Firstsource Q1 FY27: Growth stays strong, but healthcare BPaaS deramps

Firstsource Solutions started FY27 with another quarter of double-digit growth. Q1 FY27 revenue came in at INR 27,249 million, up 22.9% year on year. In constant currency terms, growth was 12.3% year on year and 2.2% quarter on quarter. EBIT rose to INR 3,367 million, translating to a 12.4% margin, up 110 basis points year on year. Adjusted profit after tax (excluding exceptional items) was INR 2,222 million with an 8.2% margin.

The clean operating performance, however, sat alongside a set of exceptional items. The company booked an exceptional charge of INR 717 million in the quarter. Management linked this to a healthcare program termination, an indemnification charge related to a regulatory penalty at a customer, and a fair value adjustment on contingent consideration from the Ascensos acquisition.

The quarter in numbers, and what changed beneath the headline

The quarter reinforced two themes that have been building for several quarters: sustained top-line momentum and steady margin improvement. Management highlighted that this was the ninth straight quarter of double-digit year on year revenue growth and the eleventh straight quarter of sequential growth.

On profitability, EBIT margin expanded to 12.4%, continuing a pattern management described as seven straight quarters of margin improvement. EBITDA margin for Q1 FY27 was 16.6%.

But cash conversion was weaker in the quarter. Operating cash flow was INR 983 million versus INR 3,556 million in the year-ago quarter, mainly due to a working capital outflow of INR 3,478 million.

Notes: Adjusted PAT for Q1 FY27 is excluding exceptional items of INR 563 million net of tax. Reported PAT includes exceptional items.

Deal wins and pipeline: steady large-deal cadence continues

The company’s demand narrative remained centered on transformation programs and AI-enabled operations. In Q1 FY27, Firstsource signed four large deals. Management defined a large deal as ACV above USD 5 million and said this was the sixth consecutive quarter of four or more large deals.

The wins were spread across verticals and geographies. The quarter included a large UK deal in benefits and pensions administration for end-to-end back-office transformation. In the US, Firstsource won a large deal from a leading academic medical center for insurance follow-up and denials management, described as a new logo. It also expanded relationships with US health systems and secured additional CX deals, including one with a US health insurance provider.

Management was careful to frame the conversion of these deals as phased rather than linear. It noted that several wins are transformative and ramp in stages, with revenue conversion spread over longer periods as transformation milestones get completed.

Vertical performance: BFS holds up, healthcare shows timing and program effects

The revenue mix remained balanced across the two biggest verticals. The operating metrics table showed Q1 FY27 vertical contribution at 33.2% for Banking and Financial Services, 33.0% for Healthcare, 20.6% for Communications, Media and Technology, and 13.2% for Diverse Industries.

On BFS, management said the vertical grew 14% year on year and 5% sequentially in constant currency. It also highlighted strong interest in intelligent operations, customer servicing, financial crime, compliance, and collections. Mortgage clients remained focused on cost take-out and servicing efficiency in a high-rate environment.

Healthcare was the most nuanced discussion of the quarter. Management stated that healthcare revenues grew 11% year on year but declined 2% sequentially in constant currency terms, while adding four new logos. The provider segment was described as moving toward AI and automation-led revenue cycle management delivery, with outbound voice AI agents becoming standard in eligibility and early-out workflows.

On the payer side, management pointed to program timing effects tied to Medicare Advantage clients recalibrating scope in response to CMS rate adjustments and evolving utilization management requirements.

The more material point was a BPaaS engagement that is being wound down after a leadership change at the client. Management said this was a client-side decision and that the impact on reported revenue is limited because the engagement was still early in ramp.

In the Q and A, the CEO stated that the impact on Q1 revenue growth was about 1% to 1.5%. He also noted that the company’s original FY27 guidance had factored in roughly 1% to 1.5% of growth from this engagement.

CMT grew 6% year on year and 9% sequentially in constant currency, with management acknowledging volatility due to timing of work packets and program transitions in consumer tech engagements. Diverse industries grew 27% year on year and was flat sequentially in constant currency.

Guidance stays, but exceptional items and people metrics need monitoring

Firstsource reaffirmed its FY27 guidance: 10% to 13% constant currency revenue growth and 12.25% to 12.75% EBIT margin. Management explicitly said that guidance was maintained even after absorbing the BPaaS engagement wind-down assumption.

The exceptional items provide the other major lens for investors this quarter. The CFO detailed an exceptional charge of INR 717 million, comprising:

1. INR 357 million related to the program termination, with recovery efforts ongoing.
2. INR 284 million relating to indemnification of a regulatory penalty to a customer, with recovery being pursued through an insurance claim.
3. INR 76 million of fair value adjustment on contingent consideration linked to Ascensos.

Management stressed these are non-recurring and do not reflect underlying operating performance.

People metrics also showed deterioration. The investor deck reported trailing twelve-month attrition at 33.1% in Q1 FY27, up from 29.7% in Q4 FY26. Headcount increased to 36,875, up 670 sequentially.

On balance sheet and cash, total assets were INR 94,677 million at June 30, 2026. Cash and cash equivalents were INR 2,170 million. The company reported short-term borrowings of INR 20,163 million and no long-term borrowings at June 30, 2026, versus INR 1,897 million of long-term borrowings at March 31, 2026.

Takeaways

Q1 FY27 kept the core operating narrative intact: healthy revenue growth, expanding margins, and a consistent large-deal engine. The healthcare BPaaS deramp and the exceptional charges were real setbacks, but management was transparent about the reasons and reaffirmed full-year guidance. Investors will likely track three variables from here: how quickly large deal wins ramp into revenue, whether healthcare payer programs stabilize, and whether attrition and cash flow normalize in the next few quarters.