Sagility CFO Srinivas Mattapalli On 41% Profit Jump & AI-Led Growth Story

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[00:00:10]Good morning, ladies and gentlemen. A very warm welcome to you on Business Today television. We continue with our top class coverage on quality fourth quarter earnings from corporate India.

[00:00:21]And in that process, we welcome from the management of Segility Limited, Mr. Srinivas Mattapalli. He's the executive vice president and group CFO for Segility Limited, which is in the business of providing claims management, payment integrity, as also data management for US focused insurers. Nearly a large percentage of Segility's revenue comes from US and it has a lot of centers in and outside India dedicated to serving its US insurance clients.

[00:01:08]Let's look at the numbers.

[00:01:10]Sales for the quarter gone by rose 29% to 2,024 crore rupees. It was both a sequential as well as an year-on-year rise. And net profit was up 41% at 258 crore rupees year-on-year. And was flat versus the third quarter. Let's speak to Mr. Mattapalli and get a sense of about how these numbers came about.

[00:01:36]Good morning to you, Mr. Srinivas. A very warm welcome. Would you care to explain the 41% rise in net profit and 29% rise year-on-year in sales? How did that come about? Good morning. Thank you for having me on the program. I hope I'm audible.

[00:01:54]Yes, you are, sir. Please continue.

[00:01:56]Thank you.

[00:01:57]Yeah, I mean of this 29% growth, approximately 20% is organic growth and we did have a acquisition early last year, which contributed to the balance numbers. So, our overall growth potential remains strong. You know, we have deep relationship with our clients. We continue to grow with them. We continue to add new clients and the overall industry growth rate we are very confident about at this point of time. Uh so, in addition to growth on revenue, we have been very disciplined from our the way we treat our debt repayments and the way we are driving our leverage, which has led to a more than proportionate increase in our PAT as compared to our overall revenue growth. So, we have repaid down debt. We continue to generate additional treasury income, etc. So, that's contributed to an overall PAT adjusted PAT increase, also.

[00:02:55]Okay. Ladies and gentlemen, Sigility enjoys a market capitalization of about 20,000 crore rupees. Overall top line in revenue is 6,700 crore rupees and it's a very, very profitable company. Earnings for the trailing 12 months are somewhere like 849 crore rupees. I'll address the elephant in the room as of now, Mr. Mattapalli. You have a total debt of 800 crore rupees in a service-oriented industry.

[00:03:24]Traditionally, we have seen uh uh companies such as yours which handle back office for US-focused clients to be debt-free.

[00:03:34]Uh what is the need for 802 crore rupees for a company like Sigility? Do you want to pay it down?

[00:03:41]Oh, we continue to pay. I mean, this has come up when we got, you know, listed. When we actually got carved out from our existing company, this was about 3 years back and as part of the entire deal modeling, this 800 crore crores was on our balance sheet. We continue to pay it down. In fact, as of March 26, we are having about 567 crores on the balance sheet and we do intend to pay it off fully by Jan 27.

[00:04:06]So, we are on our way to become a completely zero debt kind of a company.

[00:04:10]And we don't I mean, we continue to generate a lot of cash. In this year itself, we have generated about 1,000 crores of free cash and we continue to look at M&A's. We continue to invest in our capabilities and we do reward our shareholders. So, we are just you know, announce a final dividend of 10 pies per share, which takes our overall dividend payout to about 15 pies for the year.

[00:04:35]So, we continue to generate a lot of cash and as I said, we are on our way to paying off our full debt by Jan 27.

[00:04:46]And that was the reason why I specifically asked why do you need 802 crore rupees when you yourself generate so much of cash and you know, you are really not in the business of setting up iron and steel plant or you know, setting up a cement plant. So, debt debt debt could be good for >> [snorts] >> funding future growth, but you know, when you generate so much of cash, why pay interest? Nevertheless, No, as I said, the debt was more of a the way the overall acquisition I mean, the CarTrade happened and when we got acquired by equity, at that time the overall the way it got set up got this debt onto the you know, operating company's balance sheet, which is Mobility's balance sheet.

