Sagility India IPO Analysis: Healthcare insurance demand is rising alongside population growth, with healthcare costs also increasing due to inflation. In this space, Sagility India, a U.S. payer and provider service, has promoters planning to partially divest their holdings through market sales.

Sagility India Limited is preparing to launch its Initial Public Offering (IPO), featuring an offer for sale amounting to Rs 2,106.60 crore. Companies typically conduct IPOs to raise funds for various corporate needs, including expansion and debt repayment. This offering will follow a book-building process, opening on November 5, 2024, and closing on November 7, 2024, with a planned listing on the stock exchanges on November 12, 2024.

As of November 4, 2024, Sagility India’s shares were trading at a 0% premium in the grey market, priced at Rs. 30. The grey market premium had been Rs. 33 on November 3, 2024, reflecting a 10% premium over the issue price. However, by the following day, the GMP dropped to Rs. 0.

Sagility India

The company provides technology-driven business solutions tailored to the U.S. healthcare sector, serving both Payers (health insurance companies) and Providers (hospitals and physicians). Their services cover areas such as claims management, utilization management, and revenue cycle management. With a skilled team and five global delivery centers in India, the Philippines, the U.S., Jamaica, and Colombia, they leverage advanced technology to support client needs effectively.

Focused on delivering operational efficiency, the company enhances service quality by automating processes. It has built strong client relationships, with an average tenure of 17 years among major clients. By expanding its service offerings and client base through strategic acquisitions and organic growth, the company is working to further solidify its position in the healthcare sector.

 Financial Highlights

In FY24, the company reported revenue from operations amounting to Rs. 4,753.55 crore, marking a 12% increase from the Rs. 4,218.40 crore recorded in FY23. This growth highlights the company’s expanding business footprint and consistent demand within its operating sectors. Alongside revenue growth, the company’s net profits saw a significant jump, reaching Rs. 228.26 crore in FY24, a remarkable 59% increase from Rs. 143.57 crore the previous year.

A notable factor contributing to this profit increase was the reduction in other expenses relative to revenue. Additionally, lower finance costs and reduced current tax obligations further boosted profitability, allowing the company to retain more earnings. This streamlined cost structure reflects efficient management practices, enhancing the company’s bottom line and building a stronger foundation for future growth.

These operational efficiencies serve as crucial advantages, especially during challenging phases in the industry cycle. While there was a marginal rise in employee costs, the company managed to achieve a higher PAT growth rate compared to revenue growth. This indicates effective control over expenses and an overall increase in productivity, underscoring the company’s resilience and adaptability.

Moreover, the company saw an improvement in its return on net worth, which rose from 2.31% in FY23 to 3.54% in FY24. This increase signifies a stronger return on shareholder equity, supported by a slight decrease in debt. The company’s net debt to adjusted equity ratio improved, reaching 0.34 times in FY24 compared to 0.37 times in FY23, reflecting a gradual reduction in leverage and a healthier balance sheet.

Competitors

According to the RHP, the Company is exclusively focused on the healthcare sector, serving both the Payer and Provider markets. There are no listed companies in India or abroad that offer comparable services to U.S. healthcare enterprises.

Strengths

• Leading player in the US payer and provider solutions market.
• Offers a scalable suite of technology-enabled services and solutions, backed by proprietary tools and platforms.
• Maintains long-term, growing relationships with healthcare payers and providers.
• Provides comprehensive domestic expertise in healthcare operations, delivering end-to-end services to both providers and payers.
• Utilizes a flexible, multi-share, and scalable delivery model with strong data protection and service standards.

Weaknesses

• The company is entirely focused on the US healthcare industry, making it vulnerable to industry downturns.
• A large portion of its assets are goodwill and intangible assets, so any impairment could impact financial health.
• Sagility B.V. holdings are pledged, and a default could lead to a change in company control.
• A downgrade in credit ratings could hinder the company’s ability to raise capital in the near future.
• Rising employee costs, if uncontrolled, may reduce profit margins and impact operations.

Promoters: The promoters of Sagility India are Sagility B.V. and Sagility Holdings B.V. They play a crucial role in the company’s direction and management.

Shareholders: The selling shareholders in the IPO include Sagility B.V: Offering 70,21,99,262 equity shares with a weighted average acquisition cost of Rs. 20.79 per equity share. These shares will be sold as a whole part of the offer-for-sale of the IPO. Sagility B.V. is an affiliate of EQT Private Capital Asia.

Book Running Lead Manager: The lead managers for the IPO are ICICI Securities Limited, IIFL Securities Limited, Jefferies India Private Limited, and J.P. Morgan India Private Limited. Link Intime India Private Limited is the Registrar of the offer. They are responsible for managing the entire IPO process which includes pricing, marketing, and ensuring compliance with regulatory requirements.

Conclusion

In summary, Sagility India’s IPO presents a compelling opportunity for investors, especially given the increasing demand for healthcare services amidst rising costs and population growth. With its robust growth trajectory, evidenced by substantial revenue and profit increases, the company is well-positioned in the U.S. healthcare sector. Its focus on technology-driven solutions and long-standing client relationships enhances its competitive edge, while a healthy balance sheet and improving financial metrics further strengthen its appeal.

However, potential investors should consider the inherent risks, such as the company’s concentration in the U.S. healthcare market and the implications of asset goodwill. The upcoming IPO, with a significant offer for sale, will be closely watched as it reflects both the company’s ambitions and the promoters’ strategic divestment. As the IPO date approaches, stakeholders should weigh these factors carefully to make informed investment decisions, recognizing the potential for significant growth while remaining mindful of the challenges that may arise in this dynamic industry. Manba Finance Limited primarily focuses on two-wheeler financing and has established a presence in several major states across India. However, their geographical diversification remains limited, and there is a need for improvement in asset quality. Growth can fluctuate with the seasonal trends of the vehicle industry, which may also depend on the availability of funds.

The competition with traditional finance players is intense, as many lenders benefit from lower borrowing costs, enabling them to offer more competitive interest rates. Despite this challenge, India’s growth stage presents significant opportunities in the vehicle finance sector, allowing for coexistence among various players in the market.