Zaggle
Prepaid Ocean Services (Zaggle) is a spend management company with a unique
value proposition and a diverse user-base. The company operates in the
business-to-business-to-customer (B2B2C) segment with a diverse offering of
financial technology (fintech) products and services, along with prepaid cards
and has built a portfolio of software as a service (SaaS), including tax and
payroll software, and a broad touchpoint reach.
The
company has issued more than 5 crore prepaid cards in partnership with banking
partners, with more than 0.23 crore users served, as of March 2023.
The
company is sectoragnostic. Its network of corporate customers covers the
banking and finance, technology, healthcare, manufacturing, FMCG,
infrastructure and automobile industries, among others, where the company has
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.
The
company is at the intersection of the SaaS and fintech ecosystems. Its 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; and (iii) gift card management for merchants,
which the company refers to as customer engagement management system.
The
core product portfolio includes a) Propel- a corporate SaaS platform for
channel rewards and incentives, employee rewards and recognition; b) Save- a
SaaS-based platform and a mobile application to offer expense management
solution for business spend management facilitating digitized employee
reimbursements and tax benefits; c) CEMS- a SaaS-based platform and a mobile
application to offer expense management solution for business spend management
facilitating digitized employee reimbursements and tax benefits; d) Zaggle
payroll Card- a prepaid payroll card that allows the company‘s 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;
and e) Zoyer- an integrated data driven, SaaS based business spend management
platform with embedded automated finance capabilities in core invoice to pay
workflows.
As
of March 2023, the company had 1,832 corporate accounts and 579 Small and
medium sized business (SMB) accounts, with average user base per business was
943 users. The company had issued 1.08 crore active cards (that had not expired
as of that date) to 2,411 customers across India, which used Zaggle‘s software
to manage spends related to their employees, business, channel partners and
customers.
The
company offers an ecosystem-based approach across SaaS and fintech, with low
customer acquisition and retention costs in the business-to-business (B2B)
segment. Its approach revolves around cross-selling, up-selling, and offering
its products and services in partnership with other players in the operating
ecosystems. Through its arrangements with partner banks and fintechs, the
company‘s customers can offer their employees, channel partners and consumers a
suite of SaaS and fintech solutions. The company offers an integrated value
proposition through its SaaS platform, providing a combination of payment
instruments as well as an integrated mobile application that digitizes business
and employee spends. Application programming interface (API) integrations on the
platforms provided to its customers offer them enhanced convenience and an
efficient user experience through a simplified dashboard, allowing an
integrated access to its products, and gives the company an opportunity to
promote and offer the company‘s third-party associations through the same
dashboard.
The
company‘s ability to offer diversified SaaS offerings to an existing customer
base enables it to launch new products and cross-sell its products to a wide user-base.
Accordingly, the company has partnered with, and entered arrangements with, DBS
Bank, Fibe (formerly, EarlySalary) and Tata Securities to offer their products
and value-added services (VAS), including insurance, investment and tax
planning, to the company‘s users on its platform.
The
company‘s offerings have features such as a configurable platform for each
customer, allowing for partner on-boarding and automated workflows to track
spends and reconciliations, which has helped maintain a consistent customer
retention rate, with only 1.54%, 0.37% and 1.17% of customers terminating their
contracts during Fiscals 2023, 2022 and 2021, respectively.
The company is promoted by Mr Raj P
Narayanam and Mr Avinash Ramesh Godkhind.
Raj P Narayanam has a post graduate
diploma in business management with specialization in finance from the Fore
School of Management, New Delhi. He completed his post graduate diploma on "Computer Systems" from Advance 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. He has experience in the technology
and fintech industry.
Avinash Ramesh Godkhind holds a
bachelor‘ degree in engineering from Bangalore University, Bengaluru, and a
masters‘ degree in business administration from the University of Chicago,
Chicago. He has been awarded the ‘Inspiring CEO‘ award by the Economic Times in
2022. Prior to this, he worked as an Assistant Vice President at Citibank N.A.,
India.
Object of the
offer
The
IPO consists of a fresh issue of Rs 392 crore and an offer-for-sale of up to 1,04,49,816
shares by its existing promoters and shareholders. The OFS comprises up to 15,29,677
shares by Raj P Narayanam, up to 15,29,677shares by Avinash Ramesh Godkhindi, up
to 28,30,499 shares by VenturEast Proactive Fund LLC, up to 20,46,026 shares by
GKFF Ventures, up to 5,38,557 shares by VenturEast SEDCO Proactive Fund LLC, up
to 1,18,040 shares by VenturEast Trustee Company Private Limited, up to 17,65,540
shares by Zuzu Software Services Private Limited and up to 91800 shares by
Koteswara Rao Meduri.
