Firstsource Solutions Ltd

Given the (past) data points, I wanted to see what are the reasonable baseline assumptions we could make for a business like this - trying to come to the same page as everyone else on this business

  1. Sales growth for next 2-3 years: Baseline between 8-10%? more than 10% growth assumption would be optimistic?
  2. Business value-migration (assuming they start playing at the level that a WNS does today) may add again a couple of percentage points to Operating Margins
  3. Debt Reduction in next 2-3 years: 905 Cr debt gets completely paid down
  4. Consequently Interest Expenses (historically between 2-4% of Sales) may aid Net Margins to expand by 2-3%

One would make the case that

a) if Pt2 - margin expansion - is not happening for this business, then there isn’t much case for investing in this business at this stage
b) again if Pt 3 - Debt Reduction - is not happening in this business there is not much case for investing in this business at this stage
c) If both are happening, then that might be the best case for this business
d) It would look like Pt3- Debt Reduction - is a certainty (from past repayment patterns)?

If these are reasonable assumptions to make for the medium term of the business, those invested, Please comment if these are valid

  1. One can then make the base-case with debt reduction, sales growth at 8-10% for next 2-3 years
  2. The Optimistic case - would build in another 2% operating margin expansions in getting a feel for where this business can reach in 2-3 years

Please point out if there should be other significant considerations while thinking about this business. I am assuming that other than these, there are no big-ticket expectations from a reasonably well-understood business like FirstSource.

That there aren’t much “Variant” Perceptions about making an investment thesis on this business (a la Howard Marks asking the question - And, who doesn’t know that ??) is what I am trying to understand

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