Sagility India Ltd (NSE: SAGILITY) Q3 2025 Earnings Call dated Feb. 05, 2025
Corporate Participants:
Ramesh Gopalan — Managing Director and Group Chief Executive Officer
Sarvabhouman Doraiswamy Srinivasan — Group Chief Financial Officer
Analysts:
Siddharth Rangnekar — Analyst
Abhishek Kumar — Analyst
Manik Taneja — Analyst
Unidentified Participant
Vikrant Gupta — Analyst
Bhavik Mehta — Analyst
Ankur Pant — Analyst
Bharat Sheth — Analyst
Deekshant Boolchandani — Analyst
Presentation:
Siddharth Rangnekar — Analyst
Good evening ladies and gentlemen and welcome to the Quarter 39 months FY25 earnings webinar of Sagility India Limited. This is Siddharth Rangnekar from CDR India and I shall be your moderator for the event today. As a reminder, all attendee lines will be in the listen only mode. There shall be an opportunity for you to ask questions after the presentation concludes. Please note that this webinar is being recorded
To introduce the management we have with us today. Mr. Ramesh Bhopalan, Managing Director and Group CEO Mr. Sarva Bhuman Srinivasan Group Chief Financial Officer.
Before we begin, I would like to state that some of the statements made on today’s discussion could be forward looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Quarter 3 and 9M FY25 results presentation that has been uploaded to the stock exchanges. I would now like to hand over the Fort. Welcome to Mr. Ramesh Gopalan to begin the proceedings of this webinar. Over to you sir.
Ramesh Gopalan — Managing Director and Group Chief Executive Officer
Thank you Sudhark Good evening and thank you everyone for joining our Q3 earnings call. As you would have seen, we are pleased to report another very strong quarter which is led by growth across our client portfolio. In addition, we announced an acquisition just last week. We acquired Broadbath which will also be accretive to our earnings and we’ll talk a little more about that in our call. Our clients continue to give us more business and this is fueled both by our operational excellence and our investment in automation, analytics and gen AI. And these capabilities have helped us differentiate ourselves in the marketplace and also helped drive growth in all of our clients.
Let’s get started with the financial summary. We are pleased to report in Q3FY25 we registered a year on year growth of 15.3% in rupee terms and is 14% in constant currency terms. During Q3FY25 our revenues were $172 million and $14,531 million in INR terms. And this is a 9.7% Q on Q growth in INR and about a 9% Q on Q growth construction currency. However, like we’ve mentioned in the past, we’d like to remind you that there is a seasonality to our business. The open enrollment which runs all through the Q3 quarter as well as beginning of Q4 drives a large volume of business our way. So a Q on Q comparison may not be the best way to look at our performance. So we would encourage you strongly to look at year on year performance and not too much on the Q on Q numbers.
Having said that, it was a very strong Q on Q performance this quarter. During the quarter our payer vertical grew 13.1% year on year and contributed about 89.3% of our total revenue. And the provider business grew much higher at 38% and contributed to about 10.7% of our total revenues. Now if you switch to the YTT Results Our YTT Dec 24th we are pleased to report that we grew our YTT 24 compared to YTT 23 at 15.3% in INR terms and 13.9% in constant currency terms. The actual revenues YTD were 476.5 million in dollar terms which translates to about 40,000 14 million in INR terms.
Now talking about margins for the quarter, we delivered an adjusted EBITDA of $54.1 million which is 4567 million INR terms, which is a year on year growth of 63.67. This reflects an adjusted ebitda margin of 31.4% and this is a pretty high margin which is essentially expected in the open enrollment season. And the Factors driving it are 1 higher revenues, better operational efficiencies like I said, both organically as well as through use of technology and process improvements. And also there’s been some tailwind basis favorable foreign exchange movements. We also reported higher other income in the quarter driven by forex gains, which further boosted our adjusted ebitda.
Our consolidated adjusted profit after tax for the quarter stood at 200626 million, which is again a year on year increase of 67.6%. And our ongoing like we mentioned before, our ongoing reduction of debt is further going to help us enhance our PAT margins. On a YTD basis, our adjusted EBITDA of 11,004 million grew 30.2% year on year while our adjusted PAT of 5,709 million grew 34.5% year on year.
Now if you look at our people metrics, our total headcount at the end of the year stood at 39,595. We added about 1,215 employees during Q3 and this is a large addition. Like we mentioned in the past, we had headcount during the open enrollment season. However attrition has been at 21.8% which continues to be very low compared to the previous year. So overall a very good performance operationally as well as financially.
As you can see some of the KPIs. I’ll just pause for a few seconds for you to take a look at the numbers and we’ve covered all of these numbers in my commentary.
Now jumping into the acquisition that we did last week. The company’s name is Broadband Healthcare Solutions. The company was founded in 2008 and it’s headquartered in Tucson, Arizona. It is like us, it’s a healthcare services focused company and like I’ve told many of you in the past, our M and A strategy was both focused on capability acquisition as well as looking for healthcare specific clients which can get us a large client base. And broadband fits in the second category. What we get in terms of services. A large part of the services do overlap with our services, but they also bring in specific capabilities in member acquisition, especially in the Medicare and Medicaid segments which is a capability that we didn’t have before.
So so it also brings addition to our service portfolio. But the most interesting part of this acquisition as far as we are concerned is the access that it gives to several mid market clients as I’ve mentioned in the past diversification. From a large client base into the mid market is one of our stated strategy and so the Broadpath acquisition clearly helps us in that regard. The other thing, in our due diligence we found that they had a great customer advocacy. Their NPS with customers were very high. And one unique operating feature of Broadpath is the fact that they started as a work from home company even before COVID and that’s been possible because of a platform called Beehive that they have. And this is a proprietary platform that not only enhances employee engagement but it also helps optimize operational metrics in a, in a remote environment.
