Sagility India IPO Subscribed 52% on Day 2, but Analyst Cautions Against High Valuation and Client Risk

The Sagility India IPO, which opened for subscription on November 5 and closes today, November 7, 2024, has generated mixed interest from various investor categories. Here’s a breakdown of the IPO details, current subscription status, grey market premium, and insights from analysts:

1. Subscription Status:
   • Overall Demand: As of November 6 (the second day of bidding), the IPO was subscribed 52%, with investors bidding for 20,09,58,500 shares out of the 38,70,64,594 shares on offer.
   • Retail and Employee Response: The portion reserved for employees and retail investors has been well-received, with oversubscription levels of 2.44x and 2.24x, respectively.
   • Institutional Demand: Non-institutional investors (NIIs) subscribed to 24% of their allocated portion, while Qualified Institutional Buyers (QIBs) subscribed only 7%, indicating lukewarm interest from larger investors.
2. IPO Structure and Details:
   • Size and Structure: The IPO aims to raise ₹2,106.60 crore and is structured entirely as an Offer for Sale (OFS) from the promoter, Sagility B.V., which will sell up to 70.22 crore equity shares.
   • Price Band and Lot Size: The price band is set between ₹28 and ₹30 per share, with a minimum bid lot of 500 shares. Of the total issue, 75% is reserved for QIBs, 15% for NIIs, and 10% for retail investors.
3. Grey Market Premium (GMP):
   • The latest grey market premium (GMP) is ₹0.50, indicating a marginal premium over the issue price. Based on this GMP, the estimated listing price could be around ₹30.5, reflecting a potential gain of 1.67%.
4. Analysts’ Views and Valuation:
   • Valuation Concerns: SBI Securities points out that Sagility is priced at a P/E multiple of 56.3x based on FY24 earnings, which may be considered high for some investors, especially given the company’s reliance on a few key clients.
   • Revenue Concentration Risk: About 91.2% of Sagility’s Q1 FY25 revenue came from its top 10 clients, signaling a concentration risk. The heavy dependence on a small group of clients may pose challenges if these relationships change.
   • Recommendation: Considering the high valuation and revenue concentration, SBI Securities recommends caution and suggests avoiding the IPO. However, they acknowledge that Sagility’s expertise in the U.S. healthcare market adds value, particularly in its work with healthcare payers (insurance companies) and providers (such as hospitals and diagnostic companies).
5. Important Dates:
   • Allotment Date: Expected on November 8, 2024.
   • Refunds and Demat Credit: Expected by November 11, 2024.
   • Listing Date: Expected on November 12, 2024.

Overall, while Sagility India holds a strong niche in the U.S. healthcare sector, potential investors should carefully weigh the steep valuation and client concentration risks before deciding to participate.

Disclaimer: This information is for informational purposes only and does not constitute financial advice. Investing in IPOs involves risks, and potential investors should conduct their research or consult with a financial advisor before making any investment decisions.