Zaggle Prepaid Ocean Services Ltd : Subscribe

Zaggle Prepaid Ocean Services Ltd : Subscribe
  • Date

    14th Sept, 2023 - 18th Sept, 2023

  • Price Range

    Rs. 156 to Rs. 164

  • Minimum Order Quantity

    90

Zaggle Prepaid Ocean Services Limited (Zaggle) is a Hyderabad-based uniquely positioned player with a diversified offering of fintech products and services. The company has one of India’s largest issued prepaid cards in partnership with certain banking partners, a diversified portfolio of SaaS, including tax and payroll software, and a broad reach. The company is a leading player in spend management, with over 50 million prepaid cards issued in partnership with banking partners and more than 2.27 million users served as of March 31, 2023. Zaggle is a sector-agnostic company covering a network of corporate customers from the banking and finance, technology, healthcare, manufacturing, FMCG, infrastructure, and automobile sectors. 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. Zaggle offers an ecosystem-based approach across SaaS and fintech, with low customer acquisition and retention costs in the business-to-business (B2B) segment. Zaggle has collaborated with key banking partners, including IndusInd Bank, Yes Bank, and NSDL Payments Bank, and has issued over 50 million co-branded prepaid cards since the business’s inception. Zaggle’s core product portfolio includes ‘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 solutions for business spend management facilitating digitized 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 cards and loyalty benefits; ‘Zaggle Payroll Card’, a prepaid payroll card that allows 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 ‘Zoyer’, an integrated data-driven, SaaS-based business spend management platform with embedded automated finance capabilities in core invoice-to-pay workflows.

Objects of the issue:

The net proceeds from the fresh issue will be used towards the following purposes:

  • Expenditure towards customer acquisition and retention. 
  • Expenditure towards the development of technology and products.
  • Repayment or prepayment of certain borrowings, in full or part, availed by the company.
  • General corporate purposes. 

 

Investment Rationale:

Differentiated SaaS-based fintech platform, offering a combination of payment instruments, mobile applications and API integrations.

Zaggle offers SaaS-based products (comprising Propel, Save, CEMS, and Zoyer) for businesses, including business and employee spend management, employee benefits management, employee incentives, channel rewards and incentives, employee rewards and recognition, and employee tax benefits. The company combines its unified SaaS-based platform with a comprehensive product stack that digitizes business and employee spend management and rewards for businesses, along with offering payment instruments such as the Zaggle Payroll Card,  Kuber Gift Card (a gift card that works both online and offline outlets where Visa cards are accepted in India) and Zinger Multi-wallet Card (a reloadable card with multiple wallets that works at both online and offline outlets where Visa cards are accepted in India). Their mobile application gives its customers and users a real-time view of card details, account balance, transactions (including transfers to bank accounts), card security, and easy expense management by allowing bills to be uploaded, approved, and paid for corporate spending and other benefits. Furthermore, API integrations (which are hosted through the cloud) with their banking partners, card networks, and merchants provide them with access to their user base.

Leveraging strategic partnerships with financial institutions and merchants

Zaggle’s partnerships are categorized into two broad categories: (i) growth and (ii) Value-added Services (VAS). To drive growth, they have partnered with industry participants and financial institutions such as DBS Bank and Razorpay, who offer their customers their products ‘Save’, ‘Propel’, and ‘Zoyer’. The company intends to leverage the insights of its partners to provide and build new solutions for its customers and users while acquiring new customers, merchants, and users with the support of its partners, including the development of new technologies and ideas. They also have VAS partnerships for services such as insurance, investment, and tax planning. For example, they have tied up with Tata Securities to market their products and to provide its users with access to investment products. In addition to using their own sales and marketing teams, they plan to leverage their partner networks while adding new partners to explore additional go-to-market opportunities and grow their customer base. The company has partnered with Fibe (formerly EarlySalary) to market its loan products to its user base. Going forward, they also intend to enable their Preferred Banking Partners to penetrate large and small businesses, attracting a wider customer base that allows them to cross-sell their offerings.

Valuation and Outlook:

India’s fintech ecosystem has approximately 2,100 start-ups spread across a wide range of segments such as payments, lending, wealthtech, insurtech, and neo-banking. India’s fintech market revenue is estimated to reach approximately Rs. 8,341 billion in 2027 from Rs. 3,123 billion in 2022 as a result of supportive government policies, rising investments, and a fintech adoption rate of approximately 87%, the highest compared to other countries. The high initial costs incurred towards spend management solution setup are also major hindrances towards market growth, giving opportunities for SaaS offerings. India’s outsourced spend management software and services market is estimated to grow from Rs. 35 billion in 2022 to Rs. 72 billion by 2027 on the back of greater awareness and higher acceptance within MSMEs coupled with the expansion of the industrial economy and increased availability of customized spend management solutions. Zaggle has created a market niche in India by offering a combined solution for spend management (through payment instruments) and employee management (through SaaS). This diversification acts as a barrier to new entrants as the combined exposure adds complexity not only in processes and offerings but also in terms of guidelines adherence and internal operations. The company demonstrated growth at a CAGR of approximately 51.9% during the three years between FY2021 and FY2023, driven by increased usage of digital modes of payment during this period in India. If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, the asking price is at a P/E of 66.7 and we believe it to be priced aggressively. We, therefore, recommend an “Avoid” rating for the issue. However, we would reassess the company on improvement in financial metrics over a sustained period.