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Zaggle Prepaid Ocean Services Ltd. (ZPOSL), founded in 2011, is a prominent player in the business-to-business-to-customer (B2B2C) segment. The company specialises in delivering fintech products, including prepaid cards and software-as-a service (SaaS) solutions, to corporate clients across various sectors. ZPOSL occupies a distinctive position at the convergence of the SaaS and fintech ecosystems. It offers a comprehensive SaaS platform geared towards addressing essential business functions, such as business spend management (covering expense and vendor management), rewards and incentives management for both employees and channel partners, and a robust customer engagement management system (CEMS). Operating through a network of seven offices throughout India, Zaggle Prepaid Ocean Services serves more than 1.7 million end-users and collaborates with over 1,750 corporate clients

• The spend management software and services market in India is projected to expand from an estimated ?73 bn in 2021 to ?131 bn by 2027, demonstrating a CAGR of ~ 25.3%.

• Zaggle’s revenue grew ~52% CAGR over FY21–23, while its Adj. PAT grew 38% CAGR during the same period due to an increase of 151% in the user base. For FY23, ZPOSL recorded a consolidated net profit of ?36.9cr, with revenue reaching ?553.5cr.

• For the last three fiscals, the company has posted EBITDA margins of 11.5% (FY21), 16% (FY22), and 11% (FY23 adjusted EBITDA), and its Adj. PAT margins were 8.1%, 11.3%, and 6.7% for the corresponding periods, respectively.

• ZPOSL's network of corporate customers includes renowned brands such as TATA Steel, Persistent Systems, Vitech, Inox, Pitney Bowes, Wockhardt, MAZDA, PCBL (RP – Sanjiv Goenka Group), Hiranandani Group, Cotiviti, and Greenply Industries.

• In August 2023, ZPOSL conducted a pre-IPO placement involving 5.975 million equity shares, priced at ?164 per share, totalling ?98cr. Notably, prominent investors Ashish Rameshchandra Kacholia and Bengal Finance & Investment emerged as the primary investors in the company, each acquiring a 1.86% stake through private placement.

• Zaggle allocates a significant portion of the IPO proceeds of Rs 300cr, for customer acquisition and retention, highlighting its commitment to its expansion efforts and diversifying its product offerings.

• At the upper price band of ?164, ZPOSL is available at a Adj. P/E of 54.3x (FY23), which appears to be aggressively priced. However, several factors contribute to its appeal, including a diverse client base spanning various industries, consistent revenue growth over the years, the company's expansion strategies, a diversified revenue model, and the flourishing digital payments sector. Given these considerations, we recommend a "Subscribe" rating for the issue on a short- to medium-term basis.

Purpose of IPO

The IPO consists of a fresh issue of shares up to ?392cr, and the offer for sale is worth Rs 171.4 cr. The proceeds from the fresh issuance of ?300cr will be utilised for customer acquisition and retention, technology and product development (?40cr) from FY24 to FY26, and debt repayment (?17.1cr). The remaining funds will be allocated for general corporate purposes.

Key Risks

• Since the industry is highly tech-oriented & competitive, the cost of upgrading new technologies can put strain on company performance.

• It can pose challenges, if it is not successfully integrated with client software. 

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SEBI Registration Number: INH200000345