FSL - Firstsource Solutions Ltd. Share Price

Management Outlook:
Firstsource Solutions anticipates continued strong growth, projecting FY25 revenue growth of 21.8"“22.3% in constant currency and normalized EBIT margins of 11"“11.5%. The company expects to sustain industry-leading growth into FY26, targeting 50"“75 basis points of annual margin expansion. Confidence is driven by robust deal pipelines, transformative deals with staggered revenue ramps, and strategic investments in AI and geographic/vertical diversification.

Key Points:

1. Financial Performance:

   • Q3FY25 revenue grew 32% YoY (Rs.21 billion), with 7.6% QoQ constant currency growth.
   • EBIT margin stable at 11.1%; net profit rose 25% YoY to Rs.1.6 billion.

2. Deal Momentum:

   • Signed three large deals (ACV >$5M) for the third consecutive quarter. Exit pipeline remains strong.
   • Notable wins include a top 10 healthcare payer (claims processing), a top consumer tech firm (GenAI services), and a UK utility client expansion.

3. Vertical Performance:

   • BFS: 8% YoY growth; expanded sales/solutions teams driving pipeline.
   • Healthcare: Flat QoQ (31% YoY growth); resumed deal activity post-election/Open Enrollment pause.
   • CMT: 14% YoY growth; GenAI adoption and consumer tech partnerships.
   • Diverse (Retail/Utilities): 193% YoY growth post-Ascensos acquisition; strong pipeline.

4. Geographic Growth:

   • North America (+28% YoY), Europe (+28% YoY), and Australia (new client wins).
   • Demand for nearshore/offshore solutions rising in the UK.

5. Strategic Initiatives:

   • Acquisitions: Ascensos (nearshore retail/utilities) and AccunAI (AI development) bolstered capabilities.
   • Technology/AI: Launched GenAI training (150,000 learning hours), AI-driven platforms (e.g., hyper-personalized collections).

6. Operational Metrics:

   • Headcount: 34,144 (+6,204 in 9MFY25); attrition at 31.4%.
   • ESG leadership: S&P Global score of 81 (top 99th percentile).

7. Margins & Cash Flow:

   • Stable margins despite growth investments; FCF/PAT at 159% in Q3.
   • Focus on offshore/nearshore mix (40% offshore vs. 26% in Q2FY24) for future leverage.

Future Focus:

• Cross-selling, vertical/geo diversification, and AI-led solutions.
• Brand amplification via analyst recognition and client events.
• Continued inorganic growth aligned with capability gaps.

Question 1:
Manik Taneja (Axis Capital):
"I wanted to get your sense with regard to you made a remark that while you continue to win some of the larger deals, the ramp-up may not be in line with the way these deals have progressed in the past. It would be great to essentially understand in detail about that point. And the second question was for Dinesh. Some of these reversals as well as one-time costs that we have incurred in the current quarter, if you could dwell deeper into which acquisition does this impairment charge relate to? And similarly also talk about the special bonus that has been accounted for in the current quarter."

Answer Summary:
Large deals have staggered ramp-ups due to varied commercial models (e.g., outcome-based vs. linear). Historical patterns suggest growth momentum will sustain. The impairment charge relates to reassessing intangible assets from past acquisitions, while the special bonus reflects employee rewards for performance.

Question 2:
Dipesh Mehta (Emkay Global):
"First about the growth size, whether missing Ascensos, any seasonality because of the exposure to some of the vertical where December is usually strong quarter"¦ Are we witnessing now healthcare is doing better and between payer, provider, how things are playing out for us? And same if you can provide some sense about BFS"¦ How things are playing out. And last question is about margin"¦"

Answer Summary:
Ascensos' revenue run rate remained stable. Healthcare growth (31% YoY) balances payer/provider segments, with strong pipeline post-election delays. BFS broadened offerings to mitigate macro risks. Margin normalization expected in Q4 with stable EBIT guidance (11"“11.5%).

Question 3:
Vibhor Singhal (Nuvama Equities):
"How are you seeing the trajectory going forward? ["¦] Do you see some cannibalization of revenue happening to our business or the industry business at some point?"

Answer Summary:
GenAI adoption drives growth via new data/AI services (e.g., training models, agentic AI), offsetting routine task cannibalization. AI-infused solutions (e.g., mortgage language models) enhance competitiveness. Early-stage adoption prioritizes human-AI collaboration, with B2C verticals leading implementation.

Question 4:
Rahul (Dolat):
"Is there something more that we should calibrate from a seasonality point of view or it is more a uniform business from a sequential basis? ["¦] Going into 26, you think there is a need for the constant inputs coming from the inorganic side?"

Answer Summary:
Ascensos' performance aligned with expectations (steady run rate, no seasonality). Growth prioritizes organic expansion, with tuck-in acquisitions (e.g., AccunAI) filling capability gaps. Margin levers include offshore/nearshore mix optimization and operational efficiency via automation.

Question 5:
Girish Pai (BOB Capital Markets):
"FY26, you are going to have industry-leading growth ["¦] do you think it will be 1.1x, 1.3x, or 1.5x? What is the kind of industry growth pickup that you see ["¦] Are the incumbents not self-cannibalizing?"

Answer Summary:
FY26 growth targets remain undisclosed but emphasize organic-led momentum. Larger incumbents face agility challenges (e.g., post-acquisition integration), enabling Firstsource to capture share via niche AI/domain solutions.

Question 6:
Abhishek Kumar (JM Financial):
"You mentioned that in the payer segment within your healthcare vertical, there was some slowdown ["¦] Are we into different service lines which doesn't get any benefit from the pickup in volume in Q3?"

Answer Summary:
Healthcare's diversified client base avoids overexposure to open enrollment volatility. Selective focus on tech/AI-driven payer/provider solutions balances growth, with strong pipeline conversions expected in Q4.