Firstsource Solutions: Navigating Growth with AI and Strategic Expansion in Q2 FY26

Firstsource Solutions, a global leader in business process services, has once again demonstrated robust performance, reporting its Q2 FY26 results with impressive growth metrics. The company achieved a consolidated revenue of 2312.2 crore INR (US$265 million), marking a significant 20.1% year-on-year growth in rupee terms and 15.2% in US dollar terms. This quarter extends their streak to six consecutive quarters of double-digit year-on-year revenue growth and seven consecutive quarters of sequential revenue growth, underscoring their resilience amidst macroeconomic uncertainties. Profit After Tax (PAT) also saw a healthy increase of 29.9% year-on-year, reaching 179.5 crore INR, while the diluted Earnings Per Share (EPS) stood at 2.54 INR.

Segmental Performance and Strategic Wins

The company's performance was broad-based across its key verticals. Banking & Financial Services contributed 33.2% of the total revenue, amounting to 768.05 crore INR. Healthcare followed closely at 33.5% (774.59 crore INR), while Communications, Media & Technology accounted for 21.7% (502.25 crore INR). Diverse Industries made up the remaining 11.6% (268.21 crore INR). The Banking & Financial Services vertical grew 4% QoQ and 11% YoY in constant currency terms, adding three new logos. Healthcare saw a 6% YoY and 3% QoQ growth, also adding three new logos, driven by strong traction in the payer business. Communications, Media & Technology delivered a 15% YoY growth in constant currency terms, despite a 1% sequential dip due to project transitions.

Firstsource's strategic focus on client acquisition and expansion yielded significant results. The company signed four large deals in Q2, including an expansion into collection services for a top retail bank in the UK and claims data capture services for a top 10 healthcare payer in North America. Notably, their deal pipeline has crossed the billion-dollar mark for the first time in the company's history, indicating strong future growth prospects. The company also successfully added 10 new logos, including 4 strategic logos, defined as those with potential for at least US$5 million in annual revenue.

Operational Efficiency and AI-Driven Transformation

Operational efficiency remained a key highlight, with the EBIT margin expanding by 20 basis points QoQ and 70 basis points YoY to 11.5%. This marks the fourth consecutive quarter of margin expansion, aligning with management's objective of 50-75 basis points annual improvement. The company attributes this to ongoing efforts in right-shoring talent, optimizing delivery structures, and proactive integration of technology and AI interventions. The net headcount addition was the highest in the last six quarters, with 1,502 new employees, preparing for accelerated growth in the second half of FY26.

Firstsource's "UnBPO™" approach is central to its strategy, moving beyond traditional labor arbitrage to technology arbitrage. This involves leveraging AI and automation to drive step-change improvements in efficiency and customer experience. Strategic investments in AI companies like AppliedAI and Lyzr are enhancing their capabilities in this area, enabling them to rethink processes end-to-end and deliver AI-powered solutions. For instance, AppliedAI's proprietary large work model learns workflows to identify friction points and re-engineer them, while Lyzr brings agentic AI for autonomous task execution.

Geographical Expansion and Outlook

Geographically, North America continued its strong performance, growing 3% QoQ and 16% YoY in constant currency terms. Europe, however, remained soft, primarily due to the UK market's muted economic growth and higher labor costs, which have pushed clients towards offshore and nearshore models. To counter this, Firstsource is proactively expanding into new markets like Dubai (Middle East) and Canada, and strengthening its presence in Australia through strategic partnerships and investments. The proposed acquisition of Pastdue Credit Solutions in the UK, awaiting regulatory approval, is expected to further enhance their footprint in the utilities market.

Management maintains a positive outlook for FY26, guiding for a constant currency revenue growth of 13-15% and an EBIT margin of 11.25-12.0%. They anticipate an accelerating growth trajectory in the second half of the fiscal year, driven by the strong deal pipeline and the ramp-up of previously won large deals. The company's healthy cash conversion, with OCF to EBITDA at 82% and FCF to PAT at 155% in H1 FY26, further reinforces its financial strength and ability to fund future growth initiatives.

Conclusion: A Future-Ready Growth Story

Firstsource Solutions is clearly positioning itself as a future-ready enterprise, leveraging AI and strategic expansions to drive sustainable and profitable growth. The consistent financial performance, coupled with a proactive approach to technology and market diversification, suggests a company well-equipped to navigate evolving industry landscapes and deliver enhanced shareholder value. The focus on deep domain expertise, technology contextualization, and underwriting outcomes forms a competitive moat, enabling them to take market share and expand their share of wallet with existing clients.