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Firstsource is a leading global provider of business process outsourcing (BPO) services
offering a wide range of services across banking and financial services, telecommunications
and media and the healthcare industry.
Key Investment Arguments:
Operating leverage in domestic BPO business to improve margins:
FSL’s Indian domestic BPO business, which employs around 50% of manpower and seats,
has a revenue share of only around 12%. It caters to all the major telecom and BFSI
companies in India. A rising trend towards outsourcing by Indian companies especially in
Telecom and BFSI sector will provide a volume boost to the business, which will lead to
increase in operating margins (OPM) of the company.
Barclays Card to improve outlook for onsite and offshore business:
FSL recently won an order for business of around 700 persons from Barclays Card-UK,
which started in Q3FY11 and eventually be migrated offshore by the end of FY12. It has
revenue potential of ~ Rs.100 Crore, which will improve outlook for onsite and offshore
business during FY12.
Strong cash flows to ease leverage situation by FY12E:
The company has FCCBs outstanding worth $ 290 mn (~Rs.1350 Cr) maturity value in Dec
2012. We expect FSL to generate cash worth Rs. 450 crore during FY10-FY12E net of capex,
which will help it repay part of its FCCBs. The company generates operating cash worth
Rs.180-200 crore every year, which will enable to refinance rest of the FCCBs.
Valuation and view:
FSL currently trades at 6.5x/5.4x of FY11E/FY12E earnings, which is at around 40%-75%
discount to globally listed BPO companies like Exl, WNS and Capita with similar operating
parameters. We believe the valuation gap with other globally listed players will reduce
considerably. We recommend BUY with a target price of Rs30 - 9.7x/8x of FY11E/FY12E
earnings, at a discount of 12%-70% to current valuation of other listed players
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Firstsource is a leading global provider of business process outsourcing (BPO) services
offering a wide range of services across banking and financial services, telecommunications
and media and the healthcare industry.
Key Investment Arguments:
Operating leverage in domestic BPO business to improve margins:
FSL’s Indian domestic BPO business, which employs around 50% of manpower and seats,
has a revenue share of only around 12%. It caters to all the major telecom and BFSI
companies in India. A rising trend towards outsourcing by Indian companies especially in
Telecom and BFSI sector will provide a volume boost to the business, which will lead to
increase in operating margins (OPM) of the company.
Barclays Card to improve outlook for onsite and offshore business:
FSL recently won an order for business of around 700 persons from Barclays Card-UK,
which started in Q3FY11 and eventually be migrated offshore by the end of FY12. It has
revenue potential of ~ Rs.100 Crore, which will improve outlook for onsite and offshore
business during FY12.
Strong cash flows to ease leverage situation by FY12E:
The company has FCCBs outstanding worth $ 290 mn (~Rs.1350 Cr) maturity value in Dec
2012. We expect FSL to generate cash worth Rs. 450 crore during FY10-FY12E net of capex,
which will help it repay part of its FCCBs. The company generates operating cash worth
Rs.180-200 crore every year, which will enable to refinance rest of the FCCBs.
Valuation and view:
FSL currently trades at 6.5x/5.4x of FY11E/FY12E earnings, which is at around 40%-75%
discount to globally listed BPO companies like Exl, WNS and Capita with similar operating
parameters. We believe the valuation gap with other globally listed players will reduce
considerably. We recommend BUY with a target price of Rs30 - 9.7x/8x of FY11E/FY12E
earnings, at a discount of 12%-70% to current valuation of other listed players
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