First Source

Oct 12, 2013 1 Comment by




Company Profile

Firstsource Solutions Ltd is a leading provider of offshore BPO services to clients primarily in the BFSI, telecommunications and media and healthcare industries. The company provides BPO services mostly to clients in United States and the United Kingdom. The company have grown to be among India’s top ranked BPO companies. They provide a comprehensive range of services to all the clients. Currently CESC group headed by Sanjiv Goenka holds 49.5% stake in the company.

Fundamental View

The company reported total revenue of Rs 723 Cr in the June 2013 quarter which was up from Rs 685 Cr on year on year basis. The net profit was also up at Rs 40.96 Cr as against Rs 29.5 Cr year on year.

The results on the year on year basis are looking very upbeat but if we see the quarter on quarter growth it is not that charming. The company in all its quarter last year had reported the revenue in the same lines of Rs 710 – Rs 720 Cr. The net profit was also in the range of Rs 40 Cr.  So, if we see the quarter on quarter growth there is practically no growth in the past 4 quarters.

According to industry estimates, the whole BPO industry in India is worth around $20 billion as of 2013 and is expected to grow 12-15% in 2013-14. The major players are EXL, Genpact and the BPO wing of big IT players like TCS, Infosys etc. So, the level of competition for Firstsource is very high.

The company is heavily dependent on UK, US and Canada for its revenues. In the June 13 quarter US and Canada accounted for 45.8%, UK for 34.5% and India for 10.5% of the total revenue. The revenue can be further broken down into types of services provided. The company’s services can be broadly classified in 3 categories. The Telecom & Media segment which accounted for 45% of the revenue, the Healthcare segment which accounted for 31.5% and the BFSI (Banking, Financial Services & Insurance) which accounted for 22.4%.

As of now the company’s future strategies are giving positive indications.

  • It provided a wage hike of 8 to 10 % to its employees but cut down the total number of employees by 249 to 31,623. This normalized the effect of wage hike and also improved the satisfaction quotient for its existing employees.
  • CRISIL also upgraded its corporate credit rating from CCR BBB to CCR BBB+.
  • The company has issued guidelines that it will shortlist the non profitable clients in its client list. Then it will try to convert them to profitable ones or else part ways with them. This strategy of removing non-profitable clients may decrease the total revenue but will help in increasing the margins.
  • It is also looking for inorganic growth opportunities by acquiring small companies in the data analytics space.
  • The company has huge revenues in dollars but it has stated that it follows a proper hedging strategy throughout the year. So, dollar fluctuations won’t effect it much.
  • The company has recently appointed Stephanine Wilson as the Vice President,Operations for the European region. Before this she was working as the Chief Operating Officer of Telepresence. It has also appointed Mr. Ganesh Iyer as the Head Strategy & Investor Relations. The entry of credible people will add to good governing of the company.


  • The biggest news for the company is that in July Rakesh Jhunjhunwala had bought 3.8% stake in the company at Rs 10 a share. After this news the stock rallied with huge volumes.


Analyzing these news, the company looks very strong fundamentally. The only problem which nullifies all these positives is the huge debt of the company. The company has a debt of around Rs 1000 Cr. Now, that might look small on an absolute basis but for a small company like Firstsource it is a huge amount. It is supposed to pay Rs 250 Cr of debt each year. In this way it will take atleast 4 years to repay the debt. The company has issued statements that it won’t go for any fund raising to service these debts. It is confident of paying the debts from its business cash flow. In each quarter it has to pay out around Rs 62.5 Cr. As of now the company is sitting on cash of around Rs 120 Cr. So, it expects to cover this year’s debt payment through this and future cash flow.

Now we have to see that 4 years is a very long period. As per the company’s future guidelines, it is the best case scenario that the debt will be paid out in 4 years. If it starts missing out its earnings guidelines even for a couple of quarters also, it would become very difficult for it to service its debt. We are also not certain about the business environment in US and UK in the future. In the past few quarters we are not seeing any growth in the revenue or profit of the company.

The stock has already appreciated 40% after the news came that Rakesh Jhunjhunwala is picking a stake in the company

So, as of now we have a negative rating on the stock.


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