So, so it’s a, it’s a good acquisition for us and we had put out a one page rationale for the acquisition and just to touch upon the key aspects. One, it increases our presence in our top 10 payers. As you know we had five of the top 10 payers as our clients. This adds a sixth client to that list and it also increases our footprint in two of our existing top 10 clients. So essentially it enhances our leadership position in the top 10 payer segment which is a large part of the market financial synergies. This acquisition is EPS accretive from day one it’s been funded 100% from internal cash. And we also believe that synergies not only from the cross sell but also opportunities to reduce administrative cost will help us improve margins going forward.
In terms of the client base, like I said, it’s a very diversified client base, more than 30 mid market clients and it gives us an opportunity to cross sell the broader agility portfolio of services into this new clients client segment, the Beehive, which is a unique value proposition. We intend to use Beehive broadly across our delivery geographies and integrating Beehive with our gen solutions, we believe we can further enhance operational efficiencies. Like I said, they also bring in some new capabilities especially the member acquisition in both Medicare and Medicaid as well as enrollment services.
And from Sagility’s point of view, given that we have multi shore operations that will be a great capability for us to take to their clients. And in terms of talent acquisition it comes with about 1600 employees, strong operational expertise and it also comes with a very strong client facing team, sales marketing account management team which will be a great addition to us. So overall it’s roughly about a $70 million top line and like I said, it’s EPS accretive from day one and funded 100% from cash.
With that, let me hand it over to Srini to walk you through the financial highlights in more detail.
Sarvabhouman Doraiswamy Srinivasan — Group Chief Financial Officer
Thank you, Ramesh. Firstly, welcome all to the December 24th earnings call. Like Ramesh mentioned, we had an exceptional quarter and a good year so far. Our financial performance has been consistent in the last few years and we expect this trend to continue. Power. I want to reiterate that our business has seasonality. Again, Ramesh stressed on this. Our H2, which is the second half of the year is slightly more pronounced than the first half due to the open enrollment season. So I will not labor much on the revenue, EBITDA and PAT numbers. What is more attractive here is. Sorry, what is more attractive here is the operating cash flow. We generated close to 9132 million rupees in the first nine months of the year and that represents 94% of our reported EBITDA and that actually helped us to fund the acquisition that Ramesh mentioned.
Next. Sorry. This slide gives the impact of our seasonality in the business. We hire for seasonality starting Q3 with headcount peaking in December and then gradually reducing from Jan through March. Next slide, moving on to slide 10. We have provided the numbers. We have provided the the key numbers, financial metrics both for short term and long term. This is. This slide talks about the Q3 over the previous years and all green here. Nothing much to really call out and this presentation is also available. The next slide will be on the cumulative nine month performance. It’s more a longer term view.
Next, longer term view where we have provided F523, F524 and the first nine months of the current year and also shown the comparison to the previous years. Again, Nothing much to really call out. I don’t want to read out these numbers. All green. And we hope to continue this trend. Yeah, these are some critical financial indicators and I would want to bring you to your notice that our EPS has been gradually improving and what you see in the last column is the trailing 12 months EPS for December 24th on the return on capital employed. It continues to be healthy at the mid-40s and it’s largely driven by robust operating performance.
Our free cash flow stood at 82.5% of EBITDA reflecting a very strong cash generation. Will also notice that there has been a consistent reduction in the debt. I’m referring to the last graph on the slide and as of 31st of December our net debt including lease liabilities is at 0.55x of trailing twelve months. EBITDA slightly a busy slide. This gives you a quick snapshot on our revenues and profitability and you will actually notice that there are two two adjustments adjusted EBITDA and adjusted Pat. I’ll explain that to you in the next slide. The first adjustment on EBITDA is on account of the earnouts under the acquisition agreements pertaining to the DCI and Birch which the two companies which we acquired earlier in FY24 and these are non recurring costs in nature and hence adjusted in the EBITDA. FY26 will be the last year for these earnouts and we have shown these details in slide 16 after two slides.
The second adjustment to the EBITDA pertains to the share based payments awards provided to the leadership team which are linked to the shares of Fragility BV our parent company. These share based payment awards or not cash payouts from a company standpoint as they are directly settled by Saginity BV and there is no obligation on the company or there is no liability on the company and there is no dilution to the shareholders as well. The details of the same are also provided in slide 18.
Coming on to the PAT, the above two EBITDA adjustments adjusted for tax plus we also have an additional adjustment towards amortization on the intangibles. This intangible was created during the acquisition of Fragility by EQT and they are not operational in nature. The purchase consideration paid by EQT was significantly higher than the fair value of assets and hence we created customer relationships in the US at 265 million USD which was to be amortized over 16 year period and there was also another intangible that got created which was for 85 million towards customer contracts in India which got completed, the amortization of that got completed by 31st of March 2024 and these are non cash in nature and these are also non operational in nature.
Next slide. Here we have shown the go forward positions in terms of what is our gross debt, what is the debt repayment, what’s the likely interest payment because these are rupee denominated loan and we have very clear repayments schedule as provided in the prospectus as well these interests are at 8% coupon rate. We have also. Shown the amount the expense P and L hit that you will see from a share based payment awards. Like I mentioned earlier, these are not a cash expense for the company nor a liability for the company but it flows through the P and L. The adjustments on the EBITDA as I mentioned on the Earn House to Birch and DCI acquisitions they get over in FY26. So if in FY25 we will have 486 million rupees and the next year it’s 348.
Yeah. Moving on to balance sheet. A very strong balance sheet as you would see cash at 7263 million. Trade receivables are extremely under control. DSOs have improved from 82 to 78 days and we had a capex spend for the nine months ended December at rupees 1122 million. And overall a very good balance sheet and it remains very healthy and very low leverage as well. Good cash conversion, cash generation and any specific questions will be happy to take during the Q and A session. Over to you Ramesh.
