Evaluating the Sagility India Limited IPO: Is it Right for You?

The stock market is currently presenting numerous opportunities for IPO investments. Participating in a company’s Initial Public Offering (IPO) can be highly rewarding, especially when selecting the right IPO and securing an allotment. This can lead to impressive listing gains and potentially serve as a valuable long-term investment opportunity.

Today, the latest IPO is debuting in the market. It is a U.S. healthcare-focused service payer and provider solutions company. Currently, the health-tech sector is set for significant expansion, with hiring projected to rise by 15-20% in 2024, reflecting the increasing demand for innovative healthcare solutions and the integration of technology in medical services. But should you subscribe to the Sagility India Limited IPO or not?

Sagility India Limited IPO is open for subscription from (05th Nov 2024) today onwards!

 Sagility India Limited IPO Details:

• IPO Open Date 05th November 2024, Tuesday
• IPO Close Date 07th November 2024, Thursday
• Price Band  ₹28 to ₹30 per share
• Lot Size 500 shares
• Face Value ₹10 per share
• Issue Size at upper price band ₹2107 crore (Offer For Sale ₹2107 crore) 
• Listing exchanges NSE, BSE
• Cut-off time for UPI mandate confirmation by 5 PM on November 07, 2024

The tentative timeline for the IPO is as follows: 

• Basis of Allotment 08th November 2024, Friday
• Initiation of Refunds (if not allotted) 08th November 2024, Friday
• Credit of Shares to Demat (if gets allotments of shares) 11th October 2024, Monday
• Listing Date 12th October 2024, Tuesday 

About the Company

Sagility India Limited, a pure-play healthcare-focused service provider, provides technology-enabled business solutions and services to clients in the US healthcare industry. 

Additionally, they provide services to the pharmacy benefit managers (PBMs), who manage prescription drugs for insured persons under health insurance plans. To cater to the Payers clients, their services support core benefit administration functions and clinical functions. While that of Providers includes revenue cycle management functions. As of 30th June 2024, they deliver these services across 5 delivery locations in India, the Philippines, the US, Jamaica and Colombia. 

You can check the order book of the company:

The company currently offers two core services, catering to clients that include Payers, which consists of U.S. health insurance companies that finance and reimburse health service costs and Providers, which primarily consist of hospitals, physicians, and diagnostic and medical device companies. 

Payer Services

1. Claims Management: The company oversees claims adjudication for payers by validating claims from providers against member benefit plans, ensuring accurate and timely payments. They handle a variety of claims, including hospital, physician, laboratory, and prescription drug claims, using smart cognitive extraction solutions to minimize manual effort.
2. Payment Integrity: This service helps payers control costs by identifying overpaid claims, offered as both post-pay (after payment) and pre-pay (before payment) solutions.
3. Clinical Management: Focused on providing timely, quality clinical care, these services include chronic and complex case management, utilization management, and population health management, ensuring members receive necessary care and reducing unnecessary procedures.
4. Other Services: The company assists payers in onboarding new providers by verifying credentials and maintaining an accurate provider directory, which is essential for regulatory compliance in the US.

Provider Services

• Revenue Cycle Management: The company offers scheduling and financial clearance services, including insurance verification, benefits validation, and prior authorizations. They support providers with order entry, charge entry, medical coding, billing, and follow-up services for resolving insurance and patient balances. Additionally, they manage denial appeals for coding and clinical issues.

Healthcare Sector Outlook in India

The US Healthcare market comprises two significant segments with respect to care financing and care delivery. 

• Healthcare Payers that pay for or reimburse healthcare services for insured members through health insurance plans. 
• Healthcare Providers that are licensed to deliver care services or aid in care delivery, such as doctors, clinics, hospitals, labs, and durable medical equipment (DME) providers.

The healthcare payers contributed ~69% to the overall spending in 2023, while the healthcare provider had a contribution of ~31% during the same period. These were driven by factors such as increasing demand for healthcare services and complexities in billing.

The total outsourced operations in the US healthcare market grew at a CAGR of ~6% over a period of 9 years. The healthcare payer market had a relatively higher penetration, while that of the healthcare provider was lower during the same period. 

The overall US healthcare spending has grown at a CAGR of ~3% over a period of 9 years, and this is further expected to grow at a CAGR of ~5% over a period of 5 years by 2028, driven mainly by the rise in ageing population, increasing prevalence of chronic diseases and various governmental initiatives aimed at enhancing healthcare services, among other factors.

