Firstsource Solutions Ltd Valuation Shifts to Very Attractive Amid Market Downturn

Valuation Metrics Show Marked Improvement

As of 23 February 2026, Firstsource Solutions Ltd trades at ₹242.75 per share, down 5.65% on the day and significantly off its 52-week high of ₹403.80. The stock’s P/E ratio currently stands at 24.25, a level that has contributed to the upgrade in its valuation grade from attractive to very attractive. This P/E is notably lower than some of its peers, such as eClerx Services, which trades at a P/E of 25.43, and far more reasonable than the extremely elevated valuation of Technvision Ventures, which is priced at a P/E exceeding 1,100.

Similarly, the price-to-book value ratio has improved to 3.93, reflecting a more favourable price relative to the company’s net asset value. This is a critical metric for investors seeking value stocks, as it indicates that the market is pricing Firstsource closer to its book value than before, enhancing its appeal.

Enterprise Value Multiples and Profitability Ratios

Enterprise value to EBITDA (EV/EBITDA) stands at 13.18, which is competitive within the sector and suggests a balanced valuation relative to earnings before interest, tax, depreciation, and amortisation. The EV to EBIT ratio is 18.31, while EV to sales is 2.11, both indicating reasonable pricing given the company’s operational scale and profitability.

Firstsource’s return on capital employed (ROCE) and return on equity (ROE) are robust at 15.42% and 15.15% respectively, underscoring efficient capital utilisation and shareholder returns. These figures support the valuation upgrade, signalling that the company maintains solid fundamentals despite recent market headwinds.

Comparative Analysis with Peers

When compared to its industry peers, Firstsource Solutions Ltd’s valuation stands out favourably. eClerx Services, a direct competitor, holds a fair valuation grade but trades at a higher EV/EBITDA multiple of 16.38, suggesting that Firstsource may offer better value for investors prioritising earnings multiples. On the other hand, Hinduja Global Solutions is currently loss-making, rendering its valuation metrics less meaningful and categorised as risky.

Digitide Solutions, another peer, is rated attractive with a P/E of 12.06 and EV/EBITDA of 6.37, indicating a cheaper valuation but potentially reflecting differences in scale, growth prospects, or profitability. Firstsource’s PEG ratio of 0.92 also suggests that its price is reasonable relative to expected earnings growth, reinforcing the very attractive valuation status.

Stock Performance and Market Context

Despite the improved valuation, Firstsource Solutions Ltd has experienced a challenging price performance recently. The stock has declined 4.56% over the past week and 23.36% over the last month, underperforming the Sensex, which gained 0.23% and 0.77% respectively over the same periods. Year-to-date, the stock is down 27.68%, significantly lagging the Sensex’s modest 2.82% decline.

Over longer horizons, however, Firstsource has delivered impressive returns. The stock has appreciated 103.22% over three years and 149.87% over five years, substantially outperforming the Sensex’s 36.45% and 62.73% gains respectively. Over a decade, the stock’s return of 694.60% dwarfs the Sensex’s 249.29%, highlighting its strong growth trajectory despite short-term volatility.

Mojo Score and Rating Revision

Firstsource Solutions Ltd currently holds a Mojo Score of 53.0, reflecting a moderate overall quality and momentum assessment. The Mojo Grade was downgraded from Buy to Hold on 29 December 2025, signalling a more cautious stance by analysts amid recent price weakness and sector headwinds. The Market Cap Grade is 3, indicating a mid-sized market capitalisation within its industry peer group.

This rating adjustment aligns with the stock’s recent underperformance but does not detract from the improved valuation metrics, which may attract value-oriented investors seeking entry points in a fundamentally sound company.

Dividend Yield and Shareholder Returns

Firstsource Solutions Ltd offers a dividend yield of 3.91%, which is attractive relative to many peers in the Commercial Services & Supplies sector. This yield provides an additional cushion for investors, especially in a market environment where capital appreciation has been subdued. The combination of a reasonable dividend and improving valuation metrics enhances the stock’s appeal for income-focused portfolios.

Outlook and Investment Considerations

The shift to a very attractive valuation grade suggests that Firstsource Solutions Ltd is currently undervalued relative to its earnings potential and asset base. Investors should weigh this against the recent price volatility and the broader market context, including sector-specific challenges and macroeconomic factors impacting commercial services companies.

Given the company’s strong ROCE and ROE, alongside a PEG ratio below 1, the fundamentals remain intact. However, the downgrade to Hold indicates that near-term catalysts may be limited, and investors should monitor earnings updates and sector developments closely.

Conclusion

Firstsource Solutions Ltd’s recent valuation upgrade to very attractive reflects a meaningful re-rating driven by improved P/E and P/BV ratios, competitive enterprise value multiples, and solid profitability metrics. While the stock has faced short-term price pressure and a rating downgrade to Hold, its long-term performance and fundamental strength remain compelling.

Investors seeking exposure to the Commercial Services & Supplies sector may find Firstsource an appealing candidate for value-oriented portfolios, particularly given its dividend yield and efficient capital returns. However, cautious monitoring of market conditions and company-specific developments is advisable before committing fresh capital.

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