Sagility India Gets 'Buy' From Axis Capital As It Sees 20% Upside—Here's Why

Sagility India Ltd.'s share price has more room of gains even after the stock rallying 70% from its listing day on November 12, according to Axis Capital, which initiated coverage on the stock with a 'buy' rating and a target price of Rs 60, implying a 20% upside.

"We think the valuation is fair, given the superior operating profile of Sagility India, notwithstanding its single-vertical exposure and high client concentration risks (which may continue to be the case, as is seen with most single-vertical exposure firms in the IT/BPM space)," the brokerage said.

Moreover, Axis Capital likes that the company is trying to broad-base the growth beyond its top 3 clients. "That said, the stock’s 40%+ move over the past one month and its listing capture its sharp valuation differential with its BPO peers," it said.

The healthcare BPM player's focus is on a single vertical (healthcare), but its track record of ‘land and expand’ shows up in the average tenure (17 years) of its top 5 clients, and the fact that each of its top 3 clients contributes over $100 million or Rs 857.9 crore to revenue, noted the brokerage

"Increasing outsourcing of clinical Services should drive further growth for Sagility within the Payers segment," it said. "Although this poses concentration risk, we note the recent progress in its new client acquisitions and in scaling other logos to diversify the business ahead."

Sagility's 24-25% EBITDA margin is also significantly superior to ADD-rated Firstsource though lower than eClerx, said the brokerage adding that growth leverage and increasingly incremental improvement in contribution from the fragmented provider segment should continue to support the current margin profile.

Downside risks for the stock, according to Axis Capital, are high client concentration and Gen AI driven disruption in certain service areas.