Ramesh Gopalan — Managing Director and Group Chief Executive Officer
So as we’ve discussed, we had a very Strong quarter in Q3 and this is driven by our continuing growth with all of our existing clients and our attempt to expand in the mid market. Like I said, broadband is an acquisition that we believe will give us access to the mid market which was a stated strategy in terms of our client diversification. So looking ahead to Q4 we hope to continue the strong positive performance and looking at the full FY25 we believe our growth in INR terms will be very similar to the YTD growth for the nine months that you’ve seen overall. Longer term we believe that we will continue to grow in the low to mid teens like we’ve committed and our pat margins like I said, thanks to reduction in debt has improved and so we expect to perform along similar lines with that. Happy to take questions.
Questions and Answers:
Siddharth Rangnekar
Thank you. We will wait for a moment for the question queue to assemble. Participants are requested to click the raise hand icon on the bottom panel. We have the first question from Abhishek Kumar of JM Financials. You have been asked to unmute. Abhishek.
Abhishek Kumar
Yeah. Hi, good evening. Good evening. Thanks for taking my question. Great. Quarter first is on revenue. Two part question one is, you know, the growth in nine months and this quarter especially has been above the range that we have spoken about, which is the, you know, likely growth over the medium term. So question is, did the growth come above our quarter beginning expectation because of the open enrollment period, etc. Related question is, you know, how does it exactly help, does it help you the open enrollment period when there are more number of members joining the insurers or payers that you are serving? Or irrespective of that, just because of the churn, there is an increase in volume.
Ramesh Gopalan
Okay, so let me ask answer your second question first. So our open enrollment, like we discussed, that’s the season where most of the insurers renew or add new members. And so the plan for the open enrollment is discussed much in advance because we need to ramp up to meet those volumes. Right. So essentially the growth in open enrollment volumes does not reflect the underlying strength of our clients addition to membership. So these are planned additions for which typically clients pay us.
And to answer your first question, yes, the growth was marginally higher than what we had anticipated at the beginning of the quarter. And like I said, while most of the additions is anticipated well ahead of the start of the quarter, there are always some additional volumes that come in that we might have handled during the quarter which leads to increased revenue. So yes, the performance was slightly better than we had anticipated at the beginning of the quarter.
Abhishek Kumar
Great. Second question is on the provider side, you did mention at the beginning of your presentation that the growth on the provider side was much stronger. I couldn’t find it on the PPT, but I remember it was 30% plus. So is that a conscious strategy to expand more, penetrate deeper the providers? And also does the open enrollment period benefit providers as well like they do payers? Thank you.
Ramesh Gopalan
Yeah, the open enrollment doesn’t make a big difference on the provider side like it does on the payer side. So that’s not the reason for the growth. And to answer your first question, as you know our provider business is much smaller. Smaller than the payer business. So sometimes, I mean it has grown faster than the payer business in the past. So sometimes because of the smaller base, the growth numbers are higher. But broadly in terms of strategy, we want to grow both the provider and the payer segments. Payer segment, like I said, is a much larger segment with a lot more large and more tenured clients, whereas we are much smaller in the provider segment even compared to some of the provider only companies that are out there. So our strategy is to grow both the payer and the provider businesses.
Abhishek Kumar
Sure, that’s helpful. I’ll come back in the queue. Thank you so much.
Ramesh Gopalan
Thank you.
Siddharth Rangnekar
Thank you. Abhishek. We now move on to the next question. Manik from GM Financials, you’ve been requested to unmute.
Manik Taneja
Hi, good evening. I hope I’m audible.
Ramesh Gopalan
Yes,
Manik Taneja
Thank you for the opportunity. While the seasonality on the business front or from a revenue standpoint is well understood, I wanted to quiz you with regards to the way we have seen margins expand in the current quarter and especially given the fact that if I’m looking at your historical financials for last year, we didn’t see the sequential improvement in margins last year this time around, the sequential improvement in margins or even if one looks at margins on a year on year basis, you’ve probably seen very record margins. So if you could delve deeper into what’s driven that and the sustainability of the margin profile on a go forward basis.
Sarvabhouman Doraiswamy Srinivasan
Yeah. One, operational performance has been extraordinary in this quarter with additional volumes or the top line that we picked on the OE flew directly to the margins. Two, we had a good exchange benefit which is which got added almost close to about 44 crores of other income we got on account of the exchange gain. And I would say largely it’s tighter operations and the benefits of all the technology that we had invested in the past are slowly yielding results. Again, the extra volumes on account of the open enrollment that we got as top line which flow to directly to the margins has significantly contributed to the margins.
Manik Taneja
So would it be possible to quantify the benefit for of these incremental volumes to the margins and also give us some sense as to what may be the sustainable margin profile. Looking at margins at 30% in the current quarter, is that the new benchmark that we’re looking at versus the 24, 25% that we’ve seen in the past?
Ramesh Gopalan
No. If you look at on an annualized basis the guidance that we gave. Around the 24, 25% still continues to hold. Good. Right. So. So that’s why we, we constantly encourage not only year on year comparisons but also looking at it more cumulative YTD numbers and full year numbers, some quarters because like Srini said, additional volumes because of open enrollment for which some of the hiring and ramp costs would have been incurred earlier will result in either margin increases or margin dips in one quarter or another. But overall steady state margins on an annual basis will still be around the numbers that we guided.
Manik Taneja
The last one from my end. Basically if you could talk about the sensitivity of margins to currency given that almost 94% plus of our workforce is being based in in India and Philippines and also some timelines on the integration of the recently announced acquisition. Thank you and all the best.
