Firstsource Solutions Q3 Review - Mortgage Business Dragged The Growth; Guidance Remain Intact: Dolat Capital

Dolat Capital Report

Firstsource Solutions Ltd. reported de-growth of 2.1% QoQ in dollar terms (our estimate: 1%) and -0.9% QoQ in constant currency due to sharp ~20% QoQ decline in mortgage unit due to continued sluggishness both in fefinance/origination volumes. Dividend per share at Rs 3.5. FY23 Guidance was narrowed to down 2% to down 1% YoY growth in CC terms from down 2-0% CC in Q2.

On an organic basis and ex-mortgages basis, growth guidance stood at 12.5-14.5% CC growth (earlier 12-14%).

Operating profit margin rose by 94 basis points QoQ at 9.4% (our estimate: 8.7%), led by improving efficiency (mortgage cost optimized). For FY23, Firstsource Solutions has narrowed operating profit margins in range of 9.25-9.5% versus 9%-9.5% in Q2 (implies OPM of 11.5-12% in Q4 FY23).

Bottoming of mortgage business, improved margins and healthy ask rate for Q4 suggest some recovery in the performance in coming quarters.

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