Firstsource Solutions shares hit record high, up 25% in 5 days; here are target prices

Shares of Firstsource Solutions Ltd climbed 13 per cent in Thursday's trade to hit a fresh record high, thanks to Q1 revenue beat and raising of FY25 sales growth guidance to 11.5-13.5 per cent in constant currency (CC) terms from 10-13 per cent earlier. With this, the Firstsource Solutions stock climbed 25 per cent in five straight sessions and breached a couple of target prices that brokerages shared recently.

Firstsource Solutions said it aspires to reach an EBIT margin level of 14-15 per cent over the next 3-5 years. It said it is optimistic about achieving the $1 billion revenue milestone by FY26. The company aims to improve margins by 50-75 bps annually over the medium term. 

Nomura India, which has a target of Rs 300 on the stock, expects Firstsource Solutions to remain in the investment phase in H1FY25, with a focus on developing its team, technology, and capabilities. With key margin levers in higher offshoring, pyramid optimisation, automation and operating leverage, it believes Firstsource Solutions has runway to expand margins to 15 per cent over the medium term. 

"We expect FSOL to report an EBIT margin of 11.4 per cent (up 40 bps YoY, and within its guided band of 11-12 per cent) and 12.3 per cent in FY25 and FY26, respectively. In the near term, i.e. 2Q FY25F, there will be some headwind from annual salary increments (nearly 100bps)," Nomura India said. 

The stock rose 13.24 per cent to hit a high of Rs 309.50. The scrip is up 25 per cent 25.11 per cent in the past five sessions.

Firstsource Solutions upped its FY25 revenue growth guidance to 11.5-13.5 per cent in CC terms from 10-13 per cent earlier, implying 0-1.1 per cent CQGR over Q2-Q4. The guidance seems conservative, based on the vertical-wise outlook and pipeline strength, Emkay Global said.

"We maintain ADD on FSOL, hoisting up our TP over 30 per cent to Rs300 on 25 times Jun-26E EPS. Granted that the 25 times is rich valuation multiple for a BPM company with potential risks stemming from AI/GenAI, but FSOL’s stronger near-term growth profile and superior execution warrant a higher multiple. We raise FY25-27E EPS by 0-9 per cent, factoring the Q1 performance and higher margin assumptions," it said.

Arihant Capital Markets said robust execution and fresh deals should drive Firstsource Solutions' growth momentum. The brokerage said it would closely monitor the Mortgage and Provider sectors for potential acceleration, which is crucial for sustained robust growth. 

"We expect FSL Revenue/Ebitda/PAT to grow at a CAGR of 13 per cent/17 per cent/21.7 per cent, respectively, over FY24-27E. We value FSL at a PE of 25 times to its FY27e EPS of INR 13.3, which yields a target price of INR 333 per share (earlier target price; of Rs 238 per share). We upgrade our rating to 'Buy' from 'Accumulate' earlier on the stock.

Antique Stock Broking increased its valuation multiple to 25 times citing improved near-term visibility. It suggested a target price of Rs 290 against Rs 230 earlier.

"FSOL’s strong performance reaffirms our positive stance on the company even as we await macro factors, yet to play out. We are tweaking FY25E/26E EPS marginally (less than 2.5 per cent) – FY25 EPS cut due to lower other income. We are introducing FY27 estimates and rolling forward valuations to 25x Sep-26 PE (from 22x) on better growth visibility. Retain ‘BUY’ with a target price of Rs 320 (earlier Rs 250)," Nuvama said.