If initial targets after the company’s Q2 results are to be believed, the stock could deliver up to 40 per cent return. Analysts said a rise in digital revenue share as a percentage of total revenue would rerate the stock that was otherwise trading at a discount to its IT midcap peers. They were not not too worried over a cut in FY22 revenue guidance.
Edelweiss said Firstsource remained on track to transform its business from pure-play business process management (BPM) to a digital and platform company. The brokerage has kept its Rs 251 target because the long-term story remained intact.
Emkay Global said Firstsource’s September quarter numbers were a bit weak. Yet the brokerage upgraded the stock to buy with a target of Rs 220, citing attractive valuations.
On Thursday, the stock was trading at Rs 178.85, down 0.53 per cent.
From a high of 3.26 per cent in the March quarter of 2019, Jhunjhunwala stake in Firstsource Solutions fell to 1.29 per cent in the December quarter of 2020. His name was not mentioned in the company’s shareholders list in the March quarter, suggesting he either fully exited the stock during the quarter or reduced his stake to below 1 per cent. The stock traded in a tight range of Rs 100-110 during the quarter, only to rally later.
Firstsource Solutions’ Chairman Sanjiv Goenka had in an interview to ET NOW said his company was in the process of transitioning from being a BPO player to being a platform and transformation player. This past quarter, Goenka said, 17 per cent of order wins were from digital. “A year ago we did not have digital at all. We have just won a very major contract in the healthcare space. It is the largest deal that has been struck in the sector. It is a $210-million deal that we along with our partner had bid. Our share is about $110 million. We won it with TCS and Infosys as competitors. It was a little bit like a David versus Goliath kind of a competition. It is the beginning of a transformation, and transformation is not easy, but it is something that is definitely happening,” he said.
Goenka said it was beginning to manifest in the revenue mix, in the wins mix and in the way the company was being viewed by its clients.
Firstsource has revised down its FY22 revenue growth outlook to 14.5-15 per cent YoY in constant currency terms from 15-18 per cent. This comes in the wake of challenges in the collection business and a talent shortage in onshore markets. It kept its margin guidance same at 11.8–12.3 per cent for FY22.
Edelweiss Securities said: “We believe the challenges in the mortgage business are transitory and talent shortage will impact it in the short term. However, it will lead to higher offshoring going forward, which would be margin accretive. The company continues to progress towards its digital journey as 17 per cent of deal wins this quarter were digital in nature. The stock is trading at a sharp discount to IT mid-caps, and an increase in digital revenue contribution would drive multiple re-rating for the stock.”
Emkay said the stock has corrected about 15 per cent in the last one month and the performance miss in Q2 was largely due to temporary factors. Growth should bounce back strongly from gteh March quarter. “The stock may consolidate in the near term due to the lack of immediate catalysts. Considering attractive valuations, we upgrade the stock to buy with a target of Rs220 at 21 times September 2023 EPS,” it said.
The BPM firm posted a 28.3 per cent rise in consolidated net profit to Rs 135 crore for the September quarter, compared with Rs 105.2 crore in the year-ago period. Revenue from operations grew 20.3 per cent to Rs 1,418.2 crore from Rs 1,178.3 crore a year ago, it said. The company said its headcount stood at 27,835 as on September 30, 2021. It added 15 new clients during the quarter, creating a robust deal pipeline. The stock is up 78 per cent year-to-date.
