Zaggle Prepaid Share: A Promising Investment or Risky Bet?

Hey everyone! As a part of my research to identify high-growth companies, I recently came across an interesting name—Zaggle Prepaid Ocean Services Limited. What really caught my attention was the company’s management guidance to double its revenue by FY26, which shows great potential for growth in the coming years. I mean there must be something unique about the company that can double its top line in just two years and when I quickly checked this company, I found that ace investor Mr. Ashish Kacholia has already held this company in his portfolio since its IPO in September 2023.

Not only that, in the latest December holding (December 2024) both FIIs and DIIs have increased their stake big time in the company which intrigued me to study the company in detail. I must admit that they have a very unique business model. So, in today’s article, we will deep dive into Zaggle Prepaid Ocean Services’ business model, future growth prospects, financials, valuations and key risks in the growth thesis. With this, let’s get started with this article.

About Zaggle Prepaid Ocean Services (Business Model)

Founded in 2011 and headquartered in Hyderabad, Zaggle Prepaid Ocean Services Limited (commonly known as Zaggle) is a powerhouse in India’s spend management domain. The company, known for its unique and valuable offerings, delivers exceptional value to a broad spectrum of customers. Operating within the business-to-business-to-customer segment, Zaggle Prepaid is a dynamic fintech company that operates in a SaaS (Software as a Service) based business model and builds financial solutions and products to provide spend management solutions to businesses like corporates, SMEs & Startups through automated and innovative workflows, that helps them in managing employee expenses, vendor payments and channel incentives.

Leadership: As of March 31, 2024, Zaggle has achieved a milestone as India’s leading prepaid card issuer with over 50 million cards distributed and more than 2.73 million users served.

Customers and Corporate Collaborations: The company has catered to 3000+ clients to date and has an esteemed list of corporates like Tata Capital, Inox, NSDL, DBMS, Wockhardt, etc.

• Key Customers – Tata Steel, Greenply, Hiranandani, Persistent, etc.
• Banking Partners – Kotak, IndusInd, Axis, SBI and Yes Bank.
• Network Partners – Visa, Mastercard and RuPay.
• VAS Partners – DBS, Fibe, Tata Securities.

Strategic Alliances:

• Skydo Technologies Private Limited – A long-term partnership focused on providing international inward remittance solutions to corporate clients, ensuring seamless and perpetual collaboration.

• Wipro – A one-year alliance to enhance employee expense management and benefits, delivering valuable solutions to improve workplace efficiency.

• PNB MetLife India Insurance Company Limited – A 3-year partnership to offer comprehensive employee expense management and benefits, reinforcing the company’s commitment to employee welfare.

• Equinox India Private Limited – A one-year collaboration powering the Zaggle Propel rewards platform, elevating the employee experience with cutting-edge solutions.

• Founderlink Technologies Private Limited – A year-long alliance to provide business loans to Zaggle’s corporate customers, vendors and channel partners, helping fuel business growth and expansion.

These strategic alliances highlight Zaggle’s commitment to expanding its services and offering innovative solutions across multiple sectors.

Agreement with VISA: In October 2023, the company entered into a growth agreement with VISA to support the issuance of Forex co-brand cards. VISA will provide a launch bonus and offer incentives based on Forex transaction spending. Zaggle plans to leverage its existing corporate client base to sell Forex cards to employees, integrating it with its expense management solution. The deal is valued at approximately $20 million over the next five years.

Acquisition: On September 24, 2024, the company acquired a 98.2% equity stake in Span Across IT Solutions Private Limited. The company acquired 10,66,314 shares for ₹300.80/- (including a premium of ₹290.80/-).

Investment: On September 24, 2024 the company invested ₹15.6 crore for a 26% equity stake in Mobileware Technologies Private Limited on a post-issue and fully diluted basis.

For more information, you can explore their website: Zaggle | Spends Simplified. Now, let’s take a closer look at Zaggle’s innovative products and services to uncover what the company truly offers and the exciting ways it’s making an impact across industries.

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Zaggle Prepaid’s Products and Services

Zaggle offers three major products and services at the moment:

1. Propel

The Propel platform enables corporates to create and manage customized reward programs, making it easy to track performance and distribute rewards effortlessly. In today’s competitive landscape, companies are increasingly offering performance-based rewards to their employees — whether it could be for achieving sales targets, completing projects or demonstrating exceptional customer service or it could be rewards on special occasions like Diwali or New Year. This is where Propel truly stands out—empowering companies to craft personalized reward systems that make managing and distributing reward points effortless. With Propel, businesses can easily set up dynamic reward programs, offering employees exciting ways to redeem their points.