Ramesh Gopalan
Thank you. Currency on margins. You want to take the question?
Sarvabhouman Doraiswamy Srinivasan
Yeah, it’s the delta between the revenue growth in dollar terms and constant currency is about 1 1.5%. So that has flown directly into the.
Manik Taneja
Just a clarification on the. On the margin front. What I’m trying to understand is with the way USD INR or or USD Filipino Piso move, if you could help us understand a percentage move in any of these exchange rates, how does that impact your EBITDA margins?
Sarvabhouman Doraiswamy Srinivasan
See I wouldn’t really worry too much on. On the movement if rupee or peso appreciate much. But if they hold at steady levels, I’m sure we are most likely to hit our 25% plus margin profile that we guided earlier.
Manik Taneja
Thank you. I’ll take it offline.
Ramesh Gopalan
Yeah, yeah. And your second question on broad path integration, like I said, just to give you more color, broad path, most of the delivery is in the US with a very small footprint in the Philippines. So that’s another point I wanted to guide on. So their margins are much lower than sagility margins. Having said that, the opportunity to cross sell into the clients the opportunity to offer the clients other geographies where we have presence. On the administrative side, cost synergies we believe will help us improve their margins on a go forward basis. So there is a very detailed integration plan that is being worked on both like I said in terms of taking our services to their clients as well. Well as taking some of their specific capabilities and member acquisition to Sagilities clients, as well as integrating some of the shared service functions across the two companies.
Manik Taneja
Wish you all the best. Thank you.
Siddharth Rangnekar
Thank you. That was Manik Taneja from Access Capital. We now move on to the next question from Ruchi Makhija. I have unmuted your line. Ruchi, you may go ahead. Ruchi, we have unmuted your line. Ruchi, we have unmuted your line. You can go ahead.
Unidentified Participant
Am I audible?
Ramesh Gopalan
Yes.
Unidentified Participant
Good evening and very congratulations on strong set of numbers. Ramesh, could you help us understand for a broad path, the margin profile and plans around the leadership retention?
Ramesh Gopalan
Ruchi, I just did talk about the margins in response to Manik’s question. Like I said, they are mainly onshore based delivery because of which their margin profile is lower than Sagility’s profile. It’s in the low double digit EBITDA margin numbers. But with a combination of both client level synergies and administrative cost synergies, we believe that we can improve those margins over the next two to three years. So that was question one. And sorry, what was the other question?
Unidentified Participant
Leadership retention. That.
Ramesh Gopalan
Yeah. So while we haven’t. While the existing CEO and Chairman haven’t moved over, the next set of leaders who are basically both in the sales and client facing roles as well as operational roles, they’ve moved over as part of the acquisition and there is a plan in place in terms of their retention. So. So, so we’re very confident of retaining the leadership and we’re very happy to have them on board because they come with. With very good credentials.
Unidentified Participant
Okay. Now coming to the seasonality, we understood how Q3 turned out to be. Turns out to be seasonal. Seasonally strong quarter for essentiality. Does this seasonality flow into Q4 for us?
Ramesh Gopalan
It does to early part of Q4. It does flow through, but just in the early part of Q4. Right. So starting mid Jan, towards second half of Jan, we start ramping down. So to that extent there is some. Carryover effect from Q3 into Q4.
Unidentified Participant
Now last question. This is more around the hedging and also partly relate to Manik’s question. Could you help us understand how the hedge position forest guide the near term profitability and how should we read into this shop INR depreciation its influence on margin?
Sarvabhouman Doraiswamy Srinivasan
Yeah, we. Our hedging is about close to 60% of our inflows into India and Philippines are hedged and these are at very close to present conversion rates in the sense present level is at 8550 ish. So. So we are reasonably insulated. That’s why I was trying to explain Manik that even. And we don’t anticipate and nobody can anticipate how rupee would move but we don’t anticipate it to significantly reduce in the sense like it can. It’s. We are expecting it to hold or dollar to appreciate or sorry rupee to depreciate further. So having said that we are very confident of holding our margins. So. So our hedge position has been. We have slowed down on taking forward covers because one we are not getting attractive premiums the way we want and also we would want to wait and watch and not really jump the gun and do too much of hedging as well.
Unidentified Participant
And lastly Ramesh, if you could comment how we see near term growth visibility spread between our large account and accounts beyond top 10.
Ramesh Gopalan
I. I can’t give you specific numbers but what we are seeing is a broad growth across our client portfolio. Like we’ve discussed in the past, our large accounts continue to grow and they continue to grow as a portfolio in the high single digits. Right. So and, and some of the the the non top 5 top 10 accounts are growing slightly faster. So our overall revenue guidance as well as by the different client groups the way we’ve guided in the past is still pretty much our guidance into the future as well.
Unidentified Participant
Got it. Thank you and all the best.
Ramesh Gopalan
Thank you.
Siddharth Rangnekar
Thank you Ruchi. We move next to the question from Vikran Gupta of pgim. Your line has been unmuted.
Vikrant Gupta
Hi. Am I audible?
Siddharth Rangnekar
Yes.
Vikrant Gupta
There are three questions. I’ll just ask all of them. So firstly I was just looking at the earnings of a couple of your largest. Clients, they seem to be talking about medical costs continuing to go up and probably 2025 also being a repeat of 2024. So if you could comment on how that impacts your business opportunities both positively and negatively.
Secondly, in terms of the acquisition, the synergies that you have mentioned in your presentation highlight cross sell and yeah, largely cross sell and probably the capability as well, the addition of a new capability. But you have not talked about offshoring given the high on site presence of this workforce. So is that something that is not likely to play out?
And the third one would be the margin guidance that you have given. 24 to 25%, this is excluding other income. And the two adjustments are largely the ones that are in the presentation, the share based awards and the acquisition payouts. But yeah, those were the three. Thank you.
