Earnings Call Transcript Analysis Report #
Firstsource Solutions Q3FY25 Earnings Call Analysis #
Financial Performance #
- Key Metrics:
- Revenue: Rs. 21,024 million (US$ 249 million) for Q3FY25.
- Growth:
- YoY: 32% (INR), 30% (USD), 28% (Constant Currency - CC).
- QoQ: 8.4% (USD), 7.6% (CC).
- EBIT Margin: 11.1% for Q3FY25. Normalized 9M FY25 EBIT margin also 11.1%.
- Net Profit: INR 1.603 billion (7.6% of revenue).
- EPS: INR 2.27 (diluted).
- Cash Conversion: FCF to PAT 159% in Q3, 78% for 9MFY25.
- DSO: 67 days (up from 65 days in Q2). Expected to normalize in Q4.
- Net Debt: Rs. 10.2 billion.
- Dividend: Interim dividend of Rs. 4 per share declared.
- Comparisons:
- Sustained strong QoQ CC growth.
- Highest YoY CC growth in 14 quarters.
- EBIT margin stable QoQ and YoY.
- Revised Guidance:
- FY25 Revenue Growth (CC): Revised upwards to 21.8% - 22.3%.
- FY25 EBIT Margin: Maintained guidance band of 11.0% - 11.5% (normalized, excluding one-offs).
- Growth/Decline Areas:
- Growth: Strong overall growth driven by both organic performance and inorganic contribution (Ascensos). Broad-based geographic growth (NA +1.3% QoQ CC, Europe +22% QoQ CC). Vertical growth: BFS (+1.6% QoQ CC), CMT (+3% QoQ CC), Diverse (+80% QoQ CC - driven by Ascensos).
- Decline/Flat: Healthcare flat QoQ CC due to previously indicated softness.
- One-Offs: Net one-time gain of Rs. 88 million impacting PAT. Includes Rs. 651M writeback on contingent consideration (QBSS acquisition, related to non-revenue targets), offset by Rs. 284M charge for intangible asset life change (older acquisitions), Rs. 130M potential credit loss provision, and Rs. 150M special bonus provision.
Strategic Initiatives & Business Updates #
- Major Announcements:
- Acquisition of AccunAI, a Jaipur-based AI development services startup, for Rs. 80 million.
- Continued execution under the “One Firstsource” strategic framework.
- New Products/Services/Markets:
- Focus on GenAI services: Won a large deal with a top consumer tech company. Now serving 4 of the top 5 US consumer tech firms.
- Healthcare BPaaS offering gaining traction with a strong pipeline.
- Expansion in Australia: Started execution on a telco deal, won a healthcare insurer deal in Q3, building pipeline.
- Leveraging Ascensos acquisition for nearshore capabilities (South Africa, Romania) and entry into the Retail vertical.
- Operational Changes:
- Significant hiring: 1,246 net additions in Q3, 6,204 in 9MFY25. Total headcount 34,144.
- Enterprise-wide GenAI & digital transformation skills enhancement initiative (150,000+ learning hours completed).
- Continued efforts to diversify client base: Share of top 5 clients down to 29.2% (from 35.8% YoY), top 10 down to 43.5% (from 52% YoY).
- Brand building: Increased analyst recognitions (10 in CY24 vs 5 in CY23), established Advisory Board, hosted first UK client CXO event.
- Ongoing/Completed Projects:
- Integration of Ascensos proceeding, contributing full quarter revenue.
- Execution started on Australian telco deal.
Market & Competitive Landscape #
- Industry Trends:
- Increasing client interest in offshore/nearshore delivery, particularly in the UK due to cost pressures.
- Growing demand for AI/GenAI services, data annotation, and model validation, especially from tech companies.
- AI blurring lines between BPS and Tech services; commoditization of foundation models creating application layer opportunities.
- Continued macro uncertainty impacting BFS, particularly the mortgage market (high rates, low refi).