Employees can choose from a wide range of options to redeem their points, whether it’s shopping with vouchers from over 300 top brands like Amazon, Shoppers Stop, Tata CLiQ and more or loading their points onto a prepaid card for ultimate flexibility in their purchases. Propel makes rewarding employees both simple and thrilling!

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2. Save

Save is a comprehensive solution for managing employee expenses and reimbursements that helps companies streamline processes, improve efficiency and reduce leakage. So, earlier the challenge was that employees had to pay the expense out of their pocket up front and then save all the bills and submit them to the HR department to get the reimbursement however Save helps in streamlining these processes. It offers a mobile application that enables employees to scan and submit expense bills in real-time. The employee’s manager would get the notification and can be approved instantly.

Zaggle offers two models for handling employee expenses through Save:

i. Reimbursement to Zaggle’s prepaid card: Employees can incur expenses using their payment method and then submit bills for reimbursement. Once approved, the reimbursement amount is credited to Zaggle’s multi-wallet prepaid card.

ii. Direct spending through Zaggle’s corporate credit card: Employees can be provided with a corporate credit card issued by Zaggle in partnership with the bank. Employees can use the card for business expenses and then the company directly settles the credit card bill. All expenses are tracked and recorded on the Save platform for transparency and accountability.

3. Zoyer

The third platform of the company is Zoyer. In Q1 FY24, Zaggle introduced corporate credit cards and a vendor management platform – Zoyer. This platform is designed to streamline and automate various aspects of business spending including focus on vendor payments. So earlier two are focused on employees and this one is more on vendor payment. This allows businesses to seamlessly manage vendor payments, track expenses and gain valuable insights into their spending pattern.

With these three platforms, Zaggle offers a holistic spend management solution to corporates. Along with this in FY24, the company has created its AI-enabled bot, RazBot. I hope you have got a fair idea of their product offerings.

The image above highlights the company’s powerful Omnichannel technology offering, which combines co-branded bank cards, a user-friendly mobile app to track and manage spending, partnerships with multiple banks and network partners and an intuitive dashboard for easy reporting and analytics. In short, the company is offering a combination of payment tools, mobile technology and integrations that work together to provide a smooth and efficient experience.

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How does Zaggle Prepaid earn money?

Now, comes the most important question, how does Zaggle generate revenue? The answer lies in three key sources of income:

1. Software Fees: The company pays a subscription fee to the Zaggle platform for using their software. Software Fees contributed 4% of the total revenue in FY24.

2. Program Fees: Zaggle earns a commission on transactions made using the prepaid card issued through the platform. Program fees accounted for 42% in FY24, showcasing the strong demand for Zaggle’s solutions.

3. Commissions on voucher redemption: When employee redeem their points for brand vouchers, Zaggle earns a commission from the merchant partner. For example, if an employee uses a Shoppers Stop voucher and redeems it, Zaggle earns a good commission from Shoppers Stop.

As far as revenue breakup is concerned, the image above shows a clear picture where ₹31.2 crore has come from software fees in FY24. The program fee contributed ₹321.8 crore and Propel platform has contributed ₹422.5 crore. The figures in the image represent million but we are talking in crore.

Now, after you get a fair understanding of its business model, the second question that may come to your mind is that there are already many co-branded cards in the market. What makes Zaggle prepaid and credit cards special? In other words, what’s the moat of the company? To understand this, when I dig deeper, I found an answer.

The biggest difference that sets Zaggle cards apart from other co-branded cards is their seamless integration with corporate ERP systems, something traditional credit cards simply don’t offer. This integration gives companies far greater control over their expenses. For example, let’s say there’s a project for which the company has set a fixed expense budget of ₹500 crore and within that travel expense is ₹50 crore. That budget can be directly set and managed through Zaggle cards, ensuring full visibility. Managers can then dive into detailed analytics—tracking spending trends, identifying top expense categories, and analyzing spending patterns across cities. These powerful insights enable companies to make smarter, more efficient financial decisions, taking control of their spending like never before.

While all these things are good for the business, there’s one catch that you must know before taking a call on buying this stock and it is the incentive and cashback cost. At the moment to increase the adoption of their cards, the company is giving good incentives and cashback to the employees which is kind of a discount but that is an expense for the company. Last year during the IPO, the company raised around ₹300 crore for the retention of clients. This money would be spent over the next three years, so good growth would come because of these incentives and cashback.

What’s even more exciting? Zaggle is already a profitable company (we’ll dive into the financials soon). While the management has signaled plans to scale back these incentives down the line but for now, they’re in full-on growth mode, willing to invest heavily in customer acquisition. So, it would be very interesting to track how Zaggle will manage this transition and what impact will it have on growth post incentives are reduced. It’s a thrilling journey to watch unfold!

