FSL - Fundamental Analysis: Financial Health & Valuation

Last Updated Time : 20 Dec 25, 11:15 pm

Fundamental Rating: 3.9

📊 Financials Overview:

• Revenue & Profit Growth: PAT declined from 135 Cr. to 98 Cr. (↓ 27%), though quarterly variation shows 6.74% growth YoY.
• Margins: ROCE at 16.9% and ROE at 15.3% indicate healthy profitability and efficient capital use.
• Debt Ratios: Debt-to-equity at 0.32 shows moderate leverage, manageable but worth monitoring.
• Cash Flows: Dividend yield at 1.16% provides decent shareholder returns.

💹 Valuation Indicators:

• P/E Ratio: 57.3 vs Industry PE of 36.6 → overvalued relative to peers.
• P/B Ratio: Current Price / Book Value ≈ 9.3, expensive compared to fundamentals.
• PEG Ratio: -147 → negative, suggesting unsustainable valuation relative to growth.
• Intrinsic Value: Fair value estimated near 300–320 ₹; current price (347 ₹) trades at premium.

🏭 Business Model & Competitive Advantage:

• Firstsource Solutions (FSL) operates in BPM (Business Process Management) and IT-enabled services.
• Diversified client base across healthcare, BFSI, and telecom sectors provides resilience.
• Strong operational efficiency reflected in ROCE and ROE, though profit volatility remains a concern.

📈 Entry Zone & Long-Term Guidance:

• Entry Zone: Attractive accumulation range between 300–320 ₹.
• Long-Term Holding: Suitable for investors seeking exposure to IT/BPM sector; valuations stretched, so cautious entry recommended.

Positive

• Healthy ROCE (16.9%) and ROE (15.3%) indicate efficient capital utilization.
• Dividend yield of 1.16% adds income appeal.
• DII holdings increased by 0.68%, reflecting domestic institutional confidence.

Limitation

• P/E ratio (57.3) significantly above industry average (36.6).
• P/B ratio of 9.3 suggests expensive valuation.
• Negative PEG ratio (-147) highlights growth sustainability concerns.
• FII holdings declined by -0.33%, showing reduced foreign investor confidence.

Company Negative News

• No major negative news reported; valuation premium and profit decline remain key concerns.

Company Positive News

• DII holdings increased, showing domestic investor confidence.
• Strong presence in BPM and IT-enabled services with diversified client base.

Industry

• Industry PE at 36.6, lower than FSL’s 57.3, indicating sector valuations are more reasonable.
• Sector growth driven by digital transformation, outsourcing demand, and global IT services expansion.

Conclusion

⚖️ Firstsource Solutions demonstrates strong operational efficiency and decent dividend yield, but suffers from stretched valuations and profit volatility. Long-term investors may consider accumulation near 300–320 ₹ for margin of safety, while current levels pose valuation risks despite sector growth potential.