Firstsource Solutions

With revenue of $160m, up 14% q/q, 15% y/y, FSL had another good quarter. In this, the top client grew 35% q/q (though y/y, it declined 6%) and contributed 16% to revenue. FSL’s strong execution in its mortgage business (28% of revenue) absorbed the softness in health-care. Ahead, healthcare may accelerate in FY22 as mortgage stabilises. For FY21, guidance was raised to 9-12% CC (from 6-10%). The 10.7% EBIT margin (up 43bps q/q, 141bps y/y) is likely to be maintained in a narrow band.

Outlook

We raise our FY21e/FY22e revenue ~5%/4%, earnings 6%/3%, leading to a higher target of Rs90 (13x FY22 EPS) earlier Rs85.