Sagility Limited — Q2 FY25 earnings call

Call held 27 Nov 2024

Management summary

Sagility India delivered a strong performance in its first earnings call as a listed entity, characterized by 21.1% YoY revenue growth and industry-leading margins. The company is successfully leveraging its deep domain expertise in the U.S. Healthcare market, particularly within the Payer segment. Management is focused on a dual strategy of mining existing large accounts while aggressively targeting the mid-market to diversify its client base and reduce concentration.

Highlights

  • Revenue reached ₹1,325 crores ($157.9 million) in Q2, representing 21.1% YoY growth in INR terms.

  • Adjusted EBITDA margin stood at a robust 25.5% for the quarter.

  • Consolidated adjusted PAT grew 30.5% YoY to ₹163.6 crores.

  • Headcount increased to 38,380 with 2,522 net additions during the quarter.

  • Payer vertical remains the primary driver, contributing 89.2% of total revenue.

  • Net debt (excluding lease liabilities) reduced to 0.34x of trailing 12-month EBITDA.

  • Annualized attrition remained stable and healthy at 25.8%.

Concerns

  • High Client Concentration

Key financials

  1. Revenue ₹1,325 Cr +21.1%YoY
  2. Adjusted EBITDA Margin 25.5%
  3. Adjusted PAT ₹163.6 Cr +30.5%YoY
  4. Revenue (USD) 157.9 Mn
  5. Attrition Rate 25.8%
  6. Net Debt to EBITDA 0.34×

What they filed

Q1 FY27: revenue up 27.6%, net profit up 45.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,325 1,453 1,568 1,539 1,658 +25%1,971 +36%2,024 +29%1,963 +28%
EBITDA301 392 373 346 415 +38%511 +30%485 +30%438 +27%
Net profit117 217 183 149 251 +115%268 +24%258 +41%217 +46%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentRevenue ShareYoY Growth
Payer Vertical89.2%20.8%
Provider Vertical10.8%23.7%

Guidance & targets

Revenue

  • Full Year Revenue Growth Revenue · FY25 · High confidence In line with H1 performance (~13.8% CC)
    We expect the growth for the full-year ending March 25, to be in line with our growth performance in H1

    — Ramesh Gopalan, Managing Director & Group CEO

Margin

  • Adjusted EBITDA Margin Margin · FY25 · High confidence Steady at current levels (~25.5%)
    our EBITDA margins to stay steady at these levels for the full year.

    — Ramesh Gopalan, Managing Director & Group CEO

Other

  • New Client Additions Other · Annual · Medium confidence 8-12
    Anything between eight and 12 clients a year is a number that we are targeting.

    — Ramesh Gopalan, Managing Director & Group CEO

  • Top 5 Client Concentration Other · next 2-3 years · Medium confidence 60-65%

    From 80% today

    we want the top five clients from the 80% to come down somewhere between 60% to 65%.

    — Ramesh Gopalan, Managing Director & Group CEO

Debt

  • Debt Repayment Debt · FY25 · High confidence ₹249 crores
    We'd be repaying about ₹2,490 million in FY '25, ₹2,350 million in the next year

    — Sarvabhouman Srinivasan, Group CFO

Risks & concerns

  • High Client Concentration

    high

    Top 5 clients contribute 80% of revenue; management is targeting mid-market expansion to reduce this to 60-65% over 2-3 years.

    Both acknowledged

  • Business Seasonality

    medium

    Open enrollment (AEPS) in Q3/Q4 makes the second half of the year more pronounced, making YoY comparisons more relevant than QoQ.

    Management acknowledged

  • Captive Center Proliferation

    medium

    Analysts raised concerns about clients setting up India captives; management noted they often help clients set up these centers for innovation while retaining core operations.

    Analyst downplayed

Q&A highlights

3 direct
Client Concentration and Mining Strategy Direct
For our top client, we probably only do, roughly about 80% of the service portfolio that I've shown... so there is still opportunity for us to work with each of these clients in areas which we are not supporting them today on.

Clarifies that even within highly concentrated accounts, there is significant 'white space' for organic growth through new service lines like clinical services.

Asked by Abhishek Kumar, JM Financial

Impact of U.S. Political Changes (Trump Presidency) Direct
Both the administrations, both the parties focuses on how do we reduce healthcare cost from ballooning... our work... is part of the non-discretionary spend... we don't see a major risk to our business directly.

Addresses investor concerns regarding geopolitical/policy risks, highlighting the non-discretionary nature of healthcare operations outsourcing.

Asked by Abhishek Kumar, JM Financial

GenAI Disruption and Automation Potential Direct
Healthcare being, very complex and the systems also being very... disparate... We don't see a full automation, beyond 15%, 20%. But... there is a tremendous opportunity to improve the efficiency.

Provides a realistic ceiling for AI-driven revenue cannibalization while emphasizing the productivity gains possible through GenAI integration.

Asked by Abhishek Bhandari, Nomura

2 min read 5 chapters

Detailed narrative

Robust Revenue Momentum in U.S. Healthcare

Sagility reported a strong 21.1% YoY revenue growth in INR terms for Q2 FY25, reaching ₹1,325 crores. This growth was driven by sustained demand from existing large Payer clients and new logo wins. The Payer vertical continues to dominate the mix at 89.2%, growing 20.8% YoY, while the Provider vertical showed even faster growth at 23.7% YoY, albeit from a smaller base.

Industry-Leading Margin Resilience

The company maintained an adjusted EBITDA margin of 25.5% in Q2, consistent with its historical 24-25% range. Management attributed this to high offshoring levels (94% of headcount in nearshore/offshore locations) and continuous operational efficiency gains. They expressed confidence in keeping margins steady at these levels for the remainder of FY25 despite ongoing investments in technology.

Strategic Pivot to Mid-Market Diversification

To address high client concentration (Top 5 at 80%), Sagility is aggressively targeting the mid-market and small Payer segments. Management aims to add 8-12 new clients annually and reduce top-5 concentration to 60-65% within the next 2-3 years. They noted that mid-market clients often offer higher efficiency potential due to less 'red tape' compared to national Payers.

GenAI Integration and Efficiency Levers

Following the acquisition of BirchAI, Sagility is running multiple GenAI pilots across front-office and clinical operations. Management views GenAI as a tool to reduce 'speed to proficiency' for new hires and improve clinician efficiency in medical documentation. They estimate that while full automation is capped at 15-20% due to healthcare complexity, the productivity gains will be a significant margin lever.

Strong Cash Generation and De-leveraging

The company demonstrated excellent cash flow conversion, with H1 FY25 operating cash flow at 114% of reported EBITDA. This strong liquidity has allowed for consistent debt reduction, with net debt (excluding leases) now at just 0.34x EBITDA. Sagility plans to repay ₹249 crores of debt in FY25 and another ₹235 crores in FY26, further strengthening its balance sheet.

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