Reduce Firstsource Solutions; target of Rs 350: Emkay Global Financial

Emkay Global Financial's research report on Firstsource Solutions

Firstsource (FSOL) reported inline operating performance in Q4 – revenue grew 2.1% QoQ CC; EBITM expanded by 10bps QoQ to 11.2%. Growth was broadbased across verticals, except Diverse industries that saw seasonal weakness. Deal-win momentum was steady (5 large deals in Q4), aided by market share gain. FSOL guided to 12-15% CC YoY growth (3% inorganic) for FY26, on the back of strong FY25 deal inflow (highest-ever ACV intake; up 60% YoY) and robust pipeline (exit deal pipeline up 30% YoY). FY26 guidance implies CQGR of 1.9-2.9% and builds on the current macro environment. The mgmt. guided to EBITM range of 11.25-12%, implying that the mid-point guidance is ~50bps higher than adjusted EBITM in FY25; as investment intensity gradually moderates, benefits accrue from margin initiatives (identified 37 margin drivers under 9 initiatives) and healthy revenue momentum.

Outlook

We cut FY26-27E EPS by ~2-3%, factoring in the Q4 performance and net debt position. We retain REDUCE given rich valuation, with unchanged TP of Rs 350 at 24x Mar-27E EPS.

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