Riding The Wave

Midcaps have come under heavy selling pressure since the year began what with the BSE Midcap Index down 13%. However, midcap IT firm Firstsource Solution has given its investors a reason to rejoice by doubling return over the same period. The stock of the Mumbai-based IT service provider surged from Rs.40, as on January 1, to Rs.82, as of June 12, surpassing the 19% and 34% return shown by large-caps IT stocks, Infosys and TCS, over the same period.

Incidentally, the top management of Firstsource chose to cash out of the rally. CEO Rajesh Subramaniam sold around 20 lakh shares worth Rs.16.92 crore in seven tranches between April 3 and June 12, when the stock was trading in the Rs.54 to Rs.79 range. He had last sold shares worth Rs.3.69 crore in the open market between April 6 and April 12 in 2017. Following the recent stake sale, Subramaniam’s stake has fallen from 0.40% in FY18 to 0.04%. Apart from the CEO, other key management personnel and designated persons, too, sold stock worth Rs.6.12 crore last fiscal. Subramaniam, who took over as the CEO in 2012, had offloaded shares worth Rs.15 crore in FY17 in 12 tranches between December 13, 2016 and February 17, 2017.

The RP‐Sanjiv Goenka Group company provides business process management services to healthcare, telecom, media, banking and financial services companies. Analysts are bullish on the stock as the company clocked its highest-ever consolidated net profit of Rs.326 crore in FY18, up 17% over the past year. Analysts believe revenues will continue to outmatch that of the industry in the current fiscal as well. “Taking into account impact from the exit of domestic business in FY18, the proforma revenue growth for FY19 would be 12%. Growth for the year would be driven by BFSI and healthcare wherein sales pipeline is healthy,” states an ICICI Direct report.

Noted investor Rakesh Jhunjhunwala had picked up around 2.5 crore shares in 2013, putting the spotlight firmly on the BPO service provider. Currently, he holds 2.91% stake. ICICI Bank also holds around 4% stake in Firstsource, whose current market capitalisation is Rs.5,696.41 crore. Mutual funds though have a marginal presence with 2.20% stake. HDFC Mutual Fund, Aditya Birla Sun Life Mutual Fund and Taurus Mutual Fund hold 1.40%, 1.03% and 0.14%, respectively.

Given that the company is set to become debt-free by October this year and coupled with a healthy dividend payout, analysts believe there is still a massive upside in store for Firstsource.