Sagility India shares up 54% from IPO price; Jefferies sees further upside

Sagility India Ltd, whose shares are up 54 per cent from their IPO issue price, received a 'Buy' rating from Jefferies with a target price of Rs 52 per share. The foreign brokerage on Friday said the US healthcare focused BPM firm is well positioned to deliver double-digit revenue growth, adding that Sagility offers the highest earnings growth among peer set over FY25-27, but still trades at similar PE multiple as peers.

Following the development, the stock hit its 5 per cent upper circuit limit at Rs 45.86. It is up 53.63 per cent over its IPO issue price of Rs 30.

Jefferies said Sagility India has deep domain expertise and offers end-to-end service offerings that position it well to gain market share. "Over FY25-27, we expect Sagility to deliver 12 per cent/40 per cent CAGR in revenue/PAT led by normalisation of D&A costs and deleveraging. Superior earnings growth outlook is likely to sustain current PE multiples in our view. We initiate coverage on Sagility with a BUY rating and PT of Rs 52 share based on 31 times PE," Jefferies.

Jefferies said the outsourced healthcare spends at $45 billion is expected to grow in the range of 7-12.5 per cent in dollar terms. Given that Sagility's revenues are driven more by the Payer segment, its addressable market is likely to grow at 7-8 per cent in dollar terms over 2023-28, it said.

"Sagility has grown its revenues at low-mid-teens over the past few years. We believe, Sagility can continue to beat market growth driven by immense scope to mine existing clients, scale up new mid-market accounts and M&A. Over FY25-27, we expect Sagility's revenues to growth at 11 per cent CAGR in dollar terms and 12.5 per cent CAGR in rupee terms," it said.

Jefferies, however, believes that Sagility's Ebitda margin may fall 230 basis points YoY to 20.6 per cent in FY25, mainly on account of one-time expenses related to share appreciation rights (SAR).

It said normalised margins will revert to its historical 23-24 per cent levels from FY26/27 (upper of its peer set with limited scope to improve).

"We expect its EBIT margins to nearly double over FY24-27 to 16.5 per cent due to normalization of D&A costs resulting in 31 per cent CAGR in EBIT over FY25-27. Furthermore, deleveraging of balance sheet will lower interest costs over FY25-27, which in turn will spur earnings growth further to 40 per cent CAGR over FY25-27 — the highest amongst its peer set," Jefferies said.