IT Stock To Buy In 2022 for Good Returns

Emkay Global has recommended buying the stock of Firstsource Solutions. The brokerage sees a good upside in the stock of the company from current levels.

Stake in Thousand Oaks

Firstsource Solutions has agreed to acquire a 100% stake in Thousand Oaks, California-headquartered legal collection service provider, American Recovery Service Inc (ARSI), for a cash consideration of USD53mn, including earnouts (0.7x EV/Sales on FY21 sales).

"The acquisition will expand and strengthen Firstsource Solutions consumer debt management services by adding legal stage collections capabilities, creating a one-stop shop for debt collections. The debt collection market is a significant part of the consumer credit ecosystem with evolving regulatory demand.

Firstsource Solutions is a leading player in providing high-quality, responsible collection services in the early and late-stage receivables management business.
With the addition of ASRI's legal collection services through its nationwide partner network and in-house experts, Firstsource Solutions will now be able to help clients navigate the complex legal collection process, all from under one roof. Both ARSI and Firstsource Solutions are pioneers in driving best-in-class debt recovery compliance, using advanced technology and emphasizing a positive consumer experience. These shared tenets add to the symmetry of this combination," the brokerage has said.

Valuations and view

According to Emkay Global, with anticipated revenue and operational synergies, the margin profile is expected to improve gradually.

"The acquisition is expected to be EPS accretive. We have yet not incorporated the acquisition's impact into our estimates, pending more clarity; however, we don't expect material changes to our EPS estimates. We have a Buy rating on the stock with a target price of Rs230 at 21x Dec'23E EPS," the brokerage has said.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.