Zaggle Prepaid Ocean Services Ltd IPO

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Zaggle is a leading player in spend management, with a differentiated value proposition and diversified user base.

They are sector-agnostic, and network of corporate customers (“Customers”) covers the banking and finance, technology, healthcare, manufacturing, FMCG, infrastructure and automobile industries, among others, where they have relationships with brands such as TATA Steel, Persistent Systems, Vitech, Inox, Pitney Bowes, Wockhardt, MAZDA, PCBL (RP – Sanjiv Goenka Group), Hiranandani group, Cotiviti and Greenply Industries.

Their SaaS platform is designed for:

(i) business spend management (including expense management and vendor management)
(ii) rewards and incentives management for employees and channel partners
(iii) a gift card management for merchants

Their core product portfolio include:

• ‘Propel’, a corporate SaaS platform for channel rewards and incentives, employee rewards and recognition
• ‘Save’, a SaaS-based platform and a mobile application to offer expense management solution for business spend management facilitating digitised employee reimbursements and tax benefits
• ‘CEMS’, a customer engagement management system that enables merchants to comprehensively manage their customer experiences including rewarding merchants through gift card and loyalty benefits
• ‘Zaggle Payroll Card’, a prepaid payroll card that allows our Customers to pay contractors, consultants, seasonal and temporary employees, and unbanked wage workers as an alternative to direct deposits to bank accounts or cash payments
• ‘Zoyer’, an integrated data driven, SaaS based business spend management platform with embedded automated finance capabilities in core invoice to pay workflows.

Risk Factors

(i) Their recent revenue growth rates may not be indicative of future financial performance. They have limited operating history at current scale. Failure to effectively manage growth could materially and adversely affect the success of business and/or impact their margins.

(ii) Laws and regulations governing business and operations may continue to change and evolve and the introduction of new laws and regulations applicable to business may adversely affect financial condition, results of operations and profitability.

(iii) They may be unable to retain existing Customers, attract new Customers, convert Customers using beta or trial versions into paying Customers, or expand usage of products within or across Customer organisations.

(iv) They are dependent on third-party payment networks to operate prepaid card business

(v) The Company does not have any listed industry peers in India or abroad.

Objects of the Zaggle Prepaid Ocean Services Ltd IPO:

The Offer comprises the Fresh Issue and the Offer for Sale.  Offer for Sale The Selling Shareholders, i.e., Raj P Narayanam, Avinash Ramesh Godkhindi, VenturEast Proactive Fund LLC, VenturEast SEDCO Proactive Fund LLC, Ventureast Trustee Company Private Limited (acting on behalf of Ventureast Proactive Fund), GKFF Ventures, Zuzu Software Services Private Limited, Koteswara Rao Meduri and Malvika Poddar will be entitled to their respective portion of the proceeds of the Offer for Sale after deducting their respective proportion of Offer expenses and relevant taxes thereon.  Fresh Issue Fresh Issue of the company is Rs 490 Cr.  The Company proposes to utilise the Net Proceeds towards funding of the following objects: 1.Expenditure towards Customer acquisition and retention 2. Expenditure towards development of technology and product. 3. Repayment/ prepayment of certain borrowings, in full or part, availed by our Company 4. General corporate purposes.

Zaggle Prepaid Ocean Services Ltd IPO Details:

Open Date: Sep 14 2023
Close Date: Sep 18 2023
Total Shares: 3,43,52,255
Face Value: ₹ 1 Per Equity Share
Issue Type: Fixed Issue
Issue Size: 563.38 Cr.
Lot Size: 90 Shares
Issue Price: ₹ 156 to ₹164 Per Equity Share
Listing At: NSE,BSE
Listing Date: Sep 26 2023

Promoters And Management:

Raj P Narayanam is the Executive Chairman of our Company. He has been on the Board of our Company since April 30, 2012. He completed post graduate diploma in business management with specialisation in finance from the FORE School of Management, New Delhi. He has also completed his post graduate diploma on “Computer Systems' ' from Advanced Computer Education and a certified online course on “Scaling a Business: How to Build a USD 1 Billion Unicorn” from The Wharton School, University of Pennsylvania. Avinash Ramesh Godkhindi is the Managing Director and Chief Executive officer of our Company. He has been on the Board of our Company since May 7, 2012. He holds a bachelors’ degree in engineering from Bangalore University, Bengaluru and a masters’ degree in business administration from the University of Chicago, Chicago. Arun Vijaykumar Gupta is a Non-Executive Director of our Company. He has been on the Board of our Company since September 26, 2022. He holds a bachelors’ degree in commerce from the P.D. Lion’s College of Commerce and Economics, University of Bombay.  

