Equity Research Report

CMP: Rs 31.9

Recommendation : BUY

Target Price : Rs 74.0

Target Period: 12 Months

Stock Details

Market Cap Rs 20.92 Billion

52- wk HI/L Rs 44.30 – Rs 25.60

Avg.Volume (Monthly) 347,984

Face Value Rs 10

BSE 1 week 1 month 3 month 6 month 1 year

Price 34.20 27.85 31.30 39.75 28.80

Gain / Loss -7.75% 13.29% 0.96% -20.73% 9.55%

NSE 1 week 1 month 3 month 6 month 1 year

Price 34.25 27.85 31.25 39.80 28.80

Gain / Loss -7.74% 13.46% 0.96% -20.5% 9.72%

About

First Solution is the leading global providers of Business Process

Management (BPM) services with over 27,000 employees in 46 delivery

centers spread across the UK, US, Ireland, the Philippines, India and Sri

Lanka. Their solutions cover complete customer lifecycle across Banking,

Financial Services & Insurance (BFSI), Healthcare and

Telecommunications & Media verticals. Their capabilities lie in Customer

Management, Transaction Processing and Collections Management.

Financial Highlights

Revenue

- Q3 FY15 Revenues at INR 7.51 billion compared to INR 7.99

billion in Q3 FY14 and INR 7.74 billion in Q2 FY15

- Q-o-Q decline of 3.0% in INR terms

- Y-o-Y decline of 6.1% in INR terms

EBIT

- Q3 FY15 operating EBIT at INR 0.75 billion compared to INR 0.74

billion in Q3 FY14 and INR 0.77 billion in Q2 FY15

- Q-o-Q de-growth of 3.3% while margins flat

- Y-o-Y growth of 0.6%, margin growth by 60 bps from 9.3% to 9.9%

Profit

- Q3 FY15 PAT at INR 0.58 billion compared to INR 0.48 billion in

Q3 FY14 and INR 0.61 billion in Q2 FY15

- Q-o-Q decline of 6.1%, margin down by 20 bps from 7.9% to 7.7%

- Y-o-Y growth of 19.0%, margin up by 170 bps from 6.0% to 7.7%

Firstsource reported revenue downturn in FY15 because of :

Delays in go-live

Full Q impact of the earlier reported loss of Irish telecom client

Delays in decision making leading to longer sales cycle

FIRST SOURCE SOLUTION LTD

Historical Prices

BSE CODE: 532809

NSE CODE: FSLEQ

SECTOR: COMPUTERS

Equity Research Report

Ratio Analysis Mar

'14

Mar

'13

Mar

'12

Investment Valuation Ratios

Face Value 10.00 10.00 10.00

Operating Profit Per Share (Rs) 2.88 2.06 2.36

Net Operating Profit Per Share (Rs) 13.90 13.39 17.51

Profitability Ratios

Operating Profit Margin(%) 20.67 15.35 13.50

PBIT(%) 14.68 7.97 5.23

Gross Profit Margin(%) 14.93 8.81 5.56

Cash Profit Margin(%) 20.07 17.98 6.44

Adjusted Cash Margin(%) 20.07 17.98 6.44

Net Profit Margin(%) 14.41 13.96 5.65

Adjusted Net Profit Margin(%) 14.41 13.96 5.65

Return On Capital Employed(%) 9.70 12.65 9.74

Return On Net Worth(%) 9.74 11.03 5.15

Adjusted Return on Net Worth(%) 9.74 9.52 -0.92

ROA Excluding Revaluations 20.92 18.74 20.43

ROA Including Revaluations 20.92 18.74 20.43

Return on Long Term Funds(%) 10.13 12.65 10.14

Liquidity And Solvency Ratios

Current Ratio 1.53 1.29 0.69

Quick Ratio 2.34 1.14 0.68

Debt Equity Ratio 0.14 0.09 0.05

Long Term Debt Equity Ratio 0.09 0.09 0.01

Debt Coverage Ratios

Interest Cover 8.59 3.22 1.40

Total Debt to Owners Fund 0.14 0.09 0.05

Financial Charges Coverage Ratio 11.56 4.32 1.47

Management Efficiency Ratios

Debtors Turnover Ratio 6.85 7.40 4.89

Asset Turnover Ratio 0.63 0.78 0.47

No.of Days In Working Capital 58.9 -22.1 -217.5

Cash Flow Indicator Ratios

AdjustedCash Flow Times 1.00 0.64 0.91

Earnings Per Share 2.04 2.07 1.05

Book Value 20.92 18.74 20.43

Financial Performance

Firstsource’s revenue growth should start improving from Mar’15 quarter

onwards led by ramp ups on the large deals won in recent quarters (note

that Firstsource has won net new deals worth ACV of US$ 61 million

during 9m FY15). Besides seasonal strength of company’s collection

business (~10% of revenues) will aid revenue growth rates in Mar’15

quarter. We marginally cut FY16/17 EPS estimate by ~2/3% respective to

Rs 4.5/51 respectively as we accommodate Dec’14 quarter performance.

We believe that current valuation at 6.9x/6.2x FY16/17E P/E respectively

largely captures revenue disappointment in 9mFY15 and limits downside

Firstsource did lose quite a few key clients in the last two quarters. They

are expecting to comeback within that segment again. They have

diversified and de-risked themselves by not going for too many big clients.

In fact what they trying to do is their top five clients have been substituted

by another 7-8 smaller ones. That is a good strategy. It constantly helps

these smaller players. The kind of capital that they can deploy to expand

their footprint especially in the US, they could do well getting into newer

verticals.

Currently Firstsource is an undervalued stock.

Recently Firstsource Solutions Ltd has informed BSE that CARE Ratings

has upgraded its Long Term rating of the Company to ''CARE A'' from

''CARE A-''. The rating on the Company''s short-term bank facilities has

also been upgraded to ''CARE A1'' from ''CARE A2+''.

Management expects growth to revive form Mar’15 quarter aided by

ramp-ups of deals won in recent quarters as well as seasonality in

collection business; deal pipeline stays strong amid healthy demand

environment

FIRST SOURCE SOLUTION LTD

Equity Research Report

Source of Funds Mar’14 Mar’13

Total Share Capital 659.74 657.67

Equity Share Capital 659.74 657.67

Reserves 720.46 574.82

Networth 1,380.27 1,232.49

Secured Loans 186.9 110.69

Unsecured Loans 1 2.08

Total Debt 187.9 112.77

Total Liabilities 1,568.17 1,345.26

Application Of Funds Mar’14 Mar’13

Gross Block 403.58 419.07

Less: Accum. Depreciation 317.98 322.65

Net Block 85.6 96.42

Capital Work in Progress 0.05 1.76

Investments 1,173.13 1,168.61

Inventories 0 0

Sundry Debtors 185.24 82.72

Cash and Bank Balance 28.78 25.33

Total Current Assets 214.02 108.05

Loans and Advances 296.35 245.57

Fixed Deposits 0 0

Total CA, Loans & Advances 510.37 353.62

Current Liabilities 190.56 260.59

Provisions 10.42 14.55

Total CL & Provisions 200.98 275.14

Net Current Assets 309.39 78.48

Total Assets 1,568.17 1,345.27

Contingent Liabilities 1,785.55 1,479.66

Book Value (Rs) 20.92 18.74

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Profit

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OnMobile

Global

80.75 922.94 473.34 -37.32 795.7

FIRST SOURCE SOLUTION LTD

Technical Outlook Balance Sheet (INR Crores)

Firstsource Solutions Ltd 12 month Stock Performance

Firstsource Solutions Ltd Performance Against Sensex

Peer Analysis