Firstsource Solutions Ltd Q1 FY23 Earnings Conference Call Insights

Key highlights from Firstsource Solutions Ltd (FSL) Q1 FY23 Earnings Concall

Management Update:

• FSL said it expects growth to pick up in 2H23. However said, the inventory buildup is slower than anticipated and consequently FSL is trimming its growth expectations. The mortgage business is expected to impact growth guidance by 3.5-4% and collections by about 1%.

• FSL said it is targeting an overall operating margin of 11.5-12% by 4Q23.

Q&A Highlights:

• Manik Taneja from JM Financial asked about the healthcare HPHS business, if the company expects typical seasonality where 3Q and 4Q should do better than 1H23. Vipul Khanna MD said that there is an uptick in 3Q23 and it bleeds over into 4Q23. It’s not significant, but it’s an uptick that FSL sees in Q3, Q4 historically across its health plans.

• Dipesh Mehta of Emkay Global enquired how the revenue and margin trajectory look like in the next 3 quarters. Vipul Khanna MD said that overall FSL expects growth to pick up through the year. And at an overall level 2Q23 will be flattish vs. 1Q23. And ex-mortgage, FSL expects good growth in other business within 2Q23 and the trend is expected to continue.

• Shradha Agrawal with Asian Market Securities asked to quantify the mix of servicing and origination in the mortgage business. Vipul Khanna MD said that for end of FY23, FSL expects to be between two-thirds servicing and one-third origination. Currently, FSL is at about 40-60, between origination and servicing.

• Shradha Agrawal of Asian Market Securities asked what FSL means by leadership restructuring. Vipul Khanna MD answered that at the senior level, FSL has stability, but at the operating level at some of the solutioning and staff level, FLS had to recalibrate the business to the new reality of volumes.

• Sachin Kasera from Swan Investments asked if net debt would be reduced now before doing any major acquisition. Dinesh Jain CFO replied that in 1Q23 FSL reduced the debt as all the cash flow was utilized only for that purpose. And these are money utilized for working capital.

• Sachin Kasera from Swan Investments also asked that with the surplus cash that will be generated post the payout, if FSL will look at some acquisition opportunities. Vipul Khanna MD answered that FSL continues to look systematically for adjacent growth areas and as part of that inorganic is a strategy.