[00:05:29]This was partly to fund out the acquisition, partly to fund out the CarTrade, etc. So, as I said, we are completely on our way to becoming a completely debt-free kind of a company by late this fiscal year.

[00:05:44]Okay.

[00:05:45]Now, ladies and gentlemen, insurance back office is a a very, very tough business to be in and typically clients who reach out to outsource service providers such as Sigility offer long-term contracts and open up their businesses not only for business process reengineering, but traditionally farm out more and more work to companies such as Sigility. Uh, Mr. Srinivas, how has client revenue grown for top five and top 10 clients at Sigility? From the same client, are you getting more money?

[00:06:24]Yes. So, the to start with, I mean, our client relationship has been very deep.

[00:06:29]Our average, you know, top five clients would be clients for us with over 18 years. So, that's the strength of our relationship, and but we continue to grow even in those clients. For example, our top five clients [snorts] grew at about 11.7% in this year itself. So, we continue to explore white spaces and further opportunities with them and continue to grow. While our we also look at expanding our overall client relationships, so we have added multiple clients in the especially in the mid-market segment. So, our number of clients that we added uh, continues to grow and we have reached about 82.

[00:07:02]Uh, at the same time, we continue to grow with our existing clients. If you see over the last two, three years, we have increased our $20 million plus clients from about uh, four to about nine today, right? We have almost doubled it over the last three years.

[00:07:17]So, we continue to penetrate our existing clients deeper and add on new clients at the same time. And that's resulted in our uh, you know, growth of 29% in the current year.

[00:07:31]Okay. But, as of now, the US geography contributes what percent to total turnover at Sigility?

[00:07:37]We are completely US focused. That is 100% of our revenues come from US geographies.

[00:07:44]US clients.

[00:07:45]>> Okay. Are you setting up a new back office office a back office units for existing clients at Sagility? What is the expansion in terms of fresh capacity added?

[00:08:01]Yeah. So, we do continue to explore new centers both in India and abroad. So, we have for example set up new centers even as late as this year.

[00:08:11]We are looking at penetrating more in the tier two kind of a segment again both in India and other geographies.

[00:08:18]So, for example, we do have set up new center in Indore in the last year and we do explore we are exploring setting up future centers in other cities also.

[00:08:34]Okay, fair point. At the moment, I believe you have 30 centers.

[00:08:39]Over 30 centers across you know, India, Philippines and some of the Americas countries. Yeah.

[00:08:50]Okay.

[00:08:51]I just want to get this elephant out of the room.

[00:08:55]There is this very very negative feeling of artificial intelligence taking the wind out of sales for Indian technology service providers. How is AI spoiling your future growth or is it spurring more business from existing and new clients?

[00:09:20]So, first let me say that we are not a traditional IT company, right? I mean, we are more the health care domain focused. So, we do work which is very intrinsic from a client perspective. And we look at AI not as a disruptor or uh, impact on operation, but we do look at it as an enabler and a sort of force multiplier. So, as we embed AI in our operations, we are able to do more and more complex operations for our customers and I think we start delivering even more value to the customers as we incorporate AI and other technological transformations within our business processes.

[00:10:02]Okay.

[00:10:03]The last time I checked you had about 1.2% of back office US healthcare market. What's the status now? Have you increased your market share?

[00:10:14]I mean, we are continuing to penetrate higher. I would not be able to give you the exact numbers in terms of market. I mean, that's a very dynamic number and you know, but overall yes, as I said, we continue to grow and we are looking at growing at low double digits even in the current year. So, from a growth perspective, from a margin sustaining perspective, I think we are in a very good space.

[00:10:43]Okay.

[00:10:44]So far that we have seen in the last 3 years or so, your sales has grown at a compounded 19%.

[00:10:54]How are you looking at fiscal 2027 in terms of sales and profit growth?

[00:11:02]Would you want to give it quarter or quarter or would you give it for the full year?

[00:11:06]See, first I think you know, we don't look at numbers at a Q or Q kind of a level. On a year-on-year basis, we have guided to low double digits growth and we also guided to a margin sustenance around the 24 to 25%. If effects obviously stays at the current rate, we think we'll be able to hit the upper end of our guidance.

