Emkay Global Financial's report on Firstsource Solutions
Firstsource delivered slightly lower-than-expected results in the Mar’20 quarter. Revenues grew 0.6%/8.2% in cc terms on a QoQ/YoY basis (vs. our expectations of 1% QoQ growth). EBIT margin was down 40bps QoQ at 10.8% due to delivery disruption on account of Covid-19 (vs. our expectations of 11.2% EBIT margin). Growth was led by collections (~11% of sales) and mortgage businesses (~19% of sales) (up 19.2% and 117% YoY, respectively), while performance in the Healthcare business (~31% of sales) was weak with a 1.3% QoQ decline in INR terms. Management desisted from providing a full-year revenue outlook. It expects the June’20 quarter to be weak, with a 7-10% sequential cc fall in revenue and ~150-200bps drop in EBIT margins due to top client led pressure in the Customer Management business and potential challenges in the Healthcare provider segment.
We cut FY21/FY22E EPS by 11.1/3.3% on lower revenue and margin assumptions. We maintain Hold, with a TP of Rs39 (Rs40 earlier) based on ~8xFY22E EPS. We currently have EW stance on FSL in sector EAP.
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