Buy Firstsource Solutions; target of Rs 130: Emkay Global Financial

Emkay Global Financial is bullish on Firstsource Solutions has recommended buy rating on the stock with a target price of Rs 130 in its research report dated February 03, 2023.

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February 09, 2023 / 11:44 IST

26 Aug, 2025 12:21

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Emkay Global Financial's research report on Firstsource Solutions

FSOL’s Q3FY23 operating performance was above expectations. Constant currency revenue growth was a tad below estimates, while EBITM beat our estimates. Mortgage revenue fell ~20% QoQ to ~USD19mn in Q3. Management expects weak volume in the mortgage business in Q4 and indicated that Q4 mortgage revenue will be lower than that in Q3. UK BFS continues to deliver strong growth with a recent deal win with a top-10 retail bank in the UK; the demand environment, deal pipeline, and digital adoption remain strong despite uncertain macro conditions. FSOL has narrowed its FY23 CC revenue growth guidance to -2 to -1% and 12.5-14.5% excluding mortgage and acquisitions (earlier -2 to 0% and 12-15%, respectively), implying 1-5% QoQ growth in Q4 accounting for seasonality in the collections business and continued weakness in the mortgage segment. FSOL has also narrowed its EBITM guidance to 9.25-9.5% for FY23 (earlier 9-9.5%) and expects to achieve normalized margin of 11.5-12% in Q4, which will then act as a base for FY24 margins. We have largely retained FY24-25E EPS estimates, while we have increased our FY23E EPS estimates by 15%, factoring in Q3 performance.

Outlook

We expect the stock to gradually recover as investors gain confidence in a sustainable recovery in sequential revenue growth and margin. We maintain our BUY recommendation with a TP of Rs130 (earlier Rs125) at 13x Dec-24E EPS.

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