'Reduce' Firstsource Solutions Shares Maintains Dolat Capital Post Q1 Results — Check Target Price

Firstsource Solutions' management commentary remained positive across most verticals, with an upward revision to lower end of guidance, reinforcing confidence in sustained execution despite macroeconomic uncertainties.

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Dolat Capital Report

Firstsource Solutions Ltd.'s Q1 revenue was a miss on constant currency terms, but largely in-line on USD terms, led by net cross-currency gains. Raising the lower band of revenue guidance, confidence in execution and acquisition of PDC has led to us to raise the revenue estimates by 1%/1.6% (assumed integration from Q3 onwards).

Operating profit margin estimates to see a mild downtick as adverse mix (Payer biz driving growth) and greater partnership-led business (to see higher commission expense) to limit operating leverage gains from Revenue. Hence, OPM estm lowered by 10 bps/ 20 bps.

Noting greater net interest outgo from PDC acquisition, overall, earnings have been lowered by 1.1%/1.4%.

Firstsource Solutions reported revenue at $259 million (our estimate: $257 million), up 1.6% QoQ in CC terms (CC gains of ~200 bps on reported Revenue). Operating profit margin came in at 11.3%, up 6bps QoQ (our estimate: 11.5%).

For FY26, the company raised the lower end of CC revenue guidance by 100 bps to 13%-15%, excl. PDC (acq. in July, pending reg. approval), while OPM guidance retained at 11.25%-12%. It also reiterated consistent 50-75bps OPM expansion over the next three-four years each to align with industry peers.

Management commentary remained positive across most verticals, with an upward revision to lower end of guidance, reinforcing confidence in sustained execution despite macroeconomic uncertainties.

We have scaled growth, but lowered our FY26E/FY27E EPS estimates by 1.1%/1.4% given slower than expected OPM gains. Present valuations capture most positives, thereby we maintain our ‘Reduce’ rating with target price of Rs 360 (valuing at 28x FY27E EPS).

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