Firstsource Solutions surges 13% on heavy volumes; zooms 75% from June lows

FSL revised its revenue growth guidance to 11.5-13.5 per cent for FY25 in CC terms (vs 10-13 per cent earlier)

Shares of Firstsource Solutions (FSL) hit a new high of Rs 309.50 as they rallied 13 per cent on the BSE in Thursday's intraday trade amid heavy volumes. In the past one week, the stock of the RP-Sanjiv Goenka Group company has surged 25 per cent as the company reported a solid set of numbers for the June quarter (Q1FY25).

In the month of July, the stock rallied 30 per cent, while it has zoomed 75 per cent from its June month low of Rs 176.70.

At 11:04 AM, FSL was trading 10 per cent higher at Rs 300.70 as compared to 0.15 per cent gain in the BSE Sensex. The average trading volume on the counter jumped nearly five-fold. A combined 33.14 million shares, representing 4.75 per cent of total equity of FSL, changed hands on the NSE and BSE today.

 

FSL is a specialised global business process services partner, providing transformational solutions and services spanning the customer lifecycle across Healthcare, Banking and Financial Services, Communications, Media and Technology, and other diverse industries.

On Tuesday, July 30, FSL announced the launch of Firstsource relAI (pronounced re-ly), a suite of AI led platforms, solutions and offerings to drive digital transformation. The suite of offerings aims to empower businesses of all sizes to seamlessly integrate digital technology and AI into their operations, driving efficiency, innovation, and competitive advantage.

Meanwhile, in Q1FY25, FSL recorded its highest-ever quarterly revenues and witnessed broad-based growth across verticals, barring the BFS vertical, where elevated interest rates remain an overhang. FSL added 10 new logos and won 3 large deals during the quarter and ended the quarter with a robust exit deal pipeline which gives confidence that the growth momentum witnessed in Q1 would further continue well within FY25 as well.

FSL revised its revenue growth guidance to 11.5-13.5 per cent for FY25, in constant currency (CC) terms, versus 10-13 per cent earlier, and maintained its earnings before interest tax (Ebit) margin guidance in the range of 11-12 per cent and expansion of 50-75 bps thereafter. The management reiterated its target to achieve $1 billion exit run rate by Q4FY26.

FSL generates 65 per cent revenues from the US and 35 per cent from the UK. The company is a domain driven BPM services company which has over 150 global clients, including 18 Fortune 500 companies and 3 FTSE 100 companies. It has 27,940 employees across the US, UK, India and Philippines.

FSL is well placed to sustain its medium and long-term growth momentum driven by client acquisition, portfolio expansion, and margin enhancement initiatives, according to analysts at ICICI Securities.

Further, margin expansion is expected over the medium term through various strategies including onsite-offshore shift, optimiSation of sourcing and staffing, technology adoption, and automation. "We have baked Ebit margins of 11.6 per cent and 12.1 per cent in FY25 and FY26, respectively as against 11 per cent in FY24. Healthy revenue growth coupled in margins expansion to drive ~20 per cent earnings CAGR over FY24-26E," the brokerage firm said in a stock report.

FSL upped its FY25 revenue growth guidance to 11.5-13.5 per cent in CC (from 10-13 per cent), implying 0-1.1 per cent CQGR over Q2-Q4 which seems conservative, based on the vertical-wise outlook and pipeline strength, according to analysts at Emkay Global Financial Services.

FSL is likely to sustain the growth momentum, on broad-based growth, strong deal wins, and likely recovery in mortgage, with start of an interest rate-cut cycle expected in the US. “We raise our target multiple (TM) to 25x (from 20x), given strong execution. Granted that the 25x TM is rich for a BPM company with potential risks stemming from AI/GenAI, but FSL’s stronger near-term growth profile and superior execution warrant a higher multiple,” the brokerage firm. However, currently, the stock is trading above analyst’s target price of Rs 300 per share.