Firstsource Solutions Ltd (FSL) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day, and welcome to Firstsource Solutions Limited Q2 FY '27 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that some of the matters that will be discussed on this call, including the company's business outlook, are forward-looking statements that are subject to known and unknown risk. These uncertainties and risks are included, but not limited, to what company has mentioned in its prospectus filed with SEBI and subsequent annual report that are available on its website. On this call, we have with us, Mr. Ritesh Idnani, MD and CEO, and Mr. Dinesh Jain, CFO, to provide an overview on company's performance followed by Q&A. I now hand the conference over to Mr. Ritesh Idnani. Thank you, and over to you, sir.
Ritesh Idnani (Firstsource Solutions Ltd): Thank you, and hello, everybody. Thank you for joining us today to discuss our financial results for Q2 FY '27. The second quarter reinforces a simple belief that sustainable transformation is built on execution. Our clients are navigating change faster than any plane can any plan can anticipate, and what they want is not another firm telling them what is possible, but it but a partner who will execute alongside them, adapt as conditions change, and stand behind the results. Last quarter, I called this accountability. This quarter, our focus moves to what makes it repeatable. When we solve a problem well once, we should be able to solve it well again for a different client, in a different market, with a different team. That takes systems, not just effort. And those systems are built on what our 39,937 Firstsourcers around the world already know. I would like to thank each one of them for their relentless commitment to delivering value to our clients. Let me start with the discussion on our Q2 performance. Q2 marks the 10th straight quarter of double-digit year-on-year revenue growth and the 12th straight quarter of sequential revenue growth. Our revenue grew by 22.2% year-on-year and 3.7% quarter-on-quarter and came in at Rs. 28.3 billion. In US dollar terms, the growth was 11.7% year-on-year and 2.6% quarter-on-quarter to US dollar 296 million. In constant currency terms, our revenue grew 12.3% year-on-year and 2% quarter-on-quarter. EBIT margins for the quarter was 12.5%, up 100 basis points year-on-year and 10 basis points on a quarter-on-quarter basis, respectively. This is our eighth straight quarter of sequential margin expansion. Our net profit was Rs. 2.3 billion, and the diluted EPS for the quarter was Rs. 3.31. In H1 of FY '27, our revenue grew 12.3% in constant currency terms. EBIT grew 33.4%, and our PAT grew 14.3% over last year in rupee terms. Coming to the business highlights, I will start with our deal wins and other client-related metric metrics. In Q2, we signed four large deals,
Ritesh Idnani (Firstsource Solutions Ltd): over $5 million as a large deal. During the quarter we added 17 new logos, one of our highest quarterly additions. This includes six strategic logos. We define a strategic logo as one where we see the potential of at least $5 million of annual revenue and we run a structured program to handhold and monitor such relationships to grow them at an accelerated pace. I continue to remain encouraged by the scale and quality of our wins, reflecting our deep domain expertise, strong technology partnerships, and AI-first approach. Several of these are transformative programs that ramp up in phases, provide long-term growth visibility, with revenue conversion occurring over a longer period as key milestones are achieved. Let me now highlight a few of our notable wins during Q2. We expanded our relationship with a leading UK-based MVNO for customer experience services across multiple markets, including the transition of their in-house operations to our offshore delivery center. One of the top-10 healthcare payer clients in North America, an existing client, selected us for their claims processing. We expanded our relationship with a leading nonprofit managed care organization in the U.S. across multiple health plan operations. We were also selected by a leading UK and European bank for managed operations support services. This, incidentally, is a new logo for us as well. We also won a deal from a leading US-based student loan provider for legal and third-party collections. This is also a new logo for us. And finally, we won a large deal from a leading digital bank in the U.S. for CX services. We continue to expand our relationship with one of the largest communications and media companies in the UK across customer retention, collections, help desk, and digital support services. Let me now turn to our vertical performance, starting with banking and financial services. In Q2 FY '27, our BFS vertical grew 19% year on year and 9% sequentially in constant-currency terms. We added nine new logos during the quarter. Almost every conversation in this vertical now starts from the same place, whether AI can be trusted inside a regulated process. It comes up in intelligent operations, in customer servicing, and most of all in financial crime and compliance. Our answer rests on the intelligent context framework, part of the Kairos operating system, which gives AI the context it needs to work in a live operation: the right data, the right permissions, the domain knowledge, and the guardrails. AI does the heavy lifting, but a person signs off on anything that affects the customer or a regulator. That is what gives clients the confidence to let AI into these processes. Within the vertical, growth was broad-based. Consumer debt levels and credit complexity