Financials of Zaggle Prepaid Ocean Services Ltd IPO:

Particulars ( In Million )
Revenue from Operations 683 2,400 3,713 5,535
Other Income 0 3 4 11
Total Revenue 684 2,403 3,717 5,546
Cost of Point Redemption / Gift Cards 62 297 1,435 3,189
Consumption of Cards 29 15 18 18
Employee Benefits Expense 106 125 154 436
Other Expenses 376 1,687 1,507 1,412
EBITDA 111 280 603 492
Depreciation & Amortisation 19 20 21 62
Finance Cost 45 77 70 114
EBIT 93 259 582 430
OPM (%) 16.29% 11.63% 16.21% 8.87%
PBT 48 182 512 316
Tax 11 -11 93 87
PAT 37 193 419 229
NPM (%) 5.44% 8.04% 11.28% 4.13%
No.of Shares 122.09 122.09 122.09 122.09
EPS 0.30 1.58 3.43 1.87

Comparison With Peers:

Note: - There is no listed companies related to this company.

Recommendation on Zaggle Prepaid Ocean Services Ltd IPO:

Review and Recommendation of Zaggle Prepaid Ocean Services by IZ team is 5/10

A) Business Overview

Zaggle is a versatile player in the spend management sector, with a unique value proposition and a broad customer base that spans multiple industries like banking, technology, healthcare, and manufacturing, among others. Its SaaS platform is designed to facilitate multiple functionalities, including business spend management, rewards and incentives management, and gift card management for merchants.

B) Core Product Portfolio

The company's core products like 'Propel', 'Save', 'CEMS', 'Zaggle Payroll Card', and 'Zoyer' provide a comprehensive suite of solutions for corporate spend and rewards management. These platforms offer both standard and customized solutions that enable digitized employee reimbursements, customer engagement, and business spend management.

C) Risk Factors

Though Zaggle has shown promising growth, it is important to consider potential risks. The company has a limited operating history at its current scale, and its recent revenue growth may not be indicative of future performance. Regulatory changes, customer retention, and dependency on third-party payment networks are additional concerns.

D) Financials

The company's revenue from operations has been showing an upward trajectory, but it's critical to note that while the EBITDA seems to be positive, the operating profit margin (OPM) has shown a decrease in the most recent year. This could be indicative of increasing costs or competitive pressures affecting profitability.

E) Object of the Issue

Zaggle aims to raise Rs 490 Cr through its IPO, focusing on customer acquisition, technological development, debt repayment, and general corporate purposes. The fact that there are no listed peers in this segment makes Zaggle a unique but potentially risky investment.

F) Management

The management team, led by Raj P Narayanam and Avinash Ramesh Godkhindi, brings a diverse set of skills and extensive experience to the table, which could be a key asset for the company's growth and scaling efforts.

G) Revenue Model

Zaggle's revenue primarily comes from software subscriptions and commissions from banks when their issued cards are utilized. This dual revenue stream could offer a certain level of financial stability.

H) Valuation

The company is coming up with an IPO at a P/E ratio of 66x and a market capitalization of Rs 2000 Cr. At first glance, this valuation appears to be on the higher side, especially when considering the inherent risks and the current profit margins. High P/E ratios are generally indicative of high growth expectations from the market, but they also signal that the stock could be overvalued, posing a risk of downside correction. Given the absence of listed peers, it's challenging to make a direct comparative valuation.

I) Conclusion

In summary, Zaggle presents a compelling investment opportunity given its diversified product portfolio, multi-industry customer base, and strong management team. However, prospective investors should exercise caution due to the company's limited operating history, regulatory landscape, and the risks associated with customer retention and third-party dependencies. As with any investment, it's crucial to balance the high growth potential against the inherent risks. Plus valuation looks on higher side.

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