Target: ₹54
CMP: ₹42.17
Sagility is a pure-play healthcare focused technology provider that predominantly supports US payers (90 per cent revenue mix). The company has 80+ clients in total, with an average tenure of 18 years for its top-five largest clients.
Medical loss ratio (claims paid/premium earned) is rising across payers (example United Healthcare, Humana, CVS Aetna, Elevance Health, Cigna HC, Centene Corp etc). At the same time, they have witnessed a continuous rise in admin cost and costs have spiked at 2.5-18 per cent CAGR in the past decade. We expect both these factors, creating further outsourcing opportunities.
The stock is trading at 15.2x FY28E EPS, which is at a discount to some peers, possibly on account of client concentration risks and scalability of top accounts, which we believe is unwarranted. There is enough scope to scale up top accounts, which with new client additions and full debt repayment in FY27.
We believe that with strong earnings growth, the stock should trade at a better multiple. We initiate with a BUY and a target price of ₹54, valuing Sagility at 19x FY28E EPS.
A downtrend in MLR (medical loss ratio) and administration costs for payer will likely reduce the need for outsourcing, which is a key risk, in our view.