Indian healthcare BPOs face triple threats

Lack of diversified businesses, policy uncertainty in the Donald Trump era, and the challenges of GenAI pose major risks for Sagility Ltd, Indegene Ltd, and Inventurus Knowledge Solutions Ltd, all of which listed on the stock exchanges in the past year, analysts said. Most of their revenue comes from offering customer and software services to clients in the US healthcare sector.

At least three experts are circumspect about the prospects of these companies because most of their revenue comes from offering customer and software services to clients in the US healthcare sector.

“Hyper-specialized outsourcing firms such as Sagility and IKS Health present investors with a dilemma. On the one hand, they allow them to play a single theme – large and underpenetrated US healthcare operational spend. On the other hand, risks of a potential downturn are unmitigated,” JM Financial analysts Abhishek Kumar and Nandan Arekal said in a note dated 9 March, estimating the US healthcare market at about $200 billion.

Queries emailed to all three companies remained unanswered at the time of publishing.

Bengaluru-based Sagility ended with $574 million in revenue last year, all of it from North America. Mumbai-based IKS, backed by the Jhunjhunwala family, got almost 98% of its $220 million revenue last year from North America. Indegene, which ended with $313 million in revenue, got 69% of it from the continent.

Indegene listed on the stock exchanges in May 2024, Sagility in November 2024 and IKS in December 2024. Since the start of the year, their shares have fallen 12.53%, 21.25%, and 12.99%, respectively.

Shares of India’s mid-cap information technology (IT) services companies declined 24.52% in this time, while those of large-cap IT outsourcers dropped 15.14% on average.

Insurance risk

Pureplay healthcare firms also face competition from India’s largest IT outsourcers, including Tata Consultancy Services Ltd, Infosys Ltd, HCL Technologies Ltd, and Wipro Ltd, which together got $1.4-2 billion in revenue from their healthcare and life sciences verticals.

While hyper-specialisation is a concern, the other risk lies in the US health insurance market.

“There is a regulatory risk if President Trump holds back spending on Medicare and Medicaid,” a Mumbai-based analyst said on the condition of anonymity. “Fewer people insured will translate to lower health insurance claims being processed and this will lead to less hospital visits because people will not be insured.”

In the US, the healthcare sector has two primary stakeholders – the healthcare providers and the healthcare payers. Healthcare providers include hospitals and physicians, whereas healthcare payers include health insurance companies that cover the cost of treatments.

Sagility gets 89.3% of its revenue from healthcare payers and 10.7% from services offered to healthcare providers. IKS gets all of its revenue from healthcare providers.

US healthcare payers spent more on tech at $138 billion compared to $63 billion by healthcare providers as of 2023, according to the JM Financial note.

Sagility was incorporated as Berkmeer India Pvt Ltd by the Hinduja Group’s healthcare arm in July 2021. The company was acquired by private equity firm Baring Private Equity Asia for $1 billion in 2021. EQT bought Baring in the following year and is now the parent of Sagility BV, which owns 82.39% of Sagility.

Sagility manages core operations such as claims, ensuring timely payments and other clinical services for insurance companies. It offers revenue cycle management for healthcare providers.

It has long-standing customer relationships, with an average tenure of 17 years for its five largest clients. The company saves costs by stationing the bulk of its 39,595 employees in non-client locations such as India, the Philippines, and Jamaica.

Bunched-up solutions

IKS was incorporated in 2006 and was listed in India’s stock markets in December last year. Today, the Jhunjhunwala family and family-owned trusts own 49.54% of the company. 

IKS provides software platforms to hospitals and physicians. Its offerings include solutions like revenue cycle management, clinical documentation, patient engagement, care coordination, data management, and analytics. It has about 13,149 employees in Canada, India, the US, and Australia.

The company’s specialty is its ability to sell a platform with a bunch of solutions rather than single offerings. Like Sagility, it has long-term client relationships with an average tenure of eight years for its top five clients.

“Over these last 18 years, IKS has built a business model where 95% plus of our revenue is recurring in nature. We have very low client attrition; it’s a sticky business model. Our top 10 clients and our top five clients are all having average vintages of five-plus years,” said Sachin Gupta, chief executive of IKS, as part of his prepared comments in the company’s post-earnings interaction with analysts on 6 February.

Bengaluru-based Indegene, founded in 1998, provides services and consulting in pharmaceutical marketing, clinical trials, medical and regulatory affairs. It gets almost 94% of its revenue from biopharma firms and has 4,880 employees. The company is owned almost entirely by public shareholders. Manish Gupta, its chief executive officer, owns 8.97% of the company’s shares.

These companies have a high client concentration. Almost a third of IKS’s business comes from its top five clients, whereas 68% of Sagility’s business comes from its top three clients.

JM Financial said the sector is ripe for consolidation as larger health systems are more likely to use market-dominant vendors. About 60% of the US’ health insurance market, which Sagility services, is covered by the top 10 companies.

AI challenge

The third key risk for these companies is the emergence of generative AI, analysts said.

“A lot of the work that Sagility does can be automated. A lot of the work, including claims processing, which is its bread and butter, can also be eaten up by Gen AI, apart from much of the human-facing work,” said the Mumbai-based analyst.

“The long-term challenge is how comfortable US companies will be with BPO vs full automation and AI with software. Sagility and IKS are working hard to add automation and AI capabilities, but these functions can be fully automated in the future without BPOs,” said R “Ray” Wang, founder of California-based Constellation Research.

AI is also expected to impact IKS Health. 

“The rapid advancement of AI and machine learning requires continuous updates to IKS’ offerings… Emerging technologies, particularly in areas like virtual scribing, pose a risk of reducing the utility of IKS’ current products. This is evident with the recent launch of Dragon Co-pilot, the industry’s first AI assistant for clinical workflow,” the JM Financial analysts said.