The quarter's standout feature was the exceptional revenue performance, with net sales reaching ₹1,971.15 crores in Q3 FY26, representing a sequential jump of 18.85% from Q2 FY26's ₹1,658.50 crores and a year-on-year surge of 35.65% from Q3 FY25's ₹1,453.07 crores. This marked the highest quarterly revenue in the company's recent history, demonstrating strong demand momentum in the healthcare business process management sector.
However, the profitability narrative was more nuanced. Whilst operating profit before depreciation, interest, and tax (excluding other income) climbed to ₹511.11 crores, the operating margin of 25.93% reflected sequential improvement of 90 basis points but remained below the 26.99% achieved in Q3 FY25. The PAT margin compression to 13.58% from 15.12% in Q2 FY26 was primarily attributable to lower other income and a normalised tax rate of 20.94%, down from the previous quarter's 23.25%.
Financial Performance: Revenue Momentum Drives Earnings Growth
Sagility's Q3 FY26 results showcased the company's ability to scale operations whilst maintaining reasonable profitability metrics. The revenue trajectory has been particularly impressive across the nine-month period of FY26, with cumulative sales of ₹5,168.59 crores representing a substantial 30.74% growth over the corresponding period in FY25.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Dec'25 | 1,971.15 | +18.85% | 267.66 | +6.71% | 25.93% | 13.58% |
| Sep'25 | 1,658.50 | +7.77% | 250.83 | +68.84% | 25.03% | 15.12% |
| Jun'25 | 1,538.94 | -1.88% | 148.56 | -18.63% | 22.49% | 9.65% |
| Mar'25 | 1,568.48 | +7.94% | 182.57 | -15.83% | 23.78% | 11.64% |
| Dec'24 | 1,453.07 | +9.66% | 216.91 | +84.86% | 26.99% | 14.93% |
| Sep'24 | 1,325.05 | +8.32% | 117.34 | +426.42% | 22.73% | 8.86% |
| Jun'24 | 1,223.33 | — | 22.29 | — | 15.85% | 1.82% |
The cost structure revealed interesting dynamics during Q3 FY26. Employee costs rose to ₹1,219.16 crores from ₹1,027.02 crores in Q2 FY26, representing a 18.71% sequential increase that broadly matched the revenue growth pace. This suggests the company has been adding headcount to support its expanding operations, a necessary investment for sustained growth in the labour-intensive business process management sector.
Interest costs remained well-contained at ₹24.66 crores in Q3 FY26, marginally lower than the previous quarter's ₹24.99 crores, reflecting prudent financial management. Depreciation charges increased modestly to ₹123.52 crores from ₹121.51 crores, indicating steady capital investment in infrastructure and technology capabilities.
Operational Efficiency: Margin Dynamics Under Scrutiny
Whilst Sagility's top-line expansion has been commendable, the margin trajectory warrants closer examination. The operating profit margin (excluding other income) of 25.93% in Q3 FY26 showed sequential improvement from Q2 FY26's 25.03%, suggesting operational leverage is beginning to materialise. However, the year-on-year comparison reveals a 106 basis points decline from Q3 FY25's 26.99%, indicating that rapid scaling has come with some efficiency trade-offs.
Margin Pressure Points
The PAT margin compression to 13.58% in Q3 FY26 from 15.12% in Q2 FY26 reflects two primary factors: a sharp decline in other income to ₹8.42 crores from ₹58.17 crores, and normalisation of the tax rate. The company's ability to sustain margins in the 13-14% range will be critical for maintaining investor confidence, particularly given the labour-intensive nature of its business model.
On a more positive note, the company's return on capital employed (ROCE) stood at 11.09% as of the latest half-year period, whilst return on equity (ROE) registered at 8.98%. Whilst these metrics are modest compared to industry leaders, they represent a significant improvement trajectory for a company that has undergone substantial restructuring in recent years. The debt-to-equity ratio of 0.14 times reflects a conservative capital structure with minimal leverage, providing financial flexibility for future growth investments.
The interest coverage ratio, measured by operating profit to interest, reached an impressive 20.73 times in Q3 FY26, the highest in recent quarters. This robust metric underscores the company's strong cash-generating ability and minimal financial risk, despite its aggressive growth investments.
Growth Trajectory: Scaling Operations Amidst Industry Tailwinds
Sagility's growth story is underpinned by the structural expansion of healthcare business process outsourcing, particularly in the US market where regulatory complexity and cost pressures are driving increased adoption of offshore services. The company's 48.84% five-year compound annual growth rate in operating profits demonstrates its ability to capitalise on these industry tailwinds.