Out
of the proceeds from the fresh issue, Rs 300 crore will be used on expenditure
towards customer acquisition and retention, Rs 40 crore on expenditure towards
the development of technology and products and Rs 17.08 crore will be used pare
down, in full or in part, debt availed by the firm.
In
August 2023, the company raised a total of Rs 98 crore from a clutch of investors
in a pre-IPO placement, in two tranches that reduced the fresh issue size in
the IPO. On August 16, the company has allotted 44,51,219 shares to Ashish
RameshchandraKachola(18,29,269 equity shares), Bengal Finance & Investment
Private Limited (18,29,269 shares), Himanshi
Kela (5,79,268 shares), Absolute Returns
Scheme (91,461 shares), Vikasa India EIF I Fund – Incube Global Opportunities
(60,976 shares) and Acintyo Investment Fund PCC – Cell 1 (60,976 shares)and
August 21, 2023, the company has allotted 15,24,390 shares to Valuequest Scale Fund in the pre-IPO placement.
Strengths
The
company offers a differentiated SaaS-based fintech platform, offering a
combination of payment instruments, mobile application, and API integrations. Zagglehas
created a market niche in the country by offering a combined solution for spend
management through prepaid cards and employee management (through SaaS).
The
company is among the few uniquely positioned players offering diversified
services with fintech products and services and have advantages of having one
of the largest numbers of issued prepaid cards in partnership with certain of
its banking partners and high profitability along with a diversified portfolio
of SaaS services (including for tax and payroll) and a wide touch point reach.
The company provides a composite SaaS and fintech offering under a single
application and payment instrument.
The
company has a diverse revenue stream. The company charges its customers
platform fee, SaaS fee and service fee for implementing its product offerings.
The company earns fees from periodic subscriptions from its customers; generate
revenue by monetizing ‘Propel Points‘. In addition to the revenue stream from
subscription fees, the company has also begun to earn merchant commissions and
commission on VAS sales. The company also works with lending and wealth
management partners such as DBS Bank, Fibe (formerly EarlySalary) and Tata
Securities to offer their loan and wealth management products to the company‘s
users and earns referral fees. The company‘s ability to offer customers
subscription-based services helps provide a recurring revenue stream for the
company.
Healthy
growth in scale of operations of the company primarily attributable to an
increase in its user base from 904,713 users as of March 31, 2021, to 2,274,138
users as of March 31, 2023, along with a corresponding increase in spending by
its users that facilitated an increase in the interchange fees received due to
an overall increase in the scale of its business, commensurate with the growth in
the digital payments industry.
The
company benefits from an ecosystem-based approach across SaaS and fintech which
enables them to cross-sell products and services in partnership with other
players in the operating ecosystems. This integrated product offering along
with the experience of the management has helped the company to onboard reputed
clientele engaged in sectors such as banking and finance, technology,
healthcare, manufacturing, FMCG, infrastructure and automobile industries among
others. Some of the reputed clients include names such as Tata Steel, Microsoft
India,Infosys, Kohler India, AT&T Communications India, United Spirits, and
Greenply Industries. As of March 2023, the company had 0.23 crore active users
with 579 SMB accounts and 1,832 corporate accounts.
The
company has a strong customer retention capability with the churn rate for customers
terminating their contracts with the company being consistently low at 1.54%,
0.37%, 1.17% in Fiscals 2023, 2022 and 2021, respectively. With the integrated
offerings, the company has been successful in reducing the negative impact of
low switching costs associated with a SaaS business.
Weaknesses
The
global IT services industry is dominated by several large players and small
niche technology players. Zaggle is susceptible to competition from domestic as
well as international IT service companies which can have margin pressure.
The
industry is highly technology oriented, which keeps changing, time-to-time.
Thus, the company needs to keep upgrading the services it offers according to
the needs of the clients and changes in the industry.
The company might
not be able to retain existing customers, attract new customers, convert
customers using its beta or trial versions into paying customers, or expand
usage of its products within or across customer organizations which will have
an adverse impact on the business of the organization.
