Firstsource Solutions hits highest level since January 2008; stock up 15%

Firstsource Solutions (FSL) has rallied 15% to Rs 74.20, extending its Tuesday’s 3% gain on the BSE, after the company reported higher-than-expected 170 bps expansion in EBITDA (Earnings before interest, tax, depreciation and amortization) at 14.8% in March quarter (Q4FY18). The stock was trading at its highest level since January 10, 2008.

The company reported net profit of Rs 928 million, higher than analysts' estimate of Rs 840 million, mainly on the back of better-than-expected performance at the EBITDA margin level.

“Healthy margin expansion took place on account of lower-than-expected employee expenses (67.2% as a percentage of revenue vs. 68% expectation) and lower other expenses (down 2.7% QoQ),” analysts at ICICI Securities said in result update.

The board has recommended a maiden dividend of Rs 1.5 per share for the first time and indicated at maintaining a payout ratio of around 35- 40% of PAT (including DDT), going ahead.

“This, accompanied by an improved margin trajectory for FY19E, could lead to earnings growth of around 14% CAGR in FY18-20E. With a healthy dividend payout and becoming net long term debt free by October, 2018, we believe FSL could witness a re-rating, going ahead,” ICICI Securities said and maintained ‘buy’ rating on the stock with a revised target price of Rs 87 per share.

“For FY18, revenue growth was 2.8% in CC terms (normalized for domestic business divestment at around 7% in CC terms). We believe that the current business traction does not give comfort on significant improved revenue growth momentum. Thus, we largely retain our earnings estimates and assign a HOLD with target price of Rs 60,” analysts at Emkay Global Financial Services said in result update.

At 03:16 pm; the stock was trading 10% higher at Rs 70.95 on the BSE on back of five-fold jumped in trading volumes. A combined 47.35 million shares changed hands on the counter on the BSE and NSE so far.


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