Revenue Acceleration
The sequential revenue growth of 18.85% in Q3 FY26 represents the strongest quarterly expansion in recent memory, suggesting Sagility has secured significant new client wins or expanded existing relationships. The nine-month FY26 revenue of ₹5,168.59 crores is already approaching the full-year FY25 figure of ₹5,569.00 crores, positioning the company for a strong finish to the fiscal year.
Looking at the annual perspective, FY25 witnessed net sales of ₹5,569.00 crores, representing 17.20% growth over FY24's ₹4,753.00 crores. The company's five-year sales growth CAGR of 14.90% reflects consistent market share gains and client base expansion. Operating profit for FY25 reached ₹1,297.00 crores with a margin of 23.30%, whilst net profit stood at ₹539.00 crores, translating to a PAT margin of 9.70%.
| Metric | Q3 FY26 | Q2 FY26 | Q1 FY26 | Q4 FY25 |
|---|---|---|---|---|
| Revenue (₹ Cr) | 1,971.15 | 1,658.50 | 1,538.94 | 1,568.48 |
| Operating Profit (₹ Cr) | 511.11 | 415.14 | 346.09 | 373.04 |
| Operating Margin | 25.93% | 25.03% | 22.49% | 23.78% |
| Net Profit (₹ Cr) | 267.66 | 250.83 | 148.56 | 182.57 |
| PAT Margin | 13.58% | 15.12% | 9.65% | 11.64% |
| EPS (₹) | 0.57 | 0.54 | 0.32 | 0.39 |
Industry Leadership: Competitive Positioning Analysis
Within the broader computers software and consulting sector, Sagility occupies a unique niche focused on healthcare-specific business process services. The company's market capitalisation of ₹23,593.90 crores positions it as a mid-cap player, significantly smaller than diversified IT services giants but commanding a meaningful presence in its specialised domain.
| Company | P/E Ratio | P/BV Ratio | ROE % | Debt/Equity | Dividend Yield |
|---|---|---|---|---|---|
| Sagility | 30.29 | 2.72 | 8.98% | 0.14 | — |
| L&T Technology | 31.61 | 6.56 | 23.28% | -0.28 | 1.46% |
| Tata Elxsi | 51.51 | 12.42 | 34.06% | -0.41 | 1.39% |
| KPIT Technologies | 39.21 | 9.29 | 23.79% | -0.19 | 0.77% |
| Inventurus Knowledge | 55.88 | 12.12 | 29.58% | 0.24 | — |
| Tata Technologies | 46.30 | 7.51 | 19.78% | -0.22 | 1.77% |
The peer comparison reveals Sagility's valuation discount relative to more established IT services companies. Trading at a P/E ratio of 30.29 times trailing twelve-month earnings, Sagility commands a moderate valuation, particularly when compared to Tata Elxsi's 51.51 times or Inventurus Knowledge's 55.88 times. The company's price-to-book ratio of 2.72 times is the lowest in the peer set, reflecting both its relatively modest return on equity and the market's cautious assessment of its asset quality.
The ROE gap is the most significant differentiator. Sagility's 8.98% return on equity trails substantially behind peers like Tata Elxsi (34.06%), KPIT Technologies (23.79%), and L&T Technology (23.28%). This performance gap reflects the company's ongoing transition and investment phase, where profitability is being partially sacrificed for market share gains and capability building. The positive aspect is Sagility's minimal leverage (debt-to-equity of 0.14) compared to peers who operate with net cash positions, suggesting room for strategic debt deployment if growth opportunities warrant.
Valuation Analysis: Fair Pricing With Growth Optionality
At the current market price of ₹50.40, Sagility trades at a P/E ratio of 30.29 times, representing a modest discount to the sector average P/E of 35 times. The company's enterprise value-to-EBITDA multiple of 16.27 times and EV-to-sales ratio of 3.99 times position it in the mid-range of sector valuations, neither expensive nor particularly cheap.
The valuation assessment has evolved significantly over recent months. The stock was classified as "Very Expensive" in early October 2025 when it traded near its 52-week high of ₹57.90. Following a correction to ₹50.40, the valuation grade has stabilised at "Fair", suggesting the market has recalibrated expectations to align with the company's growth trajectory and profitability profile.
