The present market capitalization of the company is at Rs 725 crore while the enterprise value is close to Rs 2,000 crore. With the repurchase of FCCB, the company would get vastly re-rated. Share now ruling around Rs 19 is witnessing huge volume, on expectations of stake sale. If that happens, it is likely to rise to Rs 30 per share, which is expected to be atleast the stake sale price.
Firstsource Solutions (FSL)Firstsource Solutions (FSL) is a global BPO company, providing services across the banking and financial services sector, telecom, media and healthcare industries. It provides services throughout the customer lifecycle, including customer acquisition, customer care, billing and collections, transaction processing and business research and analytics.
FSL has global clients with over 20 Fortune Global 500, Fortune 500 and FTSE 100 companies and includes over 800 leading hospitals in US, 3 of top 5 global healthcare insurance companies, 2 leading Indian mobile service providers, 2 of the world’s top 10 telecom companies and one of the largest Indian bank.
FSL acquired MedAssist Inc, the largest provider of revenue cycle management services to hospitals in USA. For acquiring this, FSL issued FCCB of US$ 275 million, which are due for redemption in Dec 2012 or convert at Rs 92.29 per share. As share price is ruling at Rs 17, conversion seems unlikely.
Due to the FCCB concern, share price has taken a beating and had its 52-week high/low of Rs 51/Rs 9.50. The share is now ruling at Rs 19.10.
The company has started buying back FCCB in March 2009 and had repurchased FCCB of US$ 49.70 million till date, which is commendable, as after this, the outstanding FCCB is just at US$ 225 million.
FSL, for the year ended 31/03/08 had a total income of Rs 1,334 crore with a PBT of Rs 143 crore and PAT of Rs 132 crore.
The present equity of the company is at Rs 428 crore, with face value of Rs 10 each. Of this, ICICI Bank, being the promoters, hold 26.74% while 50.77% is held by 4 OCBs and 7.04% by FIIs and Foreign Venture Capital Investors. This is thus leaving low float of about 15% with the public.
In the past, Warburg Pincus wanted to acquire the company and even ICICI Bank is keen to divest its stake and exit from the company at a proper price.
The company does not have much debt except the FCCB. As at 31/03/08, it had a total debt of Rs 1,225 crore with FCCB being at Rs 1,103 crore. However, the company has intangible assets of Rs 1,888 crore being Goodwill on various acquisitions but no write offs will be required as there is no impairment.
The present market capitalization of the company is at Rs 725 crore while the enterprise value is close to Rs 2,000 crore. With the repurchase of FCCB, the company would get vastly re-rated.
In case ICICI Bank, opts to sell, which is most likely, open offer for 20% would be made, resulting in 100% acceptance, as 4 OCBs holding 51% may not participate. In that case, share price will rise to stake sale price.
Share now ruling around Rs 19 is witnessing huge volume, on expectations of stake sale. If that happens, it is likely to rise to Rs 30 per share, which is expected to be atleast the stake sale price.
Considering all these factors, share qualifies as a risk free bet at Rs 19.10, which is likely to give close to 50% return in next six months.