[00:11:27]And you know, we do have a very healthy pipeline. We talked about pipeline of about 570 million in our earnings call.

[00:11:33]And as the conversion happens, as we gain more visibility, we'll continue to reassess our growth for FY27. But at this point, we are guided to low double-digit growth.

[00:11:49]Okay. So, the top line for FY26 was 7,193 crore rupees.

[00:11:56]A low double-digit should be 10%.

[00:12:00]Uh, see, first the low double-digit is in constant currency, which is dollars.

[00:12:05]So, obviously, when you look at it from a rupee perspective, there'll be another 2-3% addition from a INR depreciation level. So, yeah, it could be over 10% for sure.

[00:12:20]So, let's say 13%.

[00:12:22]In rupee terms.

[00:12:25]Yeah, it'll be 10 to 13% or 11 to 13% from a rupee term perspective. Yes.

[00:12:33]How about profit after tax? The number that you clocked was 925 crores for FY26.

[00:12:40]How should this escalate?

[00:12:44]So, as I said, we have guided to keeping our EBITDA margins in the range of 24 to 25% and we as we continue to repay our debt and we are prudent in terms of our ETR and generation of our other income, you know, from our deployment of cash. I we continue to believe that we'll grow our PAT at a faster rate than our EBITDA at this point of time.

[00:13:14]Okay. Okay, fair point. Fair point.

[00:13:18]That's sensible. So, PAT will grow faster than EBITDA and top line in rupee terms will be about 13% higher for the current fiscal. Let's also look at some other parts of the sector.

[00:13:37]Mr. Srinivas, what are your clients telling you in terms of how AI is changing their own landscape?

[00:13:46]Have they Have they been forthcoming in terms of how their own sector is getting impacted?

[00:13:56]I mean, AI is something that is driving changes across multiple sectors. And as I said earlier, from our perspective, our clients are definitely looking at, you know, embedding more AI in their operations, which will help us which will help them to more effective outsourcing, more efficient, you know, end-to-end kind of operation.

[00:14:15]So, we are looking at incorporating AI from a, you know, transformation perspective, looking at managing work end-to-end, right? We are looking at more of an outcome-based managed services end-to-end for our clients. And I think that's how we are going to help them deliver more value as we go forward. So, it is definitely an enabler as I said earlier. And I think with this coming in, we are in a position to develop technology and embed it across multiple clients rather than the clients doing it for themselves.

[00:14:52]Sir, when you look at your interest payout, it is somewhere to the tune of 99 crore rupees for the financial year gone by because you say January 2027 is a month in which you should be debt-free. What are the savings on interest alone that you will have? And do you intend to increase the dividend payout?

[00:15:16]As a percentage.

[00:15:18]To take your second question, I mean, we will continue to look at our cash position and assess, you know, what we require, you know, if for potential M&A's or our investments into more technology, AI, etc. And obviously, we'll also look at what we can return to the shareholders based on our board guidance. So, that will continue to be, you know, our capital allocation policy.

[00:15:42]Interest part, I I definitely there will be reduction. I think it will go down by more than half, given that we are repaying one tranche in July and the balance by January of next year. It will go down by about 30 to 40% year-on-year from a interest outflow perspective.

[00:16:02]Mr. Srinivas, thank you for your time.

[00:16:04]We look forward to interacting each quarter and tracking the progress of Sagility in the US insurance market. Here's wishing you all the best and looking forward to a debt-free Sagility by January of 2027.

[00:16:19]Have a nice day, sir.

[00:16:21]Thank you for having me on the program.

[00:16:23]Thank you.

[00:16:27]That, ladies and gentlemen, was CFO group CFO and executive vice president, Mr. Srinivas Motaparti at insurance services provider, Sagility Limited. Thank you for watching.

[00:16:42]Stay on with Business Today Television.

[00:17:00]Good afternoon, ladies and gentlemen. A very warm welcome to you. Coverage of very strong Q4 earnings by corporate India continues a pace on Business Today Television in this