Ramesh Gopalan
Okay, thank you. Thanks for your question. First, on the medical cost, I think we’ve covered this in earlier presentations. Right. So the business that we are in, which is more supporting our clients in their day to day operations, that doesn’t largely get impacted by some of the challenges that you’ve mentioned that our clients face. So in a way, if their volumes and their membership grows, we stand to gain. But even in times where they’re under cost pressure, we both from virtue of the relationship and as well as the expectation of clients on us, we have opportunities to help them further reduce costs by taking on more of the functions that they are currently doing in house. So given both the aspects that it, it doesn’t directly impact us if based on some of the, the challenges that you spoke of that are some of our clients have expressed.
Secondly, on the acquisition I did talk about offshore. I mean I may not have used about offshore, but I said one of the synergies is the fact that they are primarily onshore and we have multiple delivery geographies and so they could leverage additional geographies. Like I’ve mentioned in the past, the choice of a geography is left to the client. And so some of the work from a regulatory point of view may have to stay onshore or more from a client preference. They may want to keep it onshore, but obviously the fact that Broadpath is now part of Sagility opens up the option of all of our offshore locations to their clients. And some of the cross sell that we intend to do, we believe will get delivered from offshore locations.
Thirdly, on your margin guidance, yes, the 24, 25% that we guided is not accounting for any additional other income gains that we might get.
Sarvabhouman Doraiswamy Srinivasan
But it is adjusted for.
Ramesh Gopalan
But it’s adjusted for the things that Srini spoke about, which is earnouts and amortization of intangibles and the share based compensation.
Vikrant Gupta
Okay, I just have one quick follow up. So to the first question, you would classify that as a net positive or largely a neutral event, the medical cost going up?
Ramesh Gopalan
I would say they don’t have a direct impact either way. Right. So if the question is, does cost pressures on your client impact your revenues negatively? Definitely they don’t impact us negatively. Obviously, even in the existing work that we do for our clients, our clients expect us to bring in more efficiency and take costs out, which is a pressure even in good times. But the only added bonus, like I said, is when they are under pressure, they do expect us to help them out by taking on more of the functions that they do in house. So net, net, that could end up being positive, but it’s definitely not a concern for us.
Vikrant Gupta
Okay, thank you. Thank you.
Siddharth Rangnekar
We take the next question from Bhavik Mehta from JP Morgan. Your line has been unmuted.
Bhavik Mehta
Hi, thank you. So a couple of questions. Firstly, on both growth and margins, is it possible to quantify the impact of the open enrollment seasonality you typically see in a year, just so that we can understand what is the underlying growth and margin trajectory in the third quarter. And the second question is on the acquisition. I think you said it’s a low double digit margin business. So with the synergies around, you know, administration, cost, offshoring or cross selling, where can these margins go up to over the next two to three years
Ramesh Gopalan
On the open enrollment? I don’t know if there’s anything additional we can say. I think that question has been asked and we’ve tried to answer, but if there’s any more clarity that you need, probably we can take it offline. On the acquisition front, yes, it is a low double digit over the next two, three years with purely from the synergies and improvement in efficiencies, we believe that those margins can move up 600, 700 basis points.
Bhavik Mehta
Okay, thank you.
Siddharth Rangnekar
Thank you. We move to the next participant. The question comes from Ankur Panth of iifl. Your line has been unmuted.
Ankur Pant
Hi sir. Congratulations on a good set of results and thank you for taking my questions. I. I have a few questions. First is on your stated strategy that you would look to penetrate more into mid tier and large mid tier pharma companies as well as look to crack complex deals, probably improve your deal structure as well, deal pricing, etc. Any improvement or any improvement on that front that we have seen?
Ramesh Gopalan
Yeah. So first of all, it’s not pharma, it’s more health plans, health fund companies. Yes. Targeting the mid market in addition to growing the top the large clients, like I said, is a stated strategy and we organically continue to do that. Some of the logos that we won in the last few years have also started to grow year on year. And like I said, Broadbath also comes in with its own set of mid market clients which are not existing clients for sagility. So that gives us additional room to, to, to sell our services. So yes, both organically and through the, the acquisition that strategy is, is playing out in terms of the, the larger deals. Yes, the BPAS deals is something that is still work in progress. We have a
Ankur Pant
Specified the growth that broadband has been seeing over the last few years because I could only find that it’s a $70 million revenue. But how has the growth been in recent times?
Ramesh Gopalan
So broadband, like I said, it started as a work from home company even before COVID Right. So they had a, a low growth rate. But then during COVID they got substantial volumes essentially because a lot of existing service providers couldn’t move from a work from office to a work from home location. So the two, three years of COVID really saw a huge surge in volumes for them. Those volumes post Covid have gone down. Right. So, so, so essentially looking at their growth over the last two, three years would not be indicative of their longer term growth. But over the, the long term the growth has been in the, in the, in the high single to low double digit numbers.
Ankur Pant
Sure. And any light you can shed on the valuations, the discussion on valuations for this particular company, because the valuations seem to be quite attractive on a headline basis. So anything that you can share how you arrived at it or anything like that.
Ramesh Gopalan
So like we mentioned in the, in the press release, we paid 58 million, all of it was funded in cash. And I’ve also told you that the EBITDA margins are low double digits. Right. So. So that will give you an indication of the multiples.
Ankur Pant
Sure. And lastly on the US change in government, anything that you’re worried about or anything that you’re looking forward to or something that could impact on a regulatory front that we should keep an eye on.
Ramesh Gopalan
Look, we are continuing to watch that space every day, every week as on date. We don’t see anything that’s going to impact our business either positively or negatively. But we will, we will keep you posted as we as we get to hear more things. But at this moment there is, there is no, no change basis whatever we know.
