Sagility India IPO review (May apply)

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Review By Dilip Davda on November 2, 2024

•    The company is a technology enabled business solutions and service provider in health care industry of US.
•    It has posed steady growth in its financial performances from FY22 to FY24.
•    Based on FY25 annualized numbers, the issue appears aggressively priced. 
•    Considering its track record and the likely trends, it's a pure long term story.
•    Well-informed/cash surplus investors may park funds for long term.

ABOUT COMPANY:
Sagility India Ltd.  (SIL) is engaged in providing technology-enabled business solutions and services to clients in the U.S. healthcare industry. It is a pure-play healthcare focused services provider, and its clients include Payers (U.S. health insurance companies, which finance and reimburse the cost of health services) and Providers (primarily hospitals, physicians, and diagnostic and medical devices companies). SIL's 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. Its services to Providers include revenue cycle management functions such as financial clearance, medical coding, billing, and accounts receivable follow-up services. 

Additionally, the company also provides some of the services that it provides to Payers to pharmacy benefit managers ("PBMs") that manage prescription drugs for Members (i.e., insured persons) under health insurance plans. The company delivers these services leveraging its tools and platforms, as needed, through capable talent pool from its five global service delivery locations in India, the Philippines, the U.S., Jamaica and Colombia.

It has been recognized for the quality and scale of services by industry specialists. The company was ranked as a Leader by Avasant in their Clinical Services Business Process Transformation RadarView report 2023 and as a Leader in Everest's Healthcare Payer Operations PEAK Matrix Assessment 2023 (Source: Everest Report).

Its predecessor company commenced providing services to Payer clients in 2000 and gradually increased the scope of services provided to Payers and Providers, and the number of its clients, through organic and inorganic growth. The Company was incorporated on July 28, 2021 and it acquired the healthcare services business (the "Business") of Predecessor Company on January 6, 2022. Subsequently, the Company acquired the Subsidiaries in March 2024. 

All of its clients are located in the U.S. As of June 30, 2024, its five largest client groups (i.e., client entities together with their affiliates) had an average tenure of 17 years with the Business. As of January 2024, SIL served five of the top 10 Payers by enrolment in the U.S. (Source: Everest Report). Further, during the Financial Years 2024 and 2023 and the quarter ended June 30, 2024, it has added 22 new clients. As of June 30, 2024, it had a total 35858 employees on its payroll, out of which nearly 45+% (16309) employees are working in India. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route secondary IPO of 702199262 equity shares of Rs. 10 each worth Rs. 2106.60 cr. (at the upper cap). The company has announced a price band of Rs. 28 - Rs. 30 per share. The issue opens for subscription on November 05, 2024, and will close on November 07, 2024. The minimum application to be made is for 500 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The IPO constitutes 15% of the post-IPO paid-up equity capital of the company. This being an 100% Offer for Sale (OFS), no funds are going to the company. This issue is being made to unlock its valuations and listing benefits. 

The company has reserved 1900000 shares for its eligible employees and offering them a discount of Rs. 2 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs, and not more than 10% for Retail investors.

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., IIFL Securities Ltd., Jefferies India Pvt. Ltd., and J. P. Morgan India Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

The company has issued initial equity capital at par value, and has converted further equity shares at a fixed price of Rs. 28.30 between March 2024, and May 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NA, and Rs. 20.79 per share. 

Post IPO, company's current paid-up equity capital of Rs. 4681.33 cr. will remain same as this is a pure OFS. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 14043.99 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 944.39 cr. / Rs. - (4.67) cr. (FY22), Rs. 4236.06 cr. / Rs. 143.57 cr. (FY23), and Rs. 4781.50 cr. / Rs. 228.27 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a net profit of Rs. 22.29 cr. on a total income of Rs. 1247.76 cr. As per historic data, this segment has sluggish first half and major activities and earnings happens in the second half as usual. 

For the last three fiscals, the company has reported an average EPS of Rs. 0.37, and an average RoNW of 2.52%. The issue is priced at a P/BV of 1.85 based on its NAV of Rs. 16.25 as of June 30, as well as post IPO basis. 

If we attribute annualized FY25 earnings to post-IPO fully diluted equity base, then the asking price is at a P/E of 157.89 and based on FY24 earnings, the P/E stands at 61.22. Thus the issue appears aggressively priced. 

The company reported PAT margins of 7.17% (FY22), 10.80% (FY23), 12.40% (FY24), 11.83 % (Q1-FY25), but RoCE margins data is missing from the offer document. 

DIVIDEND POLICY:
The company has not declared dividends for the reported periods of the offer document. It adopted a dividend policy in June 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 80 public issues in the past three fiscals, out of which 19 issues have closed below the offer price on listing date.

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