Against a fall of 0.7 per cent in the BSE IT index in 2024 so far, shares of Firstsource Solutions Ltd are up 10 per cent, trading above their long-term averages. The IT firm maintained its aspiration to reach $1 billion annualised revenue run-rate by Q4FY26, which should require a compounded quarterly growth rate of 2.8 per cent over Q1FY25–4Q FY26.
Nomura India, which hosted CEO Ritesh Idnani and CFO Dinesh Jain for investor meetings in Singapore, said the senior leadership hiring is largely done and that the IT firm has expanded its sales team by nearly one-third in the past 10 months.
"The CEO noted that FSOL’s deep domain expertise in its key verticals (BFS, Healthcare and CMT), along with its tenured relationship with its existing roster of clients (which include the world’s biggest spenders), gives it an edge in the market. It continues to expand its capabilities both organically and inorganically (FSOL recently acquired QBSS to strengthen its RCM capabilities in the US healthcare industry)," Nomura India said.
The foreign brokerage said Firstsource Solutions is looking to reduce both revenue seasonality and macro dependence. It has identified 30 tracks internally to help it improve its margin by 50-75 basis points annually post its investment phase that which will end in FY25. The management believes 15 per cent EBIT margin is achievable in the medium term.
For FY25, revenue guidance of 10-13 per cent YoY revenue growth in constant currency (cc) assumes macroeconomic conditions in FY25 to be similar to FY24. On margins, Firstsource Solutions has guided for 11-12 per cent EBIT margin with investments likely to be front-loaded.
"FSOL expects broad-based growth across all its verticals, service lines and geographies in the near to medium term," Nomura India said.
While Firstsource does not have any stated dividend policy, it has been paying out 45-50 per cent of PAT.
Nomura India said its target price on Firstsource Solutions at Rs 200 is set at 18 times FY26 eanings per share based on our three-stage model. The stock is trading at 1SD above its long-term average, it noted. On Thursday, the stock closed at Rs 200.55 on BSE.