Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It can be used for educational purposes. There can be lot of things which have been missed in analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

Zaggle Prepaid Ocean Services

Key Investment thesis –> Differentiated SaaS-based fintech platform with Strong network effect offering Comprehensive suite of products for a large & growing addressable market. Company has amazing cross selling and Up-selling opportunities across domains.

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Business

Zaggle builds financial solutions and products to manage the business expenses of corporates, SMEs, & Startups through automated and innovative workflows. Headquartered at Hyderabad, it is at an intersection of of SaaS (Software as a service) and Fintech. With 273+ employees, the company has 50 Mn+ co-branded prepaid cards.

Products
Zaggle Zoyer: accounts management services
Zaggle Save: Help employees save tax with Save’s flexible employee benefit plans
Zaggle Propel: all-in-one solution for employee rewards, and channel partner incentives.

Stats in accounts/users and Revenue streams

Share in Prepaid Cards market –16%+, Transaction volume wise ~13%

Strength of company

• #1 issuer of prepaid cards
• Multilingual interface
• In-house developed technology with strong network effect
• Customizable products
• Diversified customer relationships across sectors along with preferred banking and merchant partnerships
• Low churn rate of customer (<2%), long term relationships
• Seasoned management team and board

Awards

Company has received an award for “Best Spend Management System“ and “Best Cards Initiative for Zaggle ZatiX“ at 11th Edition Payments Industry Awards by KamiKaze B2B.

Company has received an award for “FinTech Brand of the Year“ at 4th Edition Festival of FinTech Conclave Awards 2024 in association with BW Businessworld.

Company has received an award for “Pride of Telangana “ Achiever” Start up Category 2024” by Round Table India and Ratnadeep.

Company has received an award for “Excellence in Innovation Business Spend Management Software India 2023” in the Global Banking and Finance Review Awards 2023.

Fundamental Ratios, Cash, EBITDA, PAT

Amazing Sales and Profit growth of 11x in 5 Years

ROCE and ROE close to 15%

Debt to equity is under control and close to Nil

Pledging is 0%, Promoter has good skin in game at ~44% shareholding

Though FII, DII decreased stake in last 2 qtrs but still stake held by FII, DII + HNI is big, Public holding only ~20% stake . Big Shark Ashish Kacholia has increased stake over few quarters towards 4%+ shareholding

Triggers

Macro Trends :

Moving towards Digital payments ; Increasing scope of Prepaid cards ; New companies coming up

PREPAID CARDS Growth till 2027 expected to be in range of 30-40% CAGR

Management Guidance and commentary

We doubled our revenue over the last 3 years and are poised to double our revenue over the next 2 years through organic growth. Our expectation of revenue growth for this fiscal year is to the tune of 45%-55%. We are focused on garnering more market share and making significant investments in technology, specifically building deeper AI capabilities to cater to the massive demand for Spend management solutions.
We intend to pursue inorganic growth opportunities through mergers and acquisitions.
Additionally, we plan to expand geographically into the US markets as part of our growth strategy.

New Vertical

In Q1FY24, Zaggle introduced corporate credit cards and vendor management platform – Zoyer.

Launch of credit cards as a product in FY24 . The monthly volume of transactions for credit cards exceeded the monthly volume of transactions for prepaid card

Zaggle Zatix – our analytics platform launched this FY & offered by Banks as bundled solution of Corporate Credit Cards + SaaS.

New contracts in Last 1 year

In Q1FY24, company entered into contract with BOB Financial Solutions Limited for implementing commercial card Onboarding & value-added services platform and launch of the Zaggle Yes Bank Corporate Credit Card, powered by Zaggle Zatix – a spend analytics platform that allows corporates to streamline business and employee expenses, budget better and negotiate favorable supplier terms.

Zaggle Save (Expense Management platform & Employee benefits)

• Employees of Hero Motocorp Limited.
• Lifestyle International Private Limited
• Quess corp limited
• Bennett, Coleman & Co. Ltd.
• ARCADIS CONSULTING INDIA PRIVATE LIMITED
• Wipro Limited
• Benetton India Pvt. Ltd.
• Emcure Pharmaceuticals Limited
• Europ Assistance India Pvt. Ltd.
• Axis bank limited
• Expleo Solutions Limited
• Yokohama India Private Limited
• Eversub India Private Limited (Subway)

Contract with Torrent gas for 2 years , approx 200cr business for Implementing Close Loop Fleet Program

Agreements with ecosystem players in varied domains like Domestic card, corporate cards, forex cards, Travel, Cross border payments

Agreement with VISA -In Oct,23, company has entered into a growth agreement with VISA. This alliance is in support of the issuance of Forex CoBrand Cards. Visa will pay the launch bonus for supporting the launch of Forex Cobrand Cards. and will also pay incentives on Forex transactions basis spend commitments. Zaggle can leverage existing Corporate base to sell forex cards to employees of the Corporate client, and it can be tightly coupled with Zaggle expense management solution. The deal size is ~$20 Mn for next 5 years.

Company has entered into an agreement with Skydo Technologies Private Limited. This is to enable facilatate cross border payments for Zaggle corporate customers

Zaggle is contracted to provide services to Bank whereby Zaggle’s accounts payable software & expense management software and the Axis bank Corporate Credit Cards are bundled and jointly offered to Zaggle corporate customers to drive card spends & greater usage of the software

Zaggle & EaseMyTrip will leverage its Existing Corporate base to sell Integrated Travel & Expense Management Solutions to Corporate Clients.

Zaggle & Riya Travel will leverage its Existing & New Corporate base to sell Integrated Travel & Expense Management Solutions to Corporate Clients.

Zaggle is contracted to be a Co-brand partner with Nishi Forex who is an Authorised Dealer II for forex card to carry out activities such as Sales and Distribution, Marketing and Campaigning bundled with Zaggle expense management to drive card spends & greater usage of the software. Subject to RBI approval the product launch will be done in due course.

Strategic alliances and partnerships with PSU

Opportunity Size

Zaggle Propel itself Can hit potentially 3000cr in revenue with overall revenue may hit 5000cr by 2030. Net profit margin may remain between 4-7%. Company may see profits of 250-350cr if opportunity size is grabbed. With an Eps of 19-25 and PE of 40-60 –Future Price Range oscillates between estimated 750-1500. Getting such a business at 100-150 Rs price point could be super deal (dont know if we get that price)

Peer analysis

Technicals on 6-Jul-24

Risks

Operating Cash flows are not good. That needs to be monitored closely

Working capital days, Cash conversion cycle is also expanding

Business is heavily titlted towards H2 of FY

Other income will go down once cash from IPO is Utilised

Lot of investment is being done in Zoyer for product enhancement and building of Zatix, an analytics platform. If products fails to takeoff, then a good amount will be written off from assets

Increased Regulatory Compliance poses many risks for Fintech companies

High valuations in short term is another risk though runway seems long for company growth

Disclaimer – Analysis is NOT a BUY/SELL/HOLD Recommendation. It can be used for educational purposes. There can be lot of things which have been missed in analysis either due to lack of information or oversight etc.. Do your own diligence & contact your expert financial adviser before making any investment decision.

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