kept demand high. Cost pressures kept clients focused on efficiency. We also executed well on a large BFS engagement won a few quarters ago, and much of the head count we added went into its delivery commitments. We continue to expand our footprint in mid-sized banks as well as fintechs, modernizing onboarding, servicing, as well as the collections operations. We exited the quarter with a healthy pipeline in the BFS vertical. In healthcare, our revenues grew 5% year on year, but declined 2% sequentially in constant-currency terms. We added four new logos during the quarter and continued to see strong client engagement across both payer and provider markets. Healthcare remains a strategic growth pillar for Firstsource, underpinned by our differentiated presence across the entire healthcare value chain and our ability to combine deep domain expertise with AI-led operations. On the provider side, rising denials and slower reimbursement are pushing clients towards AI-enabled, outcome-based revenue cycle management. A dated catalyst is also building. From January of 2027, under H.R. 1, Medicaid renewals for expansion adults move from annual to six-monthly, phasing in through the year. Our capabilities here are well past the pilot stage. Voice AI is live across our eligibility, patient access, and collections offerings, and denials AI continues to gain traction. We already run Medicaid eligibility at scale, so this is extending an operation rather than building one. On the healthcare payer side, we delivered several meaningful scope expansions within existing clients. Plans are working through elevated medical loss ratios and a more volatile enrollment cycle, and demand continues to remain healthy across member services, claims,
Ritesh Idnani (Firstsource Solutions Ltd): Overall, healthcare is shifting from labor-led outsourcing to AI-enabled outcome-driven models, and we are one of the few operating at scale on both the payor and the provider side of that shift. Coming to the CMT vertical, revenues grew 6% year-on-year and was flat sequentially in constant currency terms with two new logos added during the quarter. The vertical continues to grow steadily. As we've highlighted previously, reported revenues can exhibit some quarter-to-quarter volatility driven by the timing of work packages and program transitions within our consumer tech portfolio. During the quarter, we continued to broaden our engagement across existing clients through scope expansion and greater utilization of our nearshore and offshore delivery footprint. Clients remain focused on improving customer experience while driving productivity and optimizing service costs, and we are increasingly engaged in AI-led transformation initiatives spanning customer service, agent assist, moderation and service assurance. Overall, we exited the quarter with a healthy pipeline across our telecom, cable, media, technology and digital native clients, giving us confidence in the medium-term growth trajectory of the business. And finally, our diverse portfolio, comprising of our utilities and our retail business, grew 25% year-on-year and was flat sequentially in constant currency terms with two new logos added during the quarter. In utilities, clients remain focused on cost optimization and nearshore delivery while underlying demand and pipeline activity remain healthy. We also continued to see cross-sell opportunities across consumer operations, collections and AI-led transformation initiatives within our existing client base. In retail, demand remains steady with clients focused on enhancing customer experience while improving operational efficiency. Overall, we exited the quarter with a healthy pipeline across both utilities and retail, supporting our growth outlook for the segment. From a geographic standpoint, North America grew 6% year-on-year and 1% sequentially in constant currency terms. Growth was led by BFS, while healthcare reflected the timing of certain program ramps and transitions that we've discussed earlier. More importantly, client conversations across the region continue to be centered on AI-led transformation, productivity improvement and operating model modernization. We are seeing growing demand for solutions that combine technology, AI and operations expertise, and our differentiated capabilities across key verticals position us well to participate in these opportunities. We continue to maintain a healthy pipeline and remain confident in the medium-term growth outlook for the region. Europe delivered another strong quarter with revenues growing 27% year-on-year and 7% sequentially in constant currency terms. Growth was led by BFS with good momentum also emerging in CMT. Our largest client relationships remain healthy, and we are increasingly engaging with them on deeper transformation initiatives, reflecting both the strength of our execution and the relevance of our capabilities. We continue to see strong demand for nearshore delivery, particularly from South Africa, supported by our transformation-led value proposition. We secured three large wins during the quarter, and with a healthy and growing pipeline, we remain optimistic about the region's growth trajectory. Australia delivered a strong quarter with revenue growing 50% year-on-year supported by continued momentum across existing relationships and a steadily improving pipeline. On the people front, we continued advancing our Intelligent Tech-Ops strategy, building a future-ready workforce through disciplined hiring, stronger workforce intelligence and AI-enabled people operations. We closed Q3 of FY '26 with 39,937 Firstsourcers, a net increase of 3,062 during