Sagility Q1 Results: CFO Srinivas Mattapalli On 27.6% Revenue Growth, Margins & Outlook

[00:00:16]Hello and a warm welcome on business today ladies and gentlemen. We continue with our coverage of quality earnings in the first quarter and are now joined by the management of Surgility Limited which is in the business of providing process management services to the health care and insurance industries in the US, Jamaica, Colombia as also India.

[00:00:40]It offers claim and cost containment management services uh enrollment benefits plannings to top US insurers and has uh uh provided a stunning set of numbers. Sales has risen year onear by 28% in the quarter gone by to 1,963 cr rupees and net profit has surged 53% year on year to 217 cr rupees. However, these numbers are down over the fourth quarter, but that's a seasonal trend that we've always seen in the business business of saggility. To discuss uh the first quarter earnings and the way forward, we are joined by Mr. Shinas Matapali uh executive, vice president and group CFO at Saggility. Uh namaste and a very warm welcome to you Mr. Shinas.

[00:01:35]very strong performance year on year.

[00:01:38]What drove both sales and profit higher to this extent?

[00:01:44]>> First of all, thanks for having me on the show, Mr. Meter. Uh glad to join here. I think we had a extremely strong quarter. uh I mean across the spectrum of our clients we have seen high uh volume uh requirements and uh you know uh combined with our operating efficiency combined with our focus on ensuring cost optimization I think we are you know delivered a very good topline and a bottom line in this particular quarter.

[00:02:18]Hm. Okay. Would you care to explain why topline surged 58% and sales rose 27%.

[00:02:27]>> Yeah, I mean obviously our revenue in constant currency uh grew about 15.2%.

[00:02:34]Uh and organic was about 15% in constant currency. uh in INR terms we grew 27% and I think uh it's basic on the background of you know some extremely strong client related volume growth uh where you know the demand for our services uh has been you know has remained quite strong over the last one year right uh yearon-year growth has continued to >> sorry your did you ask something sorry I missed Hello. Can >> can you hear me clearly?

[00:03:12]>> Uh no, please continue.

[00:03:15]>> Yes, Mr. Shinas, you're loud and clear.

[00:03:17]Please continue.

[00:03:18]>> Yeah. Uh and uh you know, one of the things I do want to clarify from a quarteronquarter perspective is as you said, our seasonal revenues typically are much stronger in the second half of the year. So if I remove the seasonal impact, we continue to grow about five odd percent even quarter on quarter on organic basis. And as I said earlier, it's continued uh good volume uh you know demand from our top customers that is continued to drive our top line here.

[00:03:49]Okay. Now let's get into uh the earnings as such. You've purchased a company called care seat and added clients. Uh uh I think uh 27 new clients from the insurance space have been added.

[00:04:04]>> [snorts] >> So this is obviously a higher top line.

[00:04:08]Would you be able to share with us how much you paid for car seed and what is the revenue stream that you hope to get from car seed? Yeah, so Kes is a company founded about in 2012 headquartered in Kansas City and it's basically in you know the analytics healthcare analytics kind of a space. I think uh what we are looking for is combining their technology with our healthcare operations and our services. I think we'll be able to you know deliver a end to end uh uh you know the analytics kind of a continuum for our clients. uh we have you know uh the total consideration as we have disclosed in our numbers is about uh 18 30 million up to 30 million combining about uh 18 odd million up front and another 12 and a half million uh contingent payment based on uh the way the revenues grew the their revenues in calendar year 25 was approximately 5 million 5.1 million and obviously combining with our numbers. We expect to continue to grow that. Uh they have about 30 clients of which 26 clients are uh net new clients for uh uh Saggility.

[00:05:29]>> Ah so actually the 27 new client additions came via the acquisition.

[00:05:34]>> Via the acquisition. 26 clients came via the acquisition. We have also had one addition organic group.

[00:05:43]Is this a profit-making company?

[00:05:46]>> Yes, it these margins are actually uh good and uh uh they are actually higher than what situ margins were about 31% 31%. 4% against our 24% margins. So it's actually accurative from an IITA perspective.

[00:06:11]Okay, fair point. Um, what is the concentration of top five clients within Sigility? Has this number reduced?

[00:06:22]>> Uh, I mean first uh a little background you know given the kind of US payer market where we get 90% of our revenues I mean uh they are concentrated uh in terms of their uh you know in the market in the US itself. So by the nature of our business, there is going to be a little bit concentration in our top clients. That said, you know, our top three client concentration has reduced over the last 3 years from about 72 and a half% to around 60% today. And we have added, you know, we had about 35 clients again 3 years back. Today we have over 100 clients including the 26 clients that we added from Kate.

[00:07:02]So we do continue to you know uh broaden our client base while at the same time continuing to grow our revenues from the talk clients. I mean our important point to note is our talk clients continue to grow at 9 10 11% year on year. Uh and you know obviously there is a broad-based growth from the other uh clients also. Uh so it's not that they are stagnant and we depend on other clients for growth. these uh you know clients after 18 to 20 years still continue to grow well with us.

[00:07:37]>> Fair point. U what is uh the state of margins at this point of time? Uh obviously you would be deploying a lot of AI at your uh uh at your service end to not only reduce costs but to also improve efficiency. How is that process going on? You have a a basic uh uh net margin of uh uh about uh uh 5.9%.

