Recommendations From Computer-Software Sector
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Low Priced Scrip is a hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.
HERE IS WHY
To become net cash positive by March 2017
EBITDA margin is likely to improve by 50-60 basis points in the next two years
Healthcare vertical will be the key growth driver
The stock which we have recommended this time is eyeing business from e-commerce companies for handling their BPO operations. Three months ago, the company has won a contract from one of the top three e-commerce companies as a start to its plan to make deals with more such companies to look after their BPO operations. As per company management, the margin of the above deal would be 40 to 50 per cent higher than the domestic business margin. The company also adopted a strategy to exit low profit businesses.
Firstsource Solutions (FSL), a RP-Sanjiv Goenka Group, is a leading Business Process Management (BPM) company, providing customer-centric business process services. The company is engaged in three key verticals such as health-care, telecommunications & media (T&M) and BFSI (banking, financial services, and insurance).
From revenue verticals perspective, healthcare continues to be largest vertical which constitutes at 39.2 per cent in Q2FY16, which was at 34 per cent in H1FY15. Healthcare vertical is again divided into two sub-segments. One is the payer market represented by the insurance companies and another one is the provider market represented by hospitals in US. Both the US healthcare and insurance coverage are undergoing significant transformation as the US Federal Government introduced mandatory health insurance to all the American citizens. FSL is in a commendable positioned to take advantage of opportunities in the healthcare provider and payer business segments. Followed by T&M and BFSI constitute at 38.4 and 22.2 per cent respectively. FSL’s clients in the BFSI industry include several leading banks in the US, UK, India, Philippines and seven of the 10 largest credit card companies in the U.S.
The company is expected to make the debt repayment of USD 11.25 mn per quarter going forward and expects to be net cash-positive by March 2017. The company had net debt of USD 105 million (about Rs 700 crore) at the September quarter-end. The operating margins are likely to improve, though marginally, by 50-60 basis points in the next two years.
On financial front, the company has reported consolidated net profit of Rs 61.8 crore for the quarter, registering growth of 0.98 per cent Y-o-Y and 9.57 per cent Q-o-Q. Revenues from operations grew 6.1 per cent Q-o-Q to Rs 792.5 crore in rupee terms and 3.2 per cent in constant currency terms. Operating income EBITDA reported growth of 3.7 per cent Y-o-Y and 9.74 per cent Q-o-Q at Rs 98.4 crore along with operating margin expanded by 40 bps Y-o-Y and 16 bps Q-o-Q at 12.41 per cent. For six months ended September 30, 2015, the company’s consolidated net profit grew by 3.32 per cent at Rs 118.2 crore and revenue marginally up 0.64 per cent at Rs 1539.4 crore. On valuation front, the stock is trading at 7.4 times EV to EBITDA on TTM basis. We had earlier recommended this stock expecting a 35 per cent upside in the next one year. Still we advise you to BUY on deep due to currently sharply falling market condition.