The price-to-book ratio of 2.72 times compares favourably to the book value of ₹17.81 per share, implying the market is pricing in a modest premium for future growth potential. Given the company's improving operational metrics and strong revenue momentum, this valuation appears reasonable, particularly for investors with a medium to long-term investment horizon.
Shareholding Dynamics: Institutional Confidence Building
The shareholding pattern reveals a significant structural shift that merits close attention. Promoter holding declined dramatically from 67.38% in September 2025 to 50.95% in December 2025, representing a 16.43 percentage point reduction. This substantial stake sale was accompanied by corresponding increases in institutional and non-institutional holdings, suggesting a planned dilution or secondary market transaction rather than a distress sale.
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 50.95% | 67.38% | 67.38% | -16.43% |
| FII | 10.25% | 5.59% | 5.99% | +4.66% |
| Mutual Funds | 13.36% | 8.80% | 8.34% | +4.56% |
| Insurance | 3.79% | 3.32% | 3.13% | +0.47% |
| Other DII | 4.21% | 2.75% | 2.60% | +1.46% |
| Non-Institutional | 17.44% | 12.15% | 12.58% | +5.29% |
The positive interpretation of this shareholding shift is the substantial increase in institutional participation. Foreign institutional investors nearly doubled their stake from 5.59% to 10.25%, whilst mutual fund holdings jumped from 8.80% to 13.36%. The total institutional holding now stands at 31.61%, with 127 FII accounts and 31 mutual fund schemes holding positions. This broadening of the shareholder base enhances stock liquidity and brings sophisticated, long-term capital into the register.
Insurance company holdings also expanded from 3.32% to 3.79%, whilst other domestic institutional investors increased their stake from 2.75% to 4.21%. The concurrent rise in non-institutional holdings to 17.44% from 12.15% suggests retail investor interest has strengthened following the company's improved operational performance and growth visibility.
Stock Performance: Navigating Volatility With Positive Momentum
Sagility's stock price performance has been characterised by significant volatility since its listing, reflecting both the company's operational evolution and broader market sentiment towards mid-cap IT stocks. Trading at ₹50.40 as of January 29, 2026, the stock is positioned 12.95% below its 52-week high of ₹57.90 but commands a substantial 34.01% premium over its 52-week low of ₹37.61.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -3.93% | -0.64% | -3.29% |
| 1 Month | -3.50% | -3.44% | -0.06% |
| 3 Months | -1.00% | -3.78% | +2.78% |
| 6 Months | +16.26% | +0.55% | +15.71% |
| YTD | -3.11% | -4.03% | +0.92% |
| 1 Year | +10.87% | +6.86% | +4.01% |
The six-month return of 16.26% significantly outpaces the Sensex's 0.55% gain during the same period, generating an impressive alpha of 15.71 percentage points. This outperformance coincides with the company's improving quarterly results and growing institutional interest. The one-year return of 10.87% versus the Sensex's 6.86% further validates the positive momentum, though the stock's high volatility of 38.18% and beta of 1.12 underscore its elevated risk profile.
Technical indicators present a mixed but generally constructive picture. The stock trades below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, suggesting near-term consolidation. However, the overall technical trend classification remains "Bullish" as of December 9, 2025, supported by positive MACD, Bollinger Bands, and moving average signals on the weekly timeframe. The Dow Theory indicator shows "Mildly Bearish" on the weekly but "Bullish" on the monthly, indicating potential for trend reversal.
"The substantial 35.45% outperformance versus the Computers - Software & Consulting sector over one year reflects Sagility's successful positioning in the high-growth healthcare BPO segment."
Investment Thesis: Growth Story With Execution Risks
Sagility's investment proposition rests on several compelling pillars. The company operates in a structurally growing market segment—healthcare business process outsourcing—where regulatory complexity, cost pressures, and digital transformation are driving sustained demand. The 48.84% five-year CAGR in operating profits demonstrates the company's ability to capitalise on these tailwinds, whilst the recent acceleration in revenue growth to 35.65% year-on-year in Q3 FY26 suggests market share gains are accelerating.
The financial structure provides a solid foundation for growth. With a debt-to-equity ratio of just 0.14 times and an interest coverage ratio exceeding 20 times, Sagility possesses ample financial flexibility to invest in capability building, geographic expansion, and strategic acquisitions. The company's cash flow from operations of ₹1,214.00 crores in FY25 demonstrates strong cash generation ability, supporting both organic growth and potential capital returns to shareholders.