Financial Performance

The company saw a significant rise in revenue from operations, growing from ₹923 crore in FY22 to ₹4,754 crore in FY24. This strong growth is also evident in the net profit figures, which improved from a loss of ₹5 crore in FY22 to a profit of ₹228 crore in FY24, marking a turnaround from loss to gain. This upward trend in revenue and earnings is a positive indicator of the company’s expanding operations and efficient cost management. 

However, there are no listed peers who operate in the same industry. So, the stock is valued at a P/B of 1.9 times and a P/E of 61.5x.

Now, look at the objective of Sagility India Limited IPO.

Objectives of the Issue 

Sagility India Limited IPO aims to raise ₹2,106.60 crore from this initial offer, which is entirely an offer for sale (OFS).

This sale allows the promoter to partially exit their investment while giving the public an opportunity to invest in the company. By listing its shares, the company anticipates increased visibility and an improved brand image, as well as the establishment of a public market for its equity shares in India. It’s important to note that the company will not receive any proceeds from this offer.

There is no such investment in the market that is risk-free. Let’s assess the risk factors for Sagility India Limited.

Risk Factors

Here are the risks that are highlighted for Sagility India Limited IPO:

• Dependence on US Healthcare: The company relies entirely on the US healthcare industry, and demand for services is linked to its growth and trends, influenced by skilled labour availability and outsourcing.
• Impact of Economic Factors: Economic changes and industry trends affecting healthcare payers and providers can significantly impact the company’s business.
• Goodwill and Intangible Assets: The company holds considerable goodwill and intangible assets from acquiring its predecessor, mainly related to customer contracts and relationships. Future impairments of these assets could negatively affect financial performance.
• Technology Reliance: As a tech-driven company, they must keep up with technological advancements. Failing to invest in technology or keep services current may harm their business.
• Regulatory Compliance: The company must comply with regulatory requirements to perform its services. Non-compliance could adversely impact their business operations and financial condition.

Now, the main question arises: should you subscribe to Sagility India Limited IPO?  

Should you subscribe to Sagility India Limited IPO?

Sagility India Limited utilizes the revenue models under its statements of work (SOWs) with its clients as Time-based (it charges for the services performed by the employees at hourly or monthly rates that are agreed at the time the SOW is executed), Transaction-based (charges clients a per-transaction fee and its fees are based on the volume of transactions handled) and Outcome-based (the company’s fee is linked to certain performance outcomes, such as cash collected on outstanding receivables or recovery made on overpaid claims).

In March 2024, it acquired BirchAI, a company specializing in cloud-based Gen-AI technology powered by natural language processing (NLP). BirchAI offers AI-driven, real-time customer support solutions for healthcare transactions. Its advanced speech-to-text model, tuned for domain-specific conversations, automates key tasks such as call classification and summarization, identifying customer trends in real time to improve agent performance. This acquisition is expected to enhance Sagility by swiftly identifying opportunities across the spectrum of healthcare payer and provider clients, allowing it to engage with them more meaningfully, thereby creating value.

As of 30th June 2024, its 5 largest client groups (i.e., client entities together with their affiliates) had an average tenure of 17 years with the business. During this period, the company helped its Payer clients process 105 million claims and handled over 75 million Member and Provider interactions. Payer clients include companies like UnitedHealthcare and Elevance Health, while Providers include Johns Hopkins Hospital and Tenet Healthcare, amongst others. They added 13 new clients on a gross basis during the year 2024.

Before you decide to invest, it’s crucial to have a strong understanding of the potential risks and rewards involved. In this blog, we’ve presented a detailed overview of both the benefits and possible drawbacks associated with participating in the initial public offering (IPO) of Sagility India Limited  Ltd. Our team of experts at StockEdge has assessed the Sagility India Limited  IPO and provided an Average rating. Additionally, we’ve compiled a comprehensive IPO Note that dives deep into the company’s financial standing and SWOT analysis, offering thorough analysis to provide you with a more profound insight into the company’s prospects.

You can read our blog about the top 5 upcoming IPOs in India. 

StockEdge has a different section on IPO under the Explore tab, where you can see the list of upcoming IPOs, ongoing and recently listed IPOs. 

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Happy investing!