the quarter. This growth was driven by the transition of a captive from a major banking client, alongside program ramp-ups predominantly in our offshore and nearshore delivery geographies, with India and Philippines accounting for more than 85% of the increase. Together, these reflect growth on both fronts: clients entrusting us with a broader share of their operations and our ability to transform how that work gets done using technology. Voluntary attrition for associates with more than 180 days of tenure remained steady at 28.4% on a trailing 12-month basis. We remain focused on a range of retention and engagement interventions designed to enhance employee experience. We're also expanding the use of AI and predictive insights across our people operations, from talent acquisition and employee engagement to internal mobility and retention. Talent assessments, deeper insights into employee exits via interactive bots
Ritesh Idnani (Firstsource Solutions Ltd): Forward-looking visibility into attrition risk are enabling earlier, more targeted interventions. In parallel, Unbound, our AI-enabled internal talent marketplace, is strengthening skills-based mobility and creating clearer career pathways for our people. Together, these initiatives bring our Build-Tech to life within our own organization, combining AI-led analytics with timely human intervention to strengthen workforce stability. During the quarter, our work continued to earn external recognition. HFS featured Firstsource in its Non-Linearity Index as one of the leaders in the shift to Services-as-a-Software, and named us as First Runner-up for Best Services-Eating-Software at its inaugural Services-as-a-Software Awards. HFS also recognized Firstsource as the Horizon 3 market leader for Customer Experience Services in 2026. Firstsource was also recognized as a leader across Generative AI and Agentic AI Services in the ISG Provider Lens Evaluations, underscoring the strength of our AI-led transformation offerings. ISG also placed us in the Breakthrough 15 in the US $1 billion to $3 billion tier, based on the deals we have study secured. Our people strategy also continued to earn strong external recognition. Firstsource was named among Great Place to Work top India's, Top 50 India's Best Workplaces for Women 2026 for the second consecutive year, reinforcing our commitments and progress we are making in attracting and retaining female talent. Our investments in people manager capability and employee experience were recognized through the Brandon Hall Gold Award for the Best Development Program for Frontline Managers and a Brandon Hall Silver Award for Best Employee Engagement. Collectively, these recognitions demonstrate the strength of our Employee Value Proposition and our ability to attract, engage and develop the diverse, digitally-skilled talent needed to deliver our Build-Tech agenda. I will now turn over the call to Dinesh to give a detailed color on the quarterly financials. I will come back to talk about our progress on the strategic priorities and the outlook for the remainder of FY '27. Dinesh?
Dinesh Jain (Firstsource Solutions Ltd): Thank you, Ritesh, and hello everyone. Before I take you through the numbers, a quick personal note. This quarter marks Firstsource' 100th quarter, and I have had the privilege of being part of every one of them since inception. Over that journey, we have grown from a startup company to over USD 1 billion in revenue, compounding revenue at a CAGR of 22%. None of that would have been possible without the trust of our clients, the commitment of our people, and the support of our investors. With that, let me take you through our quarterly financial performance. Revenue for Q2 FY '27 came in at INR 28.3 billion, up 22.2% on a year-on-year basis. In US dollar terms, it's USD 296 million. In constant currency, revenue grew 12.3% year-on-year and 2% on quarter-on-quarter. This is our 12th straight quarter of sequential growth. We delivered EBIT of INR 3.5 billion, a 32.2% increase over last year, with an EBIT margin of 12.5%. This is our eighth straight quarter of margin improvement with margin of 100 basis points year-on-year and 10 basis points quarter-on-quarter. Profit after tax was INR 2.3 billion, or 8.2% of the revenue, up 29.10% year-on-year, and 4.8% sequential sequentially on normalized basis. For the first half of FY '27, revenue was INR 55.5 billion, or USD 584 million, growing 12.3% year-on-year in constant currency. H1 EBIT was INR 6.9 billion, up 33.4% year-on-year, with a margin of 12.4%, and adjusted profit after tax was INR 4.5 billion, up 30.4% year-on-year. Let me also give you a quick update on the exceptional charge item we recognized last quarter relating to our two clients. Our relationship with both the clients remains strong. We are actively engaged with them on recovery and we remain optimistic about the outcome. Our tax rate for the first half was 23.2%. For FY '27, we expect our effective tax rate will be between 22% and 24%. Turning to the balance sheet, our cash and bank balances stood at INR 4.1 billion and net debt was INR 15.3 billion versus 17.1 billion at the end of the June 2026.
Dinesh Jain (Firstsource Solutions Ltd): Normalized DSO continued to be in the range of 67 to 69 days. Our FCF to PAT for the quarter was 150%, and for the half year it was 126%. As on 30th September 2026, our hedges, we have coverage of GBP 69.2 million for the next 12 months with an average rate of 116.6 per pound, and coverage of US Dollar 58.5 million with average rate of Rupees 95.10 per dollar. With that, I will hand back to Ritesh to discuss strategic priorities. Ritesh, over to you.