However, the investment case is not without challenges. The modest ROE of 8.98% reflects the company's ongoing investment phase and the relatively lower margins inherent in labour-intensive business process services compared to higher-value technology consulting. The recent promoter stake reduction from 67.38% to 50.95%, whilst accompanied by rising institutional holdings, does raise questions about long-term promoter commitment and potential for further dilution.
Key Strengths & Risk Factors
KEY STRENGTHS
- Exceptional revenue growth momentum with 35.65% YoY expansion in Q3 FY26, demonstrating strong market demand and client acquisition success
- Structural tailwinds from healthcare BPO market growth, with regulatory complexity and cost pressures driving sustained outsourcing adoption
- Conservative capital structure with debt-to-equity of 0.14 and interest coverage exceeding 20x, providing financial flexibility for growth investments
- Strong institutional backing with 31.61% holdings across 127 FIIs and 31 mutual funds, enhancing liquidity and governance standards
- Impressive five-year operating profit CAGR of 48.84%, validating the company's ability to scale operations profitably
- Robust cash generation with operating cash flow of ₹1,214.00 crores in FY25, supporting organic growth and potential capital returns
- Positive technical trend classification with bullish indicators on multiple timeframes, suggesting continued price momentum
KEY CONCERNS
- Below-peer return on equity at 8.98% versus sector leaders exceeding 20%, reflecting lower profitability and capital efficiency
- PAT margin compression to 13.58% in Q3 FY26 from 15.12% in Q2 FY26, raising questions about sustainable profitability as the company scales
- Significant promoter stake reduction from 67.38% to 50.95% in Q3 FY26, potentially signalling reduced long-term commitment or overhang concerns
- High stock volatility of 38.18% and beta of 1.12, indicating elevated risk profile unsuitable for conservative investors
- Operating margin of 25.93% below Q3 FY25's 26.99%, suggesting scaling challenges and potential pricing pressures in competitive markets
- Limited track record as a listed entity with only recent quarterly data available, making long-term performance assessment difficult
- Dependence on US healthcare market dynamics and regulatory changes, creating concentration risk and potential revenue volatility
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained quarterly revenue growth above 15% would validate market share gains and strengthen earnings visibility
- Operating margin stabilisation or expansion above 26% would demonstrate operating leverage and pricing power
- Further institutional stake increases, particularly from quality mutual funds and FIIs, would enhance stock liquidity and valuation multiples
- Strategic client wins in high-value segments such as payer services or digital health could drive margin improvement
- Improvement in ROE towards 12-15% range would narrow the gap with peers and justify valuation re-rating
RED FLAGS
- Sequential revenue growth deceleration below 5% would signal demand softening or client churn concerns
- PAT margin falling below 12% would indicate structural profitability challenges and potential need for business model reassessment
- Further promoter stake sales without clear strategic rationale could trigger investor confidence erosion
- Employee cost inflation outpacing revenue growth would pressure margins and raise questions about wage competitiveness
- Client concentration risks or loss of top accounts would materially impact revenue stability and growth trajectory
The Verdict: Compelling Growth Story for Patient Investors
Score: 81/100
For Fresh Investors: Sagility presents an attractive entry opportunity for growth-oriented investors with a 12-18 month investment horizon. The combination of exceptional revenue momentum (35.65% YoY), structural industry tailwinds, conservative balance sheet, and fair valuation (P/E of 30x) creates a compelling risk-reward profile. The recent correction from 52-week highs provides a reasonable entry point, though investors should be prepared for near-term volatility given the stock's high beta of 1.12.
For Existing Holders: Current shareholders should maintain positions and consider accumulating on dips towards ₹47-48 levels. The improving institutional participation, positive financial trend classification, and strong quarterly momentum justify continued holding. However, monitor PAT margin trends closely—sustained compression below 12% would warrant reassessment of the investment thesis.
Fair Value Estimate: ₹58-62 (15-23% upside from current levels of ₹50.40)
Rationale: The Strong Buy rating is anchored in Sagility's exceptional revenue growth trajectory, structural market positioning in healthcare BPO, and improving institutional confidence reflected in rising FII and mutual fund holdings. Whilst ROE remains below peers and margins face near-term pressure, the company's 48.84% five-year operating profit CAGR and minimal leverage provide a solid foundation for sustained value creation. The fair valuation grade and positive technical trend further support the constructive outlook, making Sagility an attractive growth play in the mid-cap IT services space for investors willing to accept moderate volatility.
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry inherent risks including potential loss of principal.
