This firm has lost some love of Rakesh Jhunjhunwala; should you shower some affection on it?

When investors like Rakesh Jhunjhunwala talk, people listen and that too, very attentively. Jhunjhunwala, who is also called the big bull of Dalal Street, has mastered the art of managing equity. Looks like, once again the ace investor has made his move and this time there is no buying involved and has to do with an exit. Jhunjhunwala sold stake in RP-Sanjiv Goenka Group's Firstsource Solution. Between October to December 2018 quarter, Firstsource was the only company where Jhunjhunwala removed a little portion of his money. 

As per the data of Trendlyne.com, Jhunjhunwala trimmed his holding in Firstsource by 0.01%, taking his overall holding now to 2.89% with 20,000,000 equity shares, which are worth Rs 93.7 crore. Earlier Jhunjhunwala’s holding stood at 2.90% in this company. 

This brings the most basic question, why did Jhunjhunwala reduce his holding in Firstsource where he is among the major investors and has been with the company for a little over 3 years? 

Notably, the year 2018 for Firstsource has seen a mixed trend. The stock began trading near Rs 41 level in January, 2018, and surprisingly within six months gave more than double returns. The stock touched an all-time high of Rs 83.85 per piece on June 13, 2018 giving nearly 100% return in just six months. 

However, that was the last of Firstsource’s glorious days, as the market took a bearish bite. This Sanjiv Goenka Group’s company also faced the burn of the bloodbath created by investors between September to December, 2018. 

In fact the loss of investors faith is such in Firstsource that now the company is back to where it began a year ago. Today, the share price of Firstsource Solution was trading at Rs 47.15 gradually up by 0.96% on BSE at around 1104 hours. 

Coming back to Jhunjhunwala’s journey with Firstsource. This company found favor in the eye of India’s Warren Buffett way back in December 2015, when he was stepping into various sectors. 

In December 2015, Jhunjhunwala bought about 25,000,000 equity shares of Firstsource, which aggregated up to 3.72% stake of the company. 

Interestingly, the investor made numerous cuts in his holding under Firstsource since then. One of the biggest cuts made by Jhunjhunwala was in June 2017, where he brought down his holding from 3.67% in March, 2017 to 2.93%. This was later followed in September 2017, when he chalked down his holding to 2.71%. 

(Image source: Trendlyne.com)

Should you stay invested? Let’s find out! 

Analysts at Emkay earlier said, “While our revenue growth estimates decrease (by ~2.5% for FY19) on continued curtailment of FY19 growth guidance, our FY20 growth and margin estimates remain unchanged on an expectation of growth revival in the top client, new deal closures, and scope of profitability improvement in the Mortgage (more offshoring and increase in Digital mix) and Healthcare (payer) businesses.”

They added, “We introduce FY21 numbers and build in ~6%/15% CAGR in revenues/earnings over our estimated period. Maintain Accumulate with a TP of Rs70 (based on 10x Sep’19E EPS).”

On the other hand, in ICICI Securities adds, “We revise our EPS CAGR for FY18-20E downwards to 10.3% factoring in concerns in the payer segment and macro uncertainty. However, a revival in top client spend, a healthy deal pipeline in BFSI, new deal wins and margin expansion remain key positive triggers, going forward.”

Thereby, ICICI Sec reiterates saying, “ We believe the recent price correction factors in most negatives. Hence, we maintain our BUY rating with revised our target price of | 75 (13 x FY20E EPS).”

From these views, it can be surely said that Firstsource is set to gain. In fact currently, when the company’s market price has fallen, one should make an investment in order to avail the benefits with an eye on the target price of Rs 70-Rs 75 per piece. 

As for Jhunjhunwala, well, he walks the talk. Among many quotes he also says, “Anticipate trend and benefit from it. Traders should go against human nature.”

What is Firstsource? 

Founded in 2001 by RP-Sanjiv Goenka Group, the company provides services to customers in the field of  banking and financial services, customer services, telecom and media, and healthcare sectors.

Among major clients that Firstsource has are - Fortune 500 financial services, telecommunications and healthcare companies.

Not just in India, but the company’s operations have been expanded even in US, Ireland, UK and Philippines. 

Firstsource entered stock exchanges, after its public offering in February 2007 where its issue was oversubscribed by 49.32 times on NSE and BSE. 

Apart from Jhunjhunwala, Firstsource’s major shareholder list includes - CESC Limited, ICICI Bank Limited, Steinberg India Emerging Opportunities Fund Limited and  Goldman Sachs India Fund Limited.