Ritesh Idnani (Firstsource Solutions Ltd): Thank you, Dinesh. Let me spend a few minutes on a strategic priority that sits at the heart of how we are building the next phase of the Firstsource journey. Over the last 25 years, we've built deep expertise by solving complex problems across industries, clients, and workflows. The opportunity before us now is how to make that expertise travel further. How do we take what thousands of people have learned and turn it into capabilities that can be shared, scaled, continuously improved, and applied wherever they create value? That is the thinking behind our shift from services to productized services. To be clear, this is not about moving away from services, nor is it simply about automating what we do today. It's about changing how we package, deliver, and scale the expertise we have built. Today, the best way to solve a problem often resides with a specific team or within a specific engagement. Productization gives that expertise a way to travel through repeatable workflows, embedded AI, and human judgment applied where it matters most. Kairos, our AI native operating system, serves as the engine for delivering, measuring, and scaling productized services. Our Domain Harness captures the skills, playbooks, and compliance guardrails of our best operators once and makes them available to our people and AI agents alike, portable across the models and platforms that our clients choose. Our Intelligent Context framework gives AI the memory behind every decision, and Kairos learns from how work is done, so it gets stronger the longer we operate. Governed Autonomy is what makes this work in regulated industries, where every decision is fully explainable and stays within compliance boundaries that no agent can override. Autonomy is earned one task at a time, based on evidence, and our people progress from doing the work to supervising it, to reviewing only the exceptions. As we progress on this journey, there are three indicators that we will be watching closely. First, is the repeatability of these solutions across clients. The true test of productization is not the success of the first deployment, but whether the second, third, or 20th deployment becomes easier, faster, and more efficient. Second, the evolution of our revenue mix. Today, more than 50% of our revenues are already non-linear in nature, which we understand is an industry-leading metric. As we continue to productize our capabilities, our objective is to further increase the share of non-linear, outcome-based, platform-led, and value-linked revenues over time. Ultimately, success for us is not just about growing revenue, but about changing the shape and quality of that revenue. And third, disciplined measurement. While AI is generating significant excitement across the industry, sustainable value requires clear baselines, rigorous metrics, and tangible outcomes. We remain committed to measuring that progress thoughtfully and transparently. Ultimately, the objective is simple. We're taking the expertise, operational knowledge, and industry experience that Firstsource has built over 25 years and making it more scalable through AI, platforms, and productized delivery. We believe this will strengthen our differentiation, deepen client relationships, and expand our long-term growth opportunities. The next version of Firstsource will not be built by leaving behind what made us successful. It will It will be built by making everything we have learned work harder. Let me close with the numbers behind this story. We ended the quarter with 51 clients generating over $5 million in revenue run-rate, six more than last quarter, the largest sequential addition in this cohort on an organic basis over the past five quarters. We added three clients to our $10 million plus cohort, taking the total to 23. The two-year trend is actually where the signal is the clearest. Over that period, our $5 million-plus clients have almost
Ritesh Idnani (Firstsource Solutions Ltd): Plus clients are up 32% during the same time period. A broad base that keeps feeding the large relationships of tomorrow. Think of it as each cohort feeding the next. And this is by design. Over the last eight quarters, the revenue share of our top five and top 10 clients has come down by 6% and 10 percentage points respectively. Importantly, that is not because our largest clients are shrinking. Our top five relationships go back over 22 years on average and they continue to grow at industry rate, even with the significant onshore to nearshore and offshore shift in at least a couple of them. We're also winning more large deals and winning them more consistently. In Q2, we signed four large deals, our seventh straight quarter of four or more, and two of those came from new logos. We also added 17 new logos in the quarter, one of our highest quarterly additions, including six strategic logos. Together, this reflects the strength of our differentiated solutions, the appeal of our commercial cons- construct, and growing client acceptance of Firstsource as a disruptor. This is the chapter that we're now writing, where accountability is our standard and repeatability is how we scale it. Intelligence that operates is what puts Firstsource in a category of one. That brings me to our outlook for FY '25. Based on our H1 performance and the visibility we have for the second half, we are raising the lower end of our FY '25 revenue guidance. We now expect constant currency revenue growth of 10.5% to 13%, compared with 10% to 13% earlier. On margins, we're reaffirming our EBIT margin guidance of 12.25% to 12.75%. This revision reflects the underlying strength and breadth of our portfolio. Large deals signed over the last few quarters are ramping as planned, our pipeline remains healthy, and new logo momentum continues to build, all of which gives us greater confidence in our growth for the second half. We believe this places us comfortably in the top decile of growth in our industry. This concludes our opening remarks and we can now open the floor for questions. Operator, over to you.
Moderator: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Aditya Bagul from Axis Capital. Please go ahead.
Aditya Bagul (Axis Capital): Hi. Good evening. Thank you for this opportunity. First of all, many congratulations to the management for a good set of numbers. My question pertains to quarter three particularly with respect to expected furloughs or holidays thereof and key commentary in terms of how that can impact our top line and and bottom line view of that.
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