Business Process Services (BPS) play a crucial role in transforming business operations. Organizations empower themselves to streamline processes and reduce costs effectively. The demand for BPS has surged as companies focus on core competencies while outsourcing.
This trend fosters a competitive edge in the global market. With a skilled workforce and technological advancements, India remains a top destination for BPS. In this article, we delve into FirstSource Solutions Limited segments, financial aspects, and future strategies within the BPS sector.
Industry Overview
The global business process services (BPS) industry is a vital component of digital transformation for organizations worldwide. It has been estimated to grow to 3.4% in FY24, compared to 10.7% in FY23. The slowdown in global technology and BPS spending in FY24 was primarily due to the tightening of monetary policy in several key demand markets and geopolitical uncertainties in many parts of the world. The industry’s total value was bolstered by the increasing adoption of technologies such as AI, machine learning, and robotic process automation.
According to NASSCOM, Indian BPS exports are estimated to have grown at 2.6% YoY to USD 43.2 billion in FY24, which compared to 9.1% in FY23. Indian BPS providers continue to expand their global footprint, leveraging India’s skilled workforce and cost advantages. With the rise of remote work and outsourcing, the industry is poised for sustained growth, driven by increasing demand for back-office operations, customer service, and financial services.
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Company Overview Of FirstSource Solutions
Firstsource Solutions was established in 2001 and is part of the RP-Sanjiv Goenka Group. The company headquarters is in Mumbai, Maharashtra, India. The company specializes in providing tech-enabled Business Process Solutions (BPS) across several industries, including healthcare, banking, financial services, communications, media, and technology. The company leverages advanced technologies like AI, machine learning, and data analytics to drive operational efficiency for its clients.
The company operates in five countries, including the US, UK, India, the Philippines, and Mexico. Firstsource has a global workforce of over 27,940 employees and 40 operational centers. Firstsource is deeply committed to sustainability and responsible governance, incorporating Environmental, Social, and Governance (ESG) principles into its operations.
Firstsource has developed long-term relationships with over 150 global brands, including several Fortune 500 and FTSE 100 companies. The company’s core focus areas include banking and financial services, healthcare, communications, media, and technology. The company is recognized for its customer-centric approach, focusing on innovation and long-term partnerships to deliver impactful business solutions globally.
Segment Analysis Of FirstSource Solutions
Banking and Financial Services: The BFS segment offers comprehensive services and solutions in fraud prevention, complaint management, dispute resolution, financial assistance, estate management, and day-to-day account servicing to leading global banks. In FY24, this segment contributed 39.2% to the company’s total revenue, generating ₹2,485.66 crore. FirstSource’s deep expertise in servicing large global banks and regional institutions has been pivotal in its consistent growth within this segment.
Healthcare: Firstsource provides comprehensive services to both healthcare providers and payers, including revenue cycle management and patient eligibility services. In FY24, the healthcare segment accounted for 33% of the company’s total revenue, generating ₹2,087.40 crore. The company’s growth was driven by its partnerships with leading US hospitals and health insurance companies. It works with over 1,000 hospitals in the US and seven of the top 10 health insurance providers.
Communication, Media, and Technology (CMT): Firstsource delivers AI-powered solutions and customer experience management for clients in the CMT segments. In FY24, this segment contributed 22.3% to the total revenue, with a contribution of ₹1,411.34 crore. The company has expanded its footprint by collaborating with leading media and technology companies.
Diversified Industries: The diversified sector offering comprehensive solutions for utilities and energy focuses on customer engagement and crisis management solutions. In FY24, the diverse industries segment contributed 5.5% to Firstsource’s total revenue, generating ₹348.12 crore. The growing demand for digital transformation and operational efficiency across diverse industries fueled this segment’s growth.
Financial Analysis Of FirstSource Solutions
Coming into the financial analysis of FirstSource Solutions, the company revenue has increased over the last five years. The revenue of FirstSource Solutions Limited has increased from ₹6022.32 crore in FY23 to ₹6336.25 crore in FY24, which has grown by 5.21%.
The company’s revenue mainly came from the sale of services by 99.94% and other operating income by 0.06% in FY24. In the sale of services, the company incurred revenue in the UK by 35.12%, the USA by 64.76%, and Asia and the rest of the world by 0.12%. The revenue has grown at a CAGR of 11.50% over the last four years.
FirstSource Solution Limited’s net profit has increased slightly from ₹513.71 in FY23 to ₹514.73 crore in FY24, which has grown by 0.002%. The net profit of the company has grown at a CAGR of 10.94% over the last four years. The ROE and ROCE of the company have been 13.91% and 16.50%, respectively, in FY24.
The company’s operating profit margin has been over 11% in the last five years. The OPM has increased from 11.52% in FY23 to 11.56% in FY24. The average OPM of the company is 11.58%. The NPM has slightly decreased from 8.53% in FY23 to 8.12% in FY24. The average NPM of the company is 8.22% in the last five years.
The company’s net borrowing has increased from 1393.16 crore in FY23 to 1533.23 crore in FY24. But shareholders also increased as compared to the previous year. The debt-to-equity ratio of the company has been unchanged from 0.41x in FY23 to 0.41x in FY24.
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Future Plans Of FirstSource Solutions
- The company is expanding its global footprint, particularly focusing on emerging markets such as Australia, New Zealand, South Africa, Central America, and Latin America. It set up an office in Melbourne, targeting higher revenue from this region.
- Firstsource has made key investments, including its recent acquisition of Quintessence Business Solutions (QBSS). This acquisition is aimed at expanding its healthcare offerings, particularly in revenue cycle management(RCM).
- The company plans to continue leveraging cutting-edge technologies like AI and automation to disrupt traditional execution models, with significant investments in AI-based solutions for both internal efficiency and client services.
- FirstSource Solution has committed to growing its technology capabilities while maintaining operational efficiency. This is expected to improve EBIT margins by 50-75 bps annually in the coming years.
- Firstsource Solutions aims to reach a USD 1 billion revenue by financial year 26, which is reflecting 5.2% year-on-year growth.
- The company has realigned its North American operations along three verticals—Banking & Financial Services (BFS), Healthcare, and Communications Media Technology (CMT), while Europe remains a geographical business unit (BU). This streamlining is aimed at improving decision-making and accountability.
Key Financial Metrics
Some of the key financial metrics of FirstSource Solutions are given below.
Target Price
- ICICI Direct Securities Limited has given a target price of FirstSource Solutions of ₹360. According to Securities, the company will improve revenue visibility over the medium term and is estimated to grow at a CAGR of 14.9% in revenues over FY24-27E to US$ 1,160 mn.
Conclusion
FirstSource Solutions, a leading BPS provider, is poised for growth with its strategic expansion into emerging markets, focus on cutting-edge technologies and commitment to operational efficiency. The company’s recent acquisition of QBSS and realignment of its North American operations are expected to drive revenue growth and improve margins. With a strong track record and a clear vision for the future, FirstSource Solutions presents an attractive investment opportunity for investors seeking exposure to the thriving BPS sector.
What are the potential synergies and benefits expected from FirstSource Solutions Limited’s acquisition of QBSS? What do you think about the company? Let us know in the comments.
Written by Nikhil Naik
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