Sagility India Limited (Avoid)

Highlights

Sagility India Limited (SIL) incorporated on 2021, engage in the business of providing technology-enabled business solutions and services to clients in the U.S. healthcare industry. Within the healthcare operations outsourced market, Sagility had a share of approximately 1.18 pct and approximately 1.23 pct in 2022 and 2023 respectively.

SIL is a pure-play healthcare focused services provider, and their clients include Payers (U.S. health insurance companies) and Providers (primarily hospitals, physicians, and diagnostic and medical devices companies).

Their services to Payers cater to various aspects of their operations including (i) core benefits administration functions such as claims management, enrolment, benefits plan building, premium billing, credentialing, and provider data management and (ii) clinical functions such as utilization management, care management, and population health management.

Their services to Providers include revenue cycle management functions such as financial clearance, medical coding, billing, and accounts receivable follow-up services. Additionally, they also provide some of the services that SIL provide to Payers to pharmacy benefit managers (PBMs) that manage prescription drugs for Members (i.e., insured persons) under health insurance plans.

As of January 2024, Sagility has clients across payers and providers that includes 5 of the top 10 largest healthcare payers by enrollment in the US and one of the largest US-based hospital networks by revenue, and 3 of the top 6 PBMs by claims volume, among other enterprise segments such as Blues, DMEs and labs.

Out of the total proceeds of Rs. 21,066 mn, entire proceeds of Rs. 21,066 mn would go towards existing selling shareholders of the company.

Key Highlights

• Healthcare expenditure in US stood at Rs. 3896 trillion and it expected to reach Rs. 509.8 trillion by 2028, showing CAGR of 5.5 pct. While Healthcare operations spend by Payers and Providers in the US was valued at ~ Rs. 16.8 trillion in 2023. This spend is expected to reach Rs. 21.6 trillion in 2028, driven by the rise in the aging population, increasing prevalence of chronic diseases, and various governmental initiatives aimed at enhancing healthcare services, among other factors.
• As a specialist healthcare company, they are able to assess whether treatments are medically necessary, predict healthcare risks based on relevant data sets, and reduce unnecessary rework in claims that result in provider abrasion and high interest payments.
• In March 2024, SIL acquired BirchA, with this acquisition company expects that their Member and Provider engagement will enhance and further reduce clients’ operational costs by providing various AI-powered real-time customer support solutions to manage complex healthcare transactions using proprietary speech-to-text and large language models (LLMs) that efficiently integrate with their end-to-end engagement solutions.
• The company has a long-term master services agreements with their clients and execute individual scope of work documents (SOWs) for each engagement. Further, under each of these SOWs, they provide multiple lines of business (LOBs). They have grown SOWs with five largest client groups from 337 as of FY22, to 352 as of FY24, and 358 as of Q1FY25.
• The company’s key strategy includes (i) Strengthen relationships with existing clients, expand offerings and increase share of their wallets (ii) Establish new client relationships across categories (iii) Enhance their portfolio of technology tools and platforms (iv) Pursue strategic acquisitions and collaborations.
• During FY24, company reported sales of Rs. 47,536 mn which grew by 12.69 pct YoY while EBITDA rose by 6.80 pct YoY to Rs. 11,160 mn as EBITDA margin slipped from 24.77 pct in FY23 to 23.48 pct in FY24. As of FY24 the company reported profit of Rs. 1,436 mn which was grew by 58.98 pct YoY. AS of Q1FY25 company registered sales/EBITDA/Profit of Rs. 12,233 mn/Rs. 2,184 mn/ Rs. 233 mn.

Key Risk

• Given Sagility’s exclusive focus on the US healthcare market, issues impacting the growth of the US healthcare industry such as potential reduction in government spending during recession and decrease in the demand of non-urgent services may impact Sagility’s business.
• The company might face client concentration risk. SIL receives almost ~78.69 pct sales from 5 largest clint group.
• Anti-outsourcing legislation could adversely affect SIL business and impair their ability to service their customers.

Financial Performance

Valuation

Sagility is a technology-enabled, pure-play healthcare focused solutions and services provider that supports US-based payers, providers, and their partners to deliver best-in-class operations, enhance the member and provider experience, and improve the quality of care all while delivering cost effective healthcare financial and clinical outcomes. At the upper end of the price band of Rs. 30 the issue is priced at a PE of ~61.5 its FY25E annualised earnings. The issue looks fully priced. One can avoid this issue.

Also read: Why Is Financial Advisory Important?

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