[00:08:10]So uh first I think uh you know our what we normally declare is our EIA percentage which is uh you know we continue to guide to 24 to 25% EIA for the year adjusted EIA for the year. In quarter one also we had about uh uh you know 24% embitter in line with what we had last year quarter 1 uh our adjusted pad uh is about 13% on of revenues again broadly in line with what we delivered last year also. So uh from a margins perspective yes we have uh a little headwind from uh you know the minimum wage increase in Karnataka and Telangana but uh you know we have continued to guide and retain a margin guidance of about 24 to 25% for this year after observing that increase also uh and you also talked about AI. So from an AI perspective, I think we have been maintaining this consistently. Uh for us, AI is not considered as a disruptor, right? It continues to be a force multiplier as an enabler to uh get higher growth. Uh in the long term, yes, there is about 1 to 2% of cannibalization because of AI. But overall you know I think we are best placed uh to deliver AI you know uh inbuilt AI as part of our solution and provide those services to the client. Uh given our domain expireies given our operational excellence given the need for the USPA market to reduce the cost I think we continue to be in a very strong position in terms of being able to embed AI into ourh services and deliver this to the clients.

[00:09:54]Okay. Uh what are your clients telling you in terms of uh the kind of disruption that uh uh the the US insurance industry is facing on its own because of AI.

[00:10:09]>> See again I think in our results also we talked about a little bit of that. We did a survey along with Everest and they it's been very clear that while 70% of the UF payers our clients have actually uh incorporated AI into the operations approximately 10% have seen actual results emitting from it. Right? So again uh given our domain expertise I think the view is how do we change AI adoption to AI outcomes and I think as I said given our domain expertise and given our operating excellence our ability to incorporate AI into our operations I think we are in a strong position to enable uh AI solution based delivery to the clients.

[00:10:57]M okay. Uh what about plans to add new clients? Uh what's the pipeline looking like?

[00:11:05]>> Uh I mean a large chunk of our growth does come from our existing clients. I mean we do have a lot of white spaces within existing client which gives us enough room and opportunity to growth.

[00:11:15]But as a part of our strategy we do continue to look at mid-market clients.

[00:11:20]uh we have started penetrating more and if you see the number of clients that we have over the last few two to three years even outside the KC acquisition we have continued to hire add clients as I said again from 35 uh we have grown about uh you know we have added about 70 odd clients including the 25 clients from KID so as part of our strategy we do look at uh penetrating more and more into the mid-market US payer market and adding them as clients uh we do believe that you We start small typically you know most of these clients are under 1 million in terms of our revenues for us but over a period we have you know grown them into bigger clients which has also resulted in our top client share also reducing you know from our from you know 91 92% again 3 years back to around 83 84% today.

[00:12:16]>> Okay perfect. Uh Mr. Dr. Shimas, what is the u what is the bench strength that uh your newly acquired company has? How many people come on board?

[00:12:30]>> Yeah, it's a technology based company.

[00:12:31]So the number of people that there in that company is about 14 people which we observed into our operations.

[00:12:37]So as it's a more of a uh technology platform kind of a company which is what we are using to incorporate you know combining with our own delivery and uh uh to deliver you know an end toend quality related uh metrics what we call head scores uh which is what we help our client measure uh and uh enhance.

[00:13:06]Okay, perfect. And now what ahead in terms of sales and profit guidance what looks good?

[00:13:13]>> So we are continued to guide uh you know to a 10 to 12% 10 you know low double digits kind of a growth. uh you know we are continue to maintain that uh uh uh guidance for this year and we are also committed that you know by end of Q2 once we start approaching the open enrollment season we will reook at that uh guidance and uh see you know how we can guide better uh but the 10 to 12% in constant currency uh is what we continue to grow uh guide from a growth perspective and from a margin perspective as I said earlier in the show we continue to reiterate the 24 to 25% adjusted EBA guidance.

[00:13:57]>> Okay. The list of clients under $1 million per year uh in annual revenue is now 71. This is a clear addition that uh came in from clear seed, right? 71 45 goes up to 71.

[00:14:12]>> Yes. 26 out of the 27 new clients, 26 come from the KC acquisitions. So those are all small below 1 million at this point of time. We do look see opportunities in some of those clients for uh growth definitely.

[00:14:29]>> Yes, absolutely. Uh that's more or less a given. Are there any more acquisitions on your radar where you would like to grow in organically?

[00:14:38]>> I mean we continue to generate good amounts of cash, right? I mean we do have about a 100 crores of cash on our balance sheet. We are you know we have an extremely strong balance sheet. We continue to look at uh uh you know investing for growth and if there is good inorganic targets that we can uh acquire from a capability perspective we'll continue to look at those uh kind but obviously you know in terms of capability improvement investing for growth uh keeping the balance sheet flexibility that's all top priorities from a capital allocation perspective.

[00:15:15]>> Perfect. Uh and my final question a debt of 900 800 crores any chance you want to wipe it out if at all?

[00:15:24]>> Yeah. Uh and I think we talked about it in your last uh last quarter. Uh we around target you know pay this off by end of uh fiscal 27. Uh so maybe in the last quarter of FI27 we would become a debtfree company.

[00:15:44]>> Okay. Uh on that very hopeful note Mr. Shinas we'll call it time and let's hope Saggility gets more and more of insurance business from the US for its Indian shareholders and is wishing you all the best.

[00:16:00]>> Thank you for having me in the show and we do conf remain confident on our progress. So thanks again.

[00:16:08]>> Right that ladies and gentlemen was Mr. Shinas Malabeti the CFO of Sgility.

[00:16:16]Thank you for watching.

[00:16:38]Hello and welcome to Business Today television. I'm Sakshi Batra. This is our personal finance show money today and today's topic is insurance. Then this is the edition that focuses on your insurance masterass. Everything that you kn you need to know about insurance, every doubt that you have will be answered on this program. So you can obviously write into us on our live programming.