FSL - Firstsource Solutions Ltd. Share Price

Management's outlook for FY26 indicates an expected revenue growth of 12% to 15% in constant currency terms, with an EBIT margin projected to be 11.25% to 12%. Ritesh Idnani, MD & CEO, highlighted that the company achieved an annualized revenue run rate of US$1 billion, four quarters ahead of its target for Q4FY26.

Key forward-looking points provided by management include:

1. Deal Wins: In FY25, Firstsource secured 14 large deals, with five signed in Q4 alone, including their largest healthcare deal to date with an ACV exceeding $50 million. The total ACV intake for FY25 was the highest in the company's history.

2. Growth Areas: Management emphasized that the healthcare vertical showed significant potential with anticipated growth, driven by an increase in large relationships and enhanced service offerings in revenue cycle management, particularly as healthcare providers consolidate under larger health systems.

3. Client Diversification: The company has reduced its reliance on top clients, with the share of revenues from its top five clients decreasing to 29.4% from 36.4%, and from the top ten clients down to 43.7% from 52.6% in the previous year.

4. Transformative Deals: Some of the recent large deals, including BPaaS contracts, are expected to have a staggered ramp-up, contributing to revenue visibility in the long term but impacting immediate growth metrics.

5. Margin Improvement: The management aims to improve margins by 50 to 75 basis points each year, striving to align them with peer group performance over the next few years.

Overall, the company is focused on leveraging its growing deal pipeline and market recognition to sustain growth amid macro uncertainties.

Here are the major questions asked in the Q&A section of the earnings transcript along with their detailed answers:

Question 1: Vibhor Singhal: "...Does this revenue size work in our favor in an environment like this in which there is an overall macro overhang and more of vendor consolidation?"

Answer: I believe our size at $1 billion allows us to engage with clients effectively without being bogged down by bureaucracy. This strategy has helped us maintain growth even against larger competitors. We focus on showcasing our strengths in execution and deep domain knowledge, which gives us leverage to expand both existing client relationships and acquire new logos. We continue to see opportunities in this environment, which aids in our market share growth.

Question 2: Girish Pai: "...FY26 guidance of 12% to 15%, how much of this is inorganic?"

Answer: For FY26, we expect about 3% of our growth to come from inorganic sources. In FY25, approximately 7% of our growth was attributable to acquisitions. The guidance reflects our visibility into the business, factoring in the nature of the large, transformative deal wins we've recently secured.

Question 3: Manik Taneja: "...Could you talk about the margin outlook across segments for FY26?"

Answer: We expect margins to improve across the board, particularly in healthcare and utilities, because of our strategic initiatives. While we anticipate margin stability in financial services, the agility we've gained in CMT will also enhance margins. Given historical performance and our focus on operational efficiencies, we are confident margins will trend upward.

Question 4: Shradha: "...On the deals that we closed this quarter, is there any upfront investment or employee takeover?"

Answer: Yes, large deals often involve initial investments and transitions. However, we expect these deals, including the BPaaS deal, to align with our margins. The revenue models will have varying timelines for ramp-up but are structured to eventually support targeted margin levels that reflect our overall company standards.

Question 5: Dipesh Mehta: "...Healthcare provider business was soft, can you provide an update?"

Answer: The healthcare market, especially for providers, remains expansive. We're seeing a trend where more physicians are becoming part of larger systems, which provides a significant opportunity for us. Additionally, our tech-led initiatives are positioned to capture and drive efficiency within these evolving structures, setting a solid foundation for growth in future quarters.

These responses highlight the strategic focus, expectations for growth, and operational nuances articulated by management during the earnings call.