Recommendation Review: Firstsource Solutions

We had recommended Firstsource Solutions to readers in DSIJ Vol. 28, Issue No. 19 (dated September 8, 2013), when the scrip was trading at Rs 12.69. We had recommended this counter based on factors like the company’s revenue growth prospects and the revival in key markets like the US and UK. Apart from that, we had categorically stated that the healthcare vertical would be the major growth driver for the company.

Though there were certain concerns on the higher amount of dollar-denominated debt of USD 167-168 million on its US books, the company made a repayment of USD 11.25 million towards the first principal instalment of its term loan in Q1FY14. Further, it will be repaying USD 45 million of this every year through internal accruals, without having to refinance any of the outstanding debt.

Firstsource Solutions has been on a drive towards margins improvement and aims to reach 15 per cent EBITDA margin by FY15. It is terminating low margin accounts in customer management, its Asia Business Unit (ABU) and Provider business segments.

After our recommendation, the scrip has made an up-move and is currently trading at Rs 14.60, clearly providing a healthy appreciation of around 16 per cent in just a fortnight’s time. The scrip is likely to keep its upward momentum alive and achieve our target of appreciation of 20 per cent. But in view of the current uncertain situation in the markets, we recommend that investors book profits at the current level.