Buy Sagility Ltd for the Target Rs.58 by Motilal Oswal Financial Services Ltd
Structural complexities and inefficiencies in the US healthcare system remain a key tailwind
* We attended Sagility’s Investor Day 2026, where management discussions focused on payer and provider offerings, ongoing disruptions in the US healthcare ecosystem, profitability pressures, evolving client priorities, and the strategic role of AI.
* Here are the key takeaways: Growth strategies are clearly anchored around: 1) cost transformation driven by demand from US payers; 2) capability-led differentiation, including AI; 3) exitings client mining, new statements of work (SOW), and expansion; and 4) compliance-driven initiatives.
* We expect Sagility to deliver a low- to mid-teens growth, aided by increased volume of work from top clients, new logo additions, cross-selling, and synergy from Broadpath will drive its revenue/EBIT/PAT CAGR of 20%/28%/23% over FY25-28. Consequently, we reiterate our BUY rating on the stock with a TP of INR58 (based on 20x on FY28E EPS). We continue to view Sagility as a structural beneficiary of increasing outsourcing by the US.
US payers: Demand driven by cost pressures
* The US healthcare system is facing multiple structural and policy-driven disruptions due to factors such as CMS rate revisions, ACA subsidy dynamics, tariffs, H1-B visa policies, and the "One Big Beautiful Bill Act" (OBBBA).
* We believe all these factors are exerting pressure on payer organizations, and as a result, payers are facing mounting medical cost pressure, regulatory complexity, and membership volatility.
* Overall, the environment is accelerating the need for payers to balance growth, compliance, cost, margin, profitability, and utilization management via more disciplined and technology-enabled operating models. All of these will lead to more outsourcing and an increased volume of work for players such as Sagility.
Domain knowledge makes it unique
* Sagility has developed domain-specific data, predictive models, point solutions, automation bots, GenAI-based agents, business intelligence, frameworks, and interoperability. Notably, all these were developed in an environment governed by controls that are SOC 2 and HITRUST compliant. Additionally, strong familiarity with client ecosystems and workflows enables faster transitions and ramp-ups, which will drive cross-selling and new client acquisition for the company.
Transformation-driven, outcome-aligned model
* We believe Sagility’s value proposition includes its ability to drive measurable cost transformation with minimal upfront client investment through a combination of process re-engineering, automation, and platform-led solutions, which allow the company to deliver tangible efficiency gains and sustained cost takeout.
* Currently, Sagility is increasing engagements with clients around shared outcomes and pricing commitments to expand existing scopes of work while linking pricing to realized value or benefit (PMPM).
Structural complexities in the US healthcare system limit full AI substitution
* The US healthcare operations are governed under multi-layer regulatory oversight by key agencies such as CMS, state regulatory agencies (DOI, DOH, etc.), the Office of Inspector General, along with major regulatory frameworks like the Health Insurance Portability and Accountability Act (for patient privacy and data protection) and the False Claims Act. Such a regulatory environment clearly indicates that healthcare decisions must be auditable, explainable, and compliant.
* Healthcare administration processes require clinical interpretation, judgment, and the human element compared to pure AI models.
* Healthcare payments are governed by complex payer-provider contracts, where decisions all shape cost, reimbursement, and payment outcomes.
* Healthcare operations rely on disconnected legacy platforms and fragmented data flows across the ecosystems. For example, claims, membership, billing, and clinical workflows often run on aging systems that are costly and difficult to modernize.
* We believe the role of human judgment remains essential in healthcare operations, considering multiple regulations, payments, and fragmented data flows across the ecosystem, which restrict full automation and AI-led substitution. Notably, AI can act as an augmentation layer and can increase efficiency in the decision-making process.
Other KTAs – on growth, margins, M&A, and new initiatives
* Management is targeting low- to mid-teens growth led by deeper client mining, cross-sell opportunities, expansion of existing SOWs, and an increased focus on small- and mid-market payers.
* Within existing top accounts, there is enough headroom available for offering solutions in claims, clinical, and payment integrity.
* As part of its expansion plan, Sagility has built adjacent capabilities under Medicare acquisition, E2E payment integrity, HEDIS + Stars, and Synchrony.
* Management expects the EBITDA margin to remain at ~24-25% level, even after factoring in the potential pass-through of AI-led productivity gains.
* The provider segment, which currently accounts for ~10% of revenue, aims to scale over time.
* Management’s focus is more on capability-led acquisitions.
* Developed use cases of Agentic AI across different offerings, such as verification of insurance, claims status, outbound calls, provider verification, health plan operations, appeals status, and account follow-ups.
* Sagility’s partner ecosystem is well-diversified across strategic platform players (Availity, Convey, HealthAxis, Elligint Health, and Simplify Healthcare), SI partners (Deloitte, EMIDS, and CitiusTech), capability enablers (Optum and Automation Anywhere), and hyperscalers (AWS and Azure), which enable endto-end, scalable, and technology-driven solutions.
Valuations and View
* We expect Sagility to deliver a low- to mid-teens growth, aided by increased volume of work from top clients, new client additions, cross-selling, and synergies from Broadpath and other initiatives, which will drive its revenue/ EBIT/PAT CAGR of 20%/28%/23% over FY25-28. Consequently, we reiterate our BUY rating on the stock with a TP of INR58 (based on 20x on FY28E EPS). We continue to view Sagility as a structural beneficiary of increasing outsourcing by the US payers.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH00000041