Failure
on the company‘s part to effectively develop and expand its direct sales
capabilities could affect its ability to expand usage of its products within
its customer and user base and achieve broader market acceptance of its
products.
Any termination
of, or failure to maintain, its relationships with its banking partners,
including its preferred banking partners, or any changes to its interchange
fees due to a variety of factors, could adversely affect the company‘s
business.
The company is dependent
on third-party payment networks, channel partners and third-party providers for
various aspects of its business and its growth, and any failure to maintain
these relationships could adversely affect the operations of the company.
The
company may encounter challenges with adoption and usage of its products if
they are not able to successfully integrate with other software applications,
which could adversely affect the company‘s business.
The
company is exposed to counterparty credit risk in the usual course of its
business due to the nature of, and the inherent risks involved in, dealings,
agreements and arrangements with its counterparties who may delay or fail to
make payments or perform their other contractual obligations. The company
experienced negative operating cash flows of Rs 15.62 crore in FY 2023
primarily due to an increase in its trade receivables of Rs 58.09 crore.
Valuation
In
FY2023, consolidated sales were up by 49.1% to Rs 553.46 crore compared to
FY2022. OPM declined by 743 bps to 8.69%, which led to a 19.6% decline in
operating profit to Rs 48.10 crore. Decline in operating margin was due to
increase expenditure towards development of Zoyer; increase in employee
benefits expense on account of expense towards employee stock option Plan
(ESOP); and a decrease in the company’s program fees on account of a reduction
in the interchange rates. Other income increased 172.6% to Rs 1.12 crore, while
interest cost increased 62.8% to Rs 11.38 crore and depreciation increased
195.6% to Rs 6.20 crore. PBT decreased by 38.2% to Rs 31.64 crore. Tax expenses
for FY2023 were Rs 8.73 crore compared to tax expense of Rs 9.26 crore in
FY2022. Net profit declined 45.4% to Rs 22.90 crore.
FY2023
EPS on post-issue equity works out to Rs 1.88. The company has issued 59,75,609
equity shares in August 2023 on a pre-IPO placement to a clutch of investors at
a price of Rs 164 per equity share. At the upper price band of Rs 164, P/E
works out to 87.23X.
The
company does not have any listed peers.
Zaggle
Prepaid Ocean Services: Issue highlights
|
For
Fresh Issue Offer size (in no of shares)
|
|
-
On lower price band
|
2,51,28,205
|
-
On upper price band
|
2,39,02,439
|
Offer
size (in Rs crore)
|
392
|
For
Offer for Sale Offer size (in no of shares)
|
|
-
On lower price band
|
1,04,49,816
|
-
On upper price band
|
1,04,49,816
|
Offer
size (in Rs crore)
|
-
|
Price
band (Rs)
|
156-164
|
Minimum
Bid Lot (in no. of shares)
|
90
|
Post
issue capital (Rs crore)
|
|
-
On lower price band
|
12.33
|
-
On upper price band
|
12.21
|
Post-issue
promoter & Group shareholding (%)
|
44.07%
|
Issue
open date
|
14-09-2023
|
Issue
closed date
|
18-09-2023
|
Listing
|
BSE,
NSE
|
Rating
|
40/100
|
Zaggle Prepaid Ocean Services : Consolidated
Financial
|
|
2103 (12)
|
2203 (12)
|
2303 (12)
|
Sales
|
239.97
|
371.26
|
553.46
|
OPM (%)
|
11.51
|
16.12
|
8.69
|
OP
|
27.63
|
59.85
|
48.10
|
Other inc.
|
0.33
|
0.41
|
1.12
|
PBIDT
|
27.95
|
60.26
|
49.21
|
Interest
|
7.71
|
6.99
|
11.38
|
PBDT
|
20.24
|
53.28
|
37.83
|
Dep.
|
2.05
|
2.10
|
6.20
|
PBT Before EO
|
18.20
|
51.18
|
31.64
|
Exceptional
items
|
-
|
-
|
-
|
PBT After EO
|
18.20
|
51.18
|
31.64
|
Total Tax
|
-1.13
|
9.26
|
8.73
|
Net Profit
|
19.33
|
41.92
|
22.90
|
EPS (Rs)*
|
1.58
|
3.43
|
1.88
|
EPS
is on post issue equity capital of Rs 12.21 crore of face value of Rs 1 each
|
Figures in Rs
crore
|
Source: Zaggle Prepaid Ocean ServicesIssue Prospectus
|
|