Firstsource may appreciate between 40-80% in next nine months: Mehraboon Irani

In a chat with ET Now, Mehraboon Irani, Principal & Head-Private Client Group Business, Nirmal Bang Securities shares his view on Firstsource.

ET Now: Why do you like Firstsource?

Mehraboon Irani: It is a clear cut certainty for a minimum conservative target of Rs 38 to possibly about Rs 48 over the next three months. The reason is very simple. Firstsource is working very hard on de-leveraging the balance sheet. It has thrown out its customers, which were giving them losses.

There are whole lot of reasons why margins will keep on improving. We are looking at a conservative EPS of around Rs 2.9 in the current year which has just ended (last year 2013-2014), which should improve to around Rs 4.5 next year to around Rs 5.7 in 2015-2016.

If you look at this BPO business and how WNS or Genpact is valued across the world, its valuation is 15-16 times but they are debt-free companies. If you look at Firstsource Limited, which will become a debt-free company by 2016 March, and we get a valuation of 15, the stock should be over Rs 80.

Even at 10 times PE, the stock should be at least Rs 50-55 over the next 12-15 months. If I am buying the stock at Rs 27, I am getting at least 40% appreciation over the next nine months to maybe a 70-80% appreciation. I do not see the stock going down below Rs 24 come what may.