Buy Sagility Ltd for the Target Rs 57 by Motilal Oswal Financial Services Ltd
Strong FY26; FY27 to be a year of normalization
* Sagility’s 1QFY27 revenue rose 15.2% YoY in CC (beat on estimates) and INR revenue stood at INR19,635m (est: 18,860m), rising 27.6% YoY. Its EBITDA stood at INR4,382m (est: 4,225m), PAT stood at INR2,168m (est: 2,140m), while organic revenue (excluding CareSeeds) grew 27.3% YoY (14.9% CC). It reported an EBITDA margin of 22.3% (est: 22.4%).
* Management reiterated its FY27 guidance of low double-digit organic CC revenue growth and 24–25% adjusted EBITDA margins, noting that margins may trend toward the upper end of the range if the final statutory wage impact is lower than currently estimated. Despite reporting 14.9% organic CC growth in 1Q, management retained its guidance of low double-digit organic CC growth for FY27, citing deal timing and seasonality, and expects to provide a narrower outlook after 2Q.
* In 1QFY27, Sagility’s revenue/EBITDA/PAT grew 27.6%/26.6%/45.9% YoY in INR terms. We value the stock at 19x P/E on FY28E EPS to arrive at our TP of INR57. We reiterate our BUY rating on the stock.
Our view: US healthcare cost pressure remains a structural tailwind
* Statutory Wages Revision: Statutory wage revisions in Karnataka and Telangana are expected to contract FY27 EBITDA margin by ~120bp, with a one-time INR151m exceptional charge. As 65-70% of Sagility's workforce is based in these states, the impact is significant and recurring. Management plans to mitigate the impact through lower-cost expansion and productivity gains over 12–18 months. Despite this, it reaffirmed FY27 EBITDA margin guidance of 24-25%.
* Careseeds Acquisition: Sagility completed the acquisition of CareSeeds, a Kansas City-based healthcare technology firm, with FY25 revenue of USD5.1m, 95% recurring revenue, and 31.4% EBITDA margin. The deal added 30 clients, a 14-member specialist team, and enhanced Medicare Advantage quality capabilities through Forecast and Harvest platforms. Sagility now serves 109 active client groups, with strong cross-sell potential from CareSeeds and BroadPath additions
Valuation and view
We believe FY27 will mark a year of growth normalization, considering a high base of FY26. We expect the business to deliver low double-digit growth, with margins remaining broadly within the current range. We believe new logo addition, cross-selling opportunities, and synergy from acquisitions will drive revenue/EBITDA/PAT CAGR of 19%/19%/23% over FY26-28. Consequently, we reiterate our BUY rating on the stock with a TP of INR57 (based on 19x on FY28E EPS)
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