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    Firstsour.Solu.

    FSLGood
    Services·4 Nov 2025
    Management Summary

    Firstsource Solutions delivered a robust Q2 FY26, marking its sixth consecutive quarter of double-digit YoY revenue growth. The company is successfully executing its 'One Firstsource' framework, evidenced by a record $1 billion deal pipeline and significant margin expansion despite annual wage hikes. Management is pivotting from labor arbitrage to 'technology arbitrage' via its UnBPO model, supported by strategic investments in AI firms like AppliedAI and Lyzr.

    Highlights

    8
    • Revenue reached ₹2,310 crores (Rs 23.1 billion), up 20.1% YoY in Rupee terms

    • EBIT margin expanded to 11.5%, up 70 bps YoY and 20 bps QoQ

    • Net profit (PAT) stood at ₹180 crores (Rs 1.8 billion), a 30% YoY increase

    • Deal pipeline crossed the $1 billion milestone for the first time in company history

    • Signed 4 large deals in Q2 (ACV >$5 million) and added 10 new logos

    • Net headcount increased by 1,500 associates QoQ to a total of 35,997

    • Trailing 12-month attrition declined to 28%, a 12 percentage point drop over 8 quarters

    • Maintained FY26 revenue growth guidance of 13% to 15% in constant currency

    Key financials

    Single quarter

    06 metrics
    1. 01Revenue₹2,310 Cr+20.1%YoY
    2. 02EBIT Margin11.5%
    3. 03PAT₹180 Cr+30%YoY
    4. 04Diluted EPS₹2.54
    5. 05Net Debt₹1,080 Cr-3.6%QoQ

    Segment breakdown

    Banking and Financial Services (BFS)
    11% YoY Growth (CC)4% QoQ Growth (CC)
    Healthcare
    6% YoY Growth3% QoQ Growth
    Communications, Media and Technology (CMT)
    15% YoY Growth (CC)-1% QoQ Growth (CC)
    Diverse
    0% QoQ Growth (CC)
    List

    Guidance & targets

    4
    CategoryTargetPriority
    Revenue
    Constant Currency Revenue Growth
    13% to 15%
    High
    Margin
    EBIT Margin Band
    11.25% to 12%
    High
    Margin
    Annual EBIT Margin Expansion
    50-75 bps
    Medium
    Other
    Effective Tax Rate
    19-21%
    High

    Risks & concerns

    4
    RiskSeverity

    Sluggish demand in the UK market

    Muted economic growth and higher labor costs from regulatory changes in the UK are impacting the 'Diverse' portfolio.Management acknowledged

    medium

    US Mortgage market stagnation

    High interest rates (6.25-6.3%) and low inventory are keeping mortgage volumes low; management is in 'wait-and-watch' mode for further rate cuts.Both acknowledged

    medium

    Regulatory approval delays for acquisitions

    The Pastdue Credit acquisition is pending FCA approval, delaying its financial integration.Management acknowledged

    low

    Areas of Evasion(1)

    • Specific reasons for the drop in the $20M+ client bucket beyond general 'volatility'.

    Q&A highlights

    3

    “QoQ movement could be misleading... it could be because of a program ending or as we have been highlighting in some instances due to business shifting, particularly from an onsite delivery to offshore or nearshore.”

    Investors track client bucket movements to gauge wallet share and retention; management attributed the drop to structural shifts rather than client loss.

    asked by Girish Pai, BOB Capital Markets

    2 min read5 chapters

    Detailed Narrative

    01

    UnBPO Strategy and Technology Arbitrage

    Management highlighted the 'UnBPO' playbook as a shift from traditional labor arbitrage to technology arbitrage. By leveraging AI and automation, FSL aims to decouple revenue growth from headcount growth. Strategic investments in AppliedAI and Lyzr are central to this, enabling 'agentic AI' solutions that re-engineer workflows end-to-end, particularly in complex sectors like Mortgage and Healthcare.

    02

    Record Deal Pipeline and Large Wins

    The deal pipeline hit a historic high of over $1 billion, growing at approximately 5-10% QoQ. In Q2, FSL signed four large deals (ACV >$5 million), including a major collections deal with a top UK retail bank and a claims data capture contract with a top 10 North American healthcare payer. More than 50% of the ACV from the last 22 large deals has come from non-top 5 clients, indicating successful diversification.

    03

    Geographic Divergence: North America vs. Europe

    North America remains the primary growth engine, growing 16% YoY in constant currency. In contrast, Europe (specifically the UK) remains soft due to macroeconomic headwinds and regulatory-driven labor cost increases. However, management believes the transition of existing clients to offshore/nearshore locations is largely complete, and the proposed acquisition of Pastdue Credit will eventually bolster the UK utilities footprint.

    04

    Margin Expansion and Right-Shoring

    Despite 90% of employees receiving annual wage hikes in Q2, EBIT margins expanded to 11.5%. This was achieved through 'right-shoring' talent—with 80% of new hires in offshore/nearshore locations—and operational efficiencies. Management expressed confidence in reaching the higher end of their 11.25-12% EBIT margin guidance for FY26, supported by a 70 bps improvement over the last four quarters.

    05

    Healthcare Vertical Momentum

    The Healthcare vertical grew 6% YoY, with a pipeline that is now 2.5x larger than the previous year. FSL currently serves 12 of the top 15 health plans in the U.S. Management anticipates an accelerating growth trajectory in H2 FY26 as large deal wins from previous quarters begin to ramp up, particularly in high-complexity payer workflows driven by recent regulatory changes.

    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.