Ankur Pant
Sure. Perfect. Thank you so much.
Ramesh Gopalan
Thank you.
Siddharth Rangnekar
Participants who wish to ask questions can raise hands. Now we take the next question. Repeat from the line of Bhavik Mehta, your line has been unmuted. Bhavik, we cannot hear you.
Bhavik Mehta
No, I’m sorry, I don’t have any further questions.
Siddharth Rangnekar
Right. We move to the next repeat question from the line of Ruchi Mukhija. Ruchi, your line has been unmuted. Ruchi, do you have a question that you would like to ask?
Unidentified Participant
Sorry, I didn’t raise my hand but thank you for checking.
Siddharth Rangnekar
Thank you. We move to the next question from the line of Bharat Seth, your line has been unmuted. Sir.
Unidentified Participant
Hi. Thanks for the opportunity and congratulations on good set of number when you are talking in house as well as outsourcing business can you give little more color of our client how much currently they are outsourcing and how much they are doing in housing. And second question related to that. Are we in some kind of a conversation when the cost pressure high go high on them so they I mean try to move certain be part of the businesses outsourcing and how do we see over next couple of years this trend to move.
Ramesh Gopalan
So good questions. B. So. So first in the DRHP also we had spoken about we had a report from Everest which spoke about the whole outsourcing penetration in the healthcare space across payers and providers. So basis that numbers if you look at it across payers and providers the current penetration is. In the low 20s. Right. So if I remember right, was 19, 20% in payers and maybe a couple of hundred basis points higher for providers, that is expected to increase by 500 to 600 basis points over the next five years, according to Everest. Right. So overall as an industry, the propensity to outsource more is going to increase. Specifically, if you ask about our existing clients, I mean obviously some of our large clients have outsourced more as a percentage of their total operations versus some of the mid and small market where the percentage outsourcing may be much, much smaller. Right. So that varies client to client. But as an industry as a whole, according to Everest, is in the low 20s likely to move up to high 20s over the next five years?
Onto your question on cost pressures. Like I answered an earlier question, cost pressures do provide an opportunity for us to, to help our clients with moving more work to us because we can deliver it not only at a lower cost to start with, but we can also bring about additional efficiencies over the contract period. So those are conversations we continue to have with our existing clients. And yes, cost pressures in a way induce them to move on some of these initiatives faster.
Unidentified Participant
And second question, if you can give some color, how much arbitrage, I mean our client will have, I mean, while doing in house versus outsourcing. So which can be a more, I mean, interesting business or good opportunity can open up in near term?
Ramesh Gopalan
No, I mean this is, this is not something new. Right, so obviously
Unidentified Participant
Correct. But what kind of opportunity, I mean, arbitrage our client have while doing in house versus outsourcing?
Ramesh Gopalan
Yeah, depends on which geography they want us to deliver from. So it could range anywhere from a 30% savings to almost 50, 60% savings for them.
Unidentified Participant
And is that a meaningful size for them? I mean overall their expenses ratio?
Ramesh Gopalan
Yes, obviously it’s, I mean if you look at it apples to apples, given that a lot of them are working in low single digit margins, those kinds of savings is very meaningful. Having said that, we’ve discussed in the past that the overall administrative spend is, is roughly about 15 to 20% of their, their total premium. Right. So large part of it is medical cost. While we do have services which can help them reduce the medical cost, that’s not purely on the basis of doing work in a different geography. Right. But on the administrative side, dollar to dollar, like I said, the savings could be anywhere between 30 to 50, 60%.
Unidentified Participant
Thanks. Thanks for the your answer.
Ramesh Gopalan
Thank you.
Siddharth Rangnekar
We take the next question from Akshay. Your line has been unmuted.
Unidentified Participant
Thanks a lot for the opportunity and congratulations on a great set of numbers. Sir, I have a couple of questions. Firstly, I just wanted to understand this trajectory of your other expenses. When I look at your revenues from operations, they’ve grown up at a healthy pace of 15%. But your other expenses have been flat year on year. So has there been a meaningful change in the trajectory and is it not linked to revenues? And should we build this at a similar run rate going forward because that’s contributed to massive margin expansion this quarter? That’s the first one. I’ll ask my next one once you answer this.
Ramesh Gopalan
Yeah,
Sarvabhouman Doraiswamy Srinivasan
Broadly, other expenses include sga. Sorry, other expenses include SGNA as well, which are fairly flat across quarters. And also some portion of the other expenses will be other direct expenses which could be related to technology cost, which. Or employee transportation or any other direct cost that can be associated to revenue. So it’s. It’s a combination of both direct and indirect cost. And so they. You can, for your modeling, you can assume it at similar levels.
Unidentified Participant
That’s great. Secondly, the receivability is again, this time around are in the lower 70s. That is quite exceptional for any IT services company. Should we build a similar run rate going forward as well?
Sarvabhouman Doraiswamy Srinivasan
Some of our large clients are wanting us to have a longer credit period. They’re planning to increase it. So we would say, I would suggest that you can safely assume around 80 to 85 days on an average. But if we can better that, we will definitely try and do our best.
Unidentified Participant
Thank you for that. And finally, sir, on the acquisition, when would this acquisition start flowing into our financials? When does it get consolidated? Does it get consolidated from the 29th of Jan or.
Ramesh Gopalan
Yes,
Unidentified Participant
At a later date.
Ramesh Gopalan
It was a sign and close, simultaneous sign and close on the 29th. So. So they will start reflecting our financials from. From that date onwards.
Unidentified Participant
Perfect. Thanks a lot for the clearing responses and all the best for the future.
Ramesh Gopalan
Thank you. Thank you.
