FSL - Firstsource Solutions Ltd. Share Price

In the earnings conference call held on November 4, 2025, management provided a positive outlook, highlighting the company's sustained growth despite ongoing macroeconomic and geopolitical uncertainties. They reported that Q2FY26 marked the sixth consecutive quarter of double-digit year-on-year revenue growth, with revenues increasing by 20.1% year-over-year to Rs. 23.1 billion (approximately US$265 million), and 15.2% in U.S. dollar terms. The EBIT margin improved to 11.5%, reflecting a year-on-year increase of 70 basis points.

Management emphasized that they expect revenue growth for FY26 to be in the range of 13% to 15% in constant currency, alongside targeting an EBIT margin improvement of 50 to 75 basis points. Notably, the deal pipeline exceeded US$1 billion for the first time, underscoring their confidence in achieving sustainable growth.

Major forward-looking points include:

1. Increase in Large Deals: Four large deals were signed in Q2, demonstrating strong demand for transformation engagements rather than standard outsourcing contracts.
2. Strategic Investment: Ongoing investments in AI and digital technologies, exemplified by their investment in AppliedAI, aim to reinvent workflows and improve operational efficiency.
3. Geographic Expansion: Operations were established in Dubai, and acquisitions, including Pastdue Credit Solutions, are expected to enhance market presence.
4. Improved Deal Pipeline: The management highlighted an optimistic outlook with a strong deal pipeline, which gives them confidence in future revenue growth.

Overall, management conveyed a clear commitment to leveraging technology and operational efficiencies to enhance growth and profitability moving forward.

Here are the major questions and detailed answers from the Q&A section of the earnings transcript dated 6th November 2025:

1. Question: "Ritesh, I just wanted to get a sense of how the quarter panned out. Was it up to your expectations or was it a tad weaker than what you anticipated?"

   Answer: Thank you for the question, Girish. The Q2 performance was in line with our expectations for the business as a whole. While there may have been higher or lower growth in specific areas versus estimates, this variability is typical each quarter.

2. Question: "And in terms of the $20 million plus bucket of clients, you see the number falling from 11 to 9 on a QoQ basis. Were there any specific client-specific issues which led to this?"

   Answer: It's best to look at the trend in client bucket movement on a YoY basis rather than QoQ, as quarterly fluctuations can be misleading due to currency shifts or project completions.

3. Question: "Can I have the margin walk for the quarter between Q1 to Q2 in terms of puts and takes?"

   Answer: Yes, the margin improvement came from operational efficiencies, increased productivity as revenues grew, and despite salary hikes and currency movements, our operational gains were significant.

4. Question: "How should we read the growth cadence for the second half, given that you have been indicating that the deals won in FY25 have a staggered wrap-up schedule?"

   Answer: We anticipate accelerated growth in H2. The large transformation deals we are winning may have a staggered revenue ramp-up, but we are confident in their long-term growth potential.

5. Question: "If I look at your margin guidance, that remains unchanged. Why didn't we narrow the margin guidance for the year?"

   Answer: We maintain our margin guidance due to the understanding that quarters can have various influencing factors. We still aim for the 50 to 75 basis points guidance and feel confident about achieving it.

6. Question: "Are you seeing any kind of uptick in your mortgage business related to demand conditions?"

   Answer: Demand remains constrained due to high interest rates, with the 30-year fixed rate hovering around 6.25%-6.3%. Until rates decrease significantly, there won't be notable activity in the mortgage market.

7. Question: "Can you help us understand the impairment for the asset acquired last year?"

   Answer: The impairment reflects unmet revenue expectations from the Ascensos acquisition, leading to a reassessment of both its value and the contingent consideration paid.

8. Question: "How do you see the competitive landscape evolving given the IT plus BPO playbook?"

   Answer: Pure play BPO companies are growing faster than integrated tech and BPO players according to research. Our strategy focuses on depth in specific domains and providing contextual technology solutions, which helps maintain our competitive edge.