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    Firstsour.Solu.

    FSLGood
    Services·30 Jul 2025
    Management Summary

    Firstsource delivered a strong start to FY26, characterized by robust revenue growth and steady margin expansion. The company is successfully pivoting to its 'UnBPO' model, decoupling headcount from revenue through AI-driven automation and non-linear commercial constructs. Management's confidence is reflected in the upward revision of the lower end of their annual revenue guidance.

    Highlights

    8

    • Revenue reached ₹22.2 billion, growing 23.8% YoY in Rupee terms and 19.2% YoY in constant currency

    • EBIT margin expanded to 11.3%, up 30 bps YoY and 10 bps QoQ, marking four consecutive quarters of expansion

    • Net Profit stood at ₹1.7 billion, a growth of 25.2% YoY with a diluted EPS of ₹2.4

    • Added 17 new logos in Q1, the highest in three years, including 9 strategic logos with $5M+ potential

    • Signed 4 large deals (ACV > $5M) during the quarter, primarily in the Healthcare vertical

    • Raised the lower end of FY26 constant currency revenue guidance to 13% - 15% (previously 12% - 15%)

    • Announced acquisition of Pastdue Credit (PDC) in the UK for GBP 22 million to strengthen debt collection footprint

    • Trailing 12-month attrition declined to 28.9%, a 13-percentage-point drop over the last eight quarters

    What Changed1

    vs Q2 FY26

    Guidance items4 → 5 (+1)

    Key financials

    Single quarter

    06 metrics
    1. 01Revenue$22.2B+23.8%YoY
    2. 02EBIT Margin11.3%
    3. 03Net Profit$1.7B+25.2%YoY
    4. 04Diluted EPS₹2.4
    5. 05Net Debt$11.2B+15.5%YoY

    Segment breakdown

    Growth (CC)QoQ Growth
    Banking and Financial Services (BFS)7.0%0%
    Healthcare—2.3%
    Communications, Media and Tech (CMT)18%6%
    Diverse (Retail and Utilities)-3%—
    Heatmap· 2 shared metrics

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    Revenue Growth (Constant Currency)
    13% to 15%
    		High
    Margin
    EBIT Margin Band
    11.25% to 12%
    		High
    Margin
    Annual Margin Improvement
    50 to 75 basis points
    		Medium
    Other
    Tax Rate
    19-21%
    		High
    Headcount
    AI-based Volume Hiring
    2/3rd
    		Medium

    Risks & concerns

    4
    RiskSeverity

    Macroeconomic and Geopolitical Uncertainty

    Management notes that macro uncertainty remains a constant factor impacting client decision-making timelines. — Both acknowledged

    medium

    Mortgage Market Overhang

    Elevated interest rates continue to impact the mortgage segment within the BFS vertical. — Management acknowledged

    medium

    UK Market Softness

    Europe revenue was down 7% QoQ due to seasonal softness and regulatory changes in the UK utilities business. — Management acknowledged

    medium

    Areas of Evasion(1)

    • Specific financials of the PDC acquisition until regulatory approval is received.

    Q&A highlights

    3

    “Our guidance is based on a clear line of sight that we have to the business over FY26. And when we raise the lower end of the guidance, clearly the way we have tried to do this is it's based on having a very clear line of sight to the lower end.”

    Confirms that the guidance raise is backed by firm visibility rather than just aspirational targets.

    asked by Girish Pai, Bank of Baroda Capital Markets

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Pivot to 'UnBPO' Model

    Firstsource is aggressively implementing its 'UnBPO' playbook, which reimagines traditional outsourcing through AI-driven workflows and modular platforms. This shift is evidenced by the fact that over 50% of the company's business now comes from non-linear commercial constructs, significantly higher than the industry average of 25%. This strategy is successfully decoupling revenue growth from headcount additions, as seen in Q1 where revenue grew while headcount slightly declined.

    02

    Record Deal Momentum and Pipeline

    The company added 17 new logos in Q1, the highest quarterly addition in three years. Crucially, 9 of these are 'strategic logos' with a potential for $5 million+ annual relationships. The total ACV intake for the quarter is among the highest in the last five quarters, and the overall deal pipeline has reached an all-time high. Large deal sizes have also increased by over 40% compared to the previous year.

    03

    Vertical Performance and Outlook

    Growth was led by the CMT vertical (18% YoY CC) and Healthcare (13.5% YoY). While the BFS vertical was flat QoQ due to mortgage market headwinds🌐, management remains optimistic about its pipeline in North America. The Healthcare vertical saw all of the quarter's large deal wins, particularly in the payer segment. The 'Diverse' portfolio saw a 3% QoQ decline, primarily due to seasonal softness in the UK utilities business.

    04

    Margin Expansion and Efficiency Levers

    EBIT margin reached 11.3%, marking the fourth consecutive quarter of expansion. Management identified 37 internal margin drivers, including 'right-shoring' (80% of gross hires are now offshore/nearshore) and facility rationalization. Despite upcoming two-phase wage hikes in July and October, the company remains committed to its target of 50-75 basis points of annual margin improvement.

    05

    Inorganic Growth via PDC Acquisition

    FSL signed an agreement to acquire Scotland-based Pastdue Credit (PDC) for GBP 22 million. This strategic move is intended to plug a gap in FSL's UK debt collection footprint, where it previously had a small presence compared to its top-three position in the US market. The acquisition is expected to be both margin and EPS accretive, bringing in high-margin revenue and strong relationships in the utilities and telecom sectors.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.