Last Updated: Sunday, January 17, 2016

Firstsource Solutions (FSL) : Value Investment in Mid-Cap IT Company

Know your Company: Firstsource Solutions Ltd 

Multibagger IT-Firstsource Solutions (FSL) : Value Investment in Mid-Cap IT CompanyNSE: FSL - CMP 35.00 15-Jan 3:29 PM IST

With tremendous Q3, result by Infosys Ltd the mood once again is getting slightly upbeat for IT companies in India Stock Market. Big ITs giants like Infosys and Tata Consultancy Services (TCS), HCL Tech quietly inch up over last couple of years. So we have some of these small-caps, mid-caps following in that wake. Today We will discuss one of the buzzing mid cap IT company; Firstsource Solutions (FSL) which is triggered by a lot of fundamental changes that the company has seen in the last few quarters. 

About Firstsource Solutions Limited (FSL)

Image:Firstsource Solutions (FSL)_Value Investment in Mid-Cap IT
Firstsource Solutions Ltd(FSL), incorporated in the year 2001, is a Mid Cap company (having a market cap of Rs 2354.54 Cr.) operating in Information Technology sector. It delivers innovative, value-added business process management services and a comprehensive suite of business process management services through a combination of extensive domain knowledge, strategic alliances and internal competencies backed by leading-edge technologies. Our focus on Telecommunications & Media, Banking & Financial Services, Insurance, Healthcare and Publishing verticals has enabled it to extend business benefits beyond cost arbitrage. FSL key Products/Revenue Segments include IT Enabled Services which contributed Rs 889.52 Cr to Sales Value (97.30% of Total Sales), Other Operating Revenue which contributed Rs 24.62 Cr to Sales Value (2.69% of Total Sales), for the year ending 31-Mar-2015. More at official site of Firstsource Solutions Ltd(FSL)>>>.

Business Size
'Firstsource Solutions Limited (FSL)' is said to be a very small company, but it is fairly large in terms of its size and operations. FSL has got almost 24,000 people working across 47 global service centres and it serves about 100 clients; a lot of them are Fortune 500 clients as well. Its present market cap  is RS. 2,354.54 Cr.

Unique Business Model
FSL is a purely business process management company which focuses on healthcare vertical more than anything else. So, this is something where TCS and all have also started seeing some very good traction and we know how promising this sector seems to be. FSL is among few of the IT companies having unique business model. We have seen how Tata Elxsi has given multi-fold return to its investors on the basis of its unique business model only, its has also upbeated valuation concern by trading and sustaining on high P/E multiple of 50+. So we will seek growth prospect and investing opportunity in 'Firstsource Solutions Limited (FSL)' in present post.

Smart Management

What the management has done in the last four quarters is steadfastly, they have cut down on their debt. It used to have a fairly significant debt burden. They planned to bring this down to under Rs 300 crore by FY17 from the current Rs 730 crore. So, the cash flows are being used very positively for this. That is why I love this awesome company.The company’s management includes Mr.Sanjay Gupta, Mr.Arjun Mitra, Mr.Arun Tyagi, Mr.Charles Miller Smith, Mr.Dinesh Jain, Mr.Donald W Layden Jr., Mr.Gavin Snell, Mr.Pradip Kumar Khaitan, Mr.Pradip Roy, Mr.Rajesh Subramaniam, Mr.Sanjay Gupta, Mr.Sanjay Venkataraman, Mr.Sanjiv Goenka, Mr.Shashwat Goenka, Mr.Subrata Talukdar, Mr.V K Sharma, Mr.Venkataraman K R, Mr.Y H Malegam, Mrs.Deepti Mittal, Ms.Grace Koshie.
Future Prospect
So given its strength, given its footprint, there is a lot of repeat business that they are expecting come January; new contracts being signed and all. So, my sense is this is one company that has not got fully recognised or priced as much and it trades at about eight times FY17 earnings. But, if you were to give it a slightly liberal multiple of 10, at that Rs 5 earnings per share (EPS) expectation that we have, Rs 5-5.5, it very gives you a price objective of about Rs 55. So, from that Rs 40 levels that you see today, it is a decent upmove that it can give and a very limited downside," he said. 

Analysts are Getting Bullish on FSL
Despite this IT company's unremarkable performance, analysts are getting bullish on it. This is because low valuations have limited further downside. FirstSource Solutions (FSL) is quoting at a PE of 7.67, way below that of its peers (see relative valuation table). This means that the current market price factors in most of the company's short-term pains. Most of the analysts are of the openion that Firstsource's results should look much better in the upcoming quarters due to the company boasts of a healthy dealings.

Firstsource Solutions Ltd Share Holding Pattern

Promoters :  55.79%,
Foreign Institutions : 9.10% 
Financial Institutions : 4.84 
Other Companies : 3.24% 
NBFC and Mutual Funds : 2.50%
General Public : 24.53% 
*Above Share Holding Pattern shows that around 75% share holding of this company is in strong hands.

Key Highlights of Firstsource Solutions Ltd 

  • MARKET CAP (RS CR): 2,354.54
  • P/E: 15.35
  • INDUSTRY P/E: 23.63
  • BOOK VALUE (RS): 24.34
  • PRICE/BOOK: 1.44
  • EPS (TTM): 2.28
  • FACE VALUE (RS): 10.00
*Data derived from moneycontrol

Why Firstsource Solutions is Value Investment in Mid-Cap IT Company

  • FSL at CMP 35.00 is a value pick as downside is capped from here.
  • It is trading in a range of P/E 10 to 15 while industry P/E is 23 to 30.
  • Strong Shareholding Pattern shows that around 75% share holding of this company is in strong hands.
  • Its unique business model will help it to beat industrial P/E.
  • Efficient Management helping company to manage its debt and to post better numbers.
  • Analysts are getting bullish on FSL.
  • It has potential to become a multibagger stock.

FirstSource Solutions (FSL) in News

Cardiff, March 8, 2016
Firstsource Solutions named Outsource Contact Centre of the Year for the second year running
Dec 22, 2015
Mar 28, 2016
Buy Firstsource Sol; target of Rs 50: Religare (pdf)
Feb 02, 2016
Buy Firstsource Sol; target of Rs 50:Axis securities (pdf)
Sep 15, 2014 | Source: Economic Times
E-commerce boom offers a lifeline for listless BPO units
Feb 09, 2015 | Source: FirstPost
Firstsource Q3 profit rises 19% to Rs 57.5 cr

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