Siddharth Rangnekar
Thank you. We move to the next question from the line of Venkat Subramanian. Your line has been unmuted. Hello? Your line has been muted. Mr. Venkat.
Unidentified Participant
Am I audible now?
Siddharth Rangnekar
Yes.
Unidentified Participant
Very good evening and congratulations on a great set of. Of numbers.
Ramesh Gopalan
Thank you.
Unidentified Participant
I have a couple of questions for the first one being who are the closest competitors for Sagility in USA and where are we placed in this market currently in US as well globally. And do we have similar competition emerging from India? If so, are the competitors from India in this industry? And the second question is what is the benchmark for this industry in terms of valuation? Because it appears like a unique business model which is being introduced and being listed in India. So way forward, how do, how we should valuate this company in terms of market capitalization?
Ramesh Gopalan
So I’m not going to comment on the benchmark for valuation but competition. I mean if we just went public about three months ago and as part of that we filed the DRHP and we’ve spoken about competition there, nothing much has changed in the last three, four months. Right. We continue. We are one of the very few healthcare only focused companies. And so on a like to like basis there is hardly anyone similar to us. And, and one of the things that I had told a lot of you in the past is that becomes a. That was one of the reasons where our acquisition also was proving to be difficult because finding sizable healthcare only firms was a challenge. So broadband was an exception in the sense that it’s one of the larger healthcare only companies that we managed to acquire.
So in terms of competition, we do compete with other generic BPM services companies which operate across multiple segments where healthcare is also one of the segments and it ranges all the way from IT services firms like Accenture and Cognizant to other firms like First Source and EXL and WNS and so on. But there is no real like to like comparison as a healthcare only firm just like us.
Unidentified Participant
Okay, thank you.
Siddharth Rangnekar
Thank you. We move the next question from the line of Mr. Bharat set from Quest Investments. Your line has been unmuted.
Bharat Sheth
Am I audible?
Siddharth Rangnekar
Yes,
Ramesh Gopalan
Yes,
Bharat Sheth
I take on. I mean you know, in house visa be outsourcing. So just how do we track and what are the metrics that as an investor we can track that some of, I mean in house work has been outsource.
Ramesh Gopalan
Not sure I understand your question. Right. So, so how do, how do you track
Bharat Sheth
What are the metrics that we can look forward that, that some of the new businesses are coming. Coming from say in house to outsourcing, third party outsourcing, and particular to our agility.
Ramesh Gopalan
So every work that we do is on behalf of our clients, which means it’s coming from in house to someone like us. Right. We’ve spoken about our portfolio of services, the broad set of services that we have both on claims, payment integrity, clinical engagement, and other administrative services like enrollment and so on. Right. So our clients could, could give us any of those works. And across clients we may not be doing exactly the same set of work. It all depends on the client’s priorities at any given point in time, where they believe they have the most needs and, and where they decide to, to focus on at that point in time. So, so our entry point to our client could be with any service and then over a period of time, as we continue to deliver for the client, we will continue to mine and take over additional functions as we go along. Right. So, so, so that’s the way I would describe. So. So I’m not sure if I answered your question exactly, but, but that’s the way it plays out.
Bharat Sheth
To put it differently. Seven out of whatever service that we are providing to our payer inside which are the services you feel that which is a higher entry barrier and it’s very difficult to create the capability in that service.
Ramesh Gopalan
We’ve spoken about this at length in the drhp. Right. We’ve given you the portfolio of services. All of the services that we do, we have deep expertise in them. So in terms of showcasing our capabilities to deliver those services, we are very confident. Right. Beyond that, like I said, it’s a very specific question to a client scenario as to what is the focus area for the client in that given year that decides what they decide to work with us on entry barriers per se.
I don’t think anything has higher barriers. In fact, some areas like clinical, like we discussed, even in the, in the prospectus, we believe there will be more propensity to outsource because of the labor shortages, the clinician shortages that many of our clients continue to face in the U.S. so some of the complexity barriers that clients might have perceived in the past, by which I mean clients might have thought that this is something not possible for a third party to help us with now, by the fact that we build capabilities in those services and also the fact that clients have existing shortages in those skill sets, they become more prone to do service providers like us to take over and help our clients.
Bharat Sheth
Thank you and all the best.
Ramesh Gopalan
Thank you.
Siddharth Rangnekar
Thank you. We move on to the next question. The question comes from Dikshan, from DB Wealth. Your line has been unmuted.
Deekshant Boolchandani
Congratulations, management.
Ramesh Gopalan
Thank you. Sorry, I can’t hear you.
Siddharth Rangnekar
Dikshan, your line has dropped. We can’t hear you. Dikshant.
Deekshant Boolchandani
Hi. Am I audible now?
Ramesh Gopalan
Yes.
Deekshant Boolchandani
Hi, sir. So can you paint a picture for us that what are the kind of opportunities that you are looking for the U.S. government? Because I’m sure the company has thought about the changes that the government might take. What are the opportunities? If we see we will, you know, pounce on them. They are clearly focused on health care. Do you think it’s going to be a cost accreditative or a growth accreditive?
Ramesh Gopalan
Okay, let me answer the question. I’m not sure if I got it correct. Right, so. So the government, are you talking about government policies? Because the segments that we work with are payers and providers. We don’t directly work for the government. But to another question I answered, is there anything that we are seeing in terms of government policies that is going to impact our business? So far we haven’t seen any recently. Right. But broadly, healthcare is a very regulated segment. And so if there are policies with respect to, for example, on Medicare, what is the payment that our clients are going to get from cms? Those kinds of decisions do impact us, but we have to wait and watch on, on what some of those likely changes are, are going to be.
Deekshant Boolchandani
So to specify my question a little bit, so the Trump has lately appointed Kennedy as a health care chief of sorts to make sure that the, the healthcare has been taken care of us. Do you think this healthcare spend that they might do or a readjustment of spend, is it going to be beneficial for us or do you think that there is a particular opportunity that we can see in this segment that will now be developing?
Ramesh Gopalan
Like I said, it’s very premature for us to make a statement on that. Right. So we’ll have to wait and watch. What exactly is going to be the thinking on the spend and how is it going to be reallocated? Right. So once we have a better clarity on that, we may be able to comment more specifically.
Deekshant Boolchandani
Noted. Sir. The second question is. So with our acquisition, it says. On the press release that it’s around 1600 employees that we have acquired and in the PPT presentation we see that around 2522 employees were added during Q2, FY25. So is there any sort of, you know, like are these 1600 people accounted for in this 2522 or is it 2522 plus 1600?
Ramesh Gopalan
Okay, so quick clarification. Right. We are doing the earnings call for the quarter ended December and the acquisition closed on 29 January. It was after the quarter ended. So those numbers are not included in the numbers that we presented in the earnings presentation.
Deekshant Boolchandani
That’s my bad, sir. That’s my bad. So to clarify, have we included any sort of addition of employees for this particular quarter? 1215 employees that we have added during Q. My bad, sir. So this would be 1215 plus 1600 people that we had acquired with our acquisition.
Ramesh Gopalan
Yes, 1215 was added by sagility to take care of open enrollment volumes. Like we’ve explained in the past, that headcount doesn’t stay stable right post post open enrollment. Some of those headcounts might come down. But yes, the acquisition that we did in January added 1600 headcount.
Deekshant Boolchandani
Got it. So is this headcount really something that will give a meaningful change to our top line? Apart from the existing business that of 30 clients that we have gotten, is it something that will help us with our existing clients to expand?
Ramesh Gopalan
Sorry again, I’m not very sure I get your question right. So if your question is can 1600 people do more work than they are doing today, A lot of the operational folks are fully dedicated to the specific services they provide for the clients. Right. So unlike other industries, they cannot multitask on multiple clients. In our business, typically when someone for example, does claims for client A, they do claims for clientele on a full time basis. So that’s how their work is assigned to them and that’s how they are built to the client. So these 1600 employees are fully employed in delivering services to existing broadband clients. Having said that, some of the personnel that we have acquired in sales, client services and other areas, they could help us with some of the cross sell and upsell. Right. But in terms of pure revenue generation, if you were to generate more revenue, we’ll have to correspondingly add to the headcount.
Deekshant Boolchandani
Got it, sir. So last question is on the other income, maybe this has been discussed before, but could you just, you know, expand a little bit of what comprises our other income?
Sarvabhouman Doraiswamy Srinivasan
Yeah. The entire 440 million rupees is a combination of FX adjustment and during this quarter, we have got about close to half a million USD of interest income where monies were parked on overnight deposits. So it’s a combination of those two.
Deekshant Boolchandani
Okay, how much.
Sarvabhouman Doraiswamy Srinivasan
Yeah.
Deekshant Boolchandani
How much of this would be the FX gains for us, sir?
Sarvabhouman Doraiswamy Srinivasan
Yeah, just give me a minute.
Deekshant Boolchandani
Just a ballpark percentage to go.
Sarvabhouman Doraiswamy Srinivasan
Yeah. FX gains would be roughly about 300. Close to 300, close to 300. The balance would be interest income.
Deekshant Boolchandani
Okay, so if I could ask one more question, please. So what has been the key growth driver for us in this quarter of growth? And what do you think that is going to be the key growth driver going forward?
Ramesh Gopalan
See, our growth drivers in general, like we’ve discussed in the past, is getting additional work from existing clients, adding new clients to the and adding new clients to the portfolio. In addition to additional volumes that we may get from the same lines of work that we’ve been doing for clients during open enrollment season. The additional volumes from the same lines of work increases as a surge volume for that period. Right. So that’s exactly. For example, if I’m doing say member engagement work for a client during open enrollment season, the same work they would want me to staff up because they expect a lot more queries from members. So the volume search on existing lines of work increases during open enrollment season. But the other drivers for growth, like I said, is getting additional lines of work from our existing clients as well as starting work with new clients. And those two drivers of growth will continue in the, in the non open enrollment periods as well.
Deekshant Boolchandani
Got it. So thank you so much for the clarity, sir. Really appreciate it.
Ramesh Gopalan
Thank you.
Siddharth Rangnekar
Thank you. Diksha. We move the last question from the line of Sushogan Nayak from Anandati. Your line has been unmuted.
Unidentified Participant
Is my voice audible?
Siddharth Rangnekar
Yes.
Unidentified Participant
Thank you so much for the opportunity and great set of results. Congratulations, sir. So, just one thing, I mean, obviously one of the questions was the cost pressures on the, on the customers, the payers, which may increase outsourcing penetration, which you mentioned. The other thing, which I was just wondering is with the Doge coming in and there may be a lot of, you know, impact on the. Government department workers, do you think that will accentuate the outsourcing penetration? Do you envisage that to happen which will potentially benefit you from a tailwind standpoint?
Ramesh Gopalan
I don’t know the indirect effect of that. Right. But like I said, we don’t directly work for government departments. Right. So any efficiency that DOGE is trying to create won’t have a direct impact on us. But because of if there are any flow down effects because of any other regulatory changes like we’ve discussed in earlier questions, that is something we have to wait and see.
Unidentified Participant
Thank you so much.
Siddharth Rangnekar
Thank you. That concludes our call today. Thank you, members of the management. On behalf of Sagility India Limited, we would like to conclude this webinar. And thank you for joining us. And you may now log off. Zoom.
Ramesh Gopalan
Thank you. Thank you.
Sarvabhouman Doraiswamy Srinivasan
Thank you.