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Future Growth Prospects

Now, let us look at the future growth drivers for the company. As of now, it looks like there are three main growth drivers:

• The first growth driver is India’s digital payment boom. The increasing adoption of digital transactions across businesses and consumers creates a favourable environment for Zaggle’s spend management solution.

• The second is increased digitization and automation. Companies are increasingly seeking solutions to streamline their expense management process vendor payment and employee rewards and recognition programs.

• Third driver is strong partnership and collaboration. The company’s strategic partnership with leading banks like ICICI, Bank of Baroda and IndusInd Bank and payment networks like RuPay, Visa and MasterCard plays a crucial role in its growth. These partnerships provide access to a wider customer base and enhanced distribution capability.

Clearly, there are multiple growth drivers for the company but one key factor that would play a crucial role in the company’s future growth is customer retention and expansion plan. Currently, Zaggle has a very low customer churn of just 2%, meaning 98% of customers continue their journey with Zaggle. This strong loyalty helps Zaggle to focus on adding new customers every year, fueling its growth and success.

So, as every year its customer base would continue to grow, it would play a very important role in its growth. Additionally, Zaggle is focused on continuous innovation, regularly introducing new products and platforms to enhance its spend management offerings and on top of this, Zaggle has the opportunity for cross- selling and up-selling across its platform companies. All these strategies will play a crucial role in driving the company’s growth.

Another very important point to understand about Zaggle’s business is its highly scalable SaaS-based technology platform. There’s a reason why I like SaaS-based businesses, because these companies have a fixed investment cost on building the software however as their business grows revenue also grows but their expenses do not grow in that proportion as their biggest expense is software development which is already done. That is the reason why as the business expands for SaaS companies, their operating margin expands and so is their net profit. Hence these SaaS-based companies would always command a high PE at the early stage but as they grow their earnings would expand and PE would reduce.

Overall, Zaggle’s management has guided that their revenue should double in the next 2 years. In fact, a couple of months ago management mentioned that they’re planning to raise ₹950 crore to fuel their growth plan. They even intend to enter into the US market so they may also use this capital for inorganic growth via acquisition.

The company has outlined the following key strategies to drive its growth and success in the future:

Zaggle Financial Statement, Shareholding Pattern & Valuation

Financial Statement

If you look at the company’s net profit, it has grown at an exponential rate in the last few years and going forward management has guided that the revenue would double in the next two years by FY26, which would eventually boost the net profit again. Although company margins have fallen, that’s mainly because the company’s expenses have increased to grow its top line.

Here’s a breakdown of Zaggle’s revenue distribution for FY24:

• Software Fees contributed 4% of the total revenue.
• Program Fees accounted for 42%, showcasing the strong demand for Zaggle’s solutions.
• Propel Platform made a significant 54% contribution to the revenue of the company, highlighting the platform’s key role in driving growth.

This diversified revenue mix reflects Zaggle’s solid business model and continued success across different segments.

Zaggle has witnessed impressive growth in net profits post-pandemic, reflecting its strong market performance and effective strategies. With a solid Return on Equity (ROE) of 14.1% and a remarkable Return on Capital Employed (ROCE) of 17.2%, the company is clearly leveraging its resources efficiently to generate value. As Zaggle continues its expansion, profitability is poised for even further growth, positioning the company for long-term success.

What’s particularly striking is the company’s minimal debt load. With a debt-to-equity ratio of just 0.11, Zaggle remains financially sound and well-positioned to capitalize on future opportunities. This gives it significant flexibility to navigate challenges and continue scaling its operations.

However, the key area of concern remains its cash flow. Despite strong financial metrics, Zaggle has faced negative cash flow from operations over the past two years, which could signal potential liquidity risks. As a high-growth company with massive potential, it’s critical to monitor its earnings and cash flow moving forward to ensure that the path to sustained success remains clear. Maintaining a balance between growth and cash flow management will be crucial in unlocking Zaggle’s full potential in the coming years.

Valuations

As far as valuations are concerned. At its current level, it commands a market cap of around ₹5,968 crore with a Price to Earning ratio (PE) of 85.7. As I mentioned, it’s difficult to gaze at the valuation based on PE as it’s a very high-growth business rather we can look at the Price to Sales for valuation, which in my opinion is decent at 5.81.

Shareholding Pattern

A closer look at the shareholding pattern reveals that the promoters hold a 40.09% stake in the company, despite reducing their holdings in the December quarter. However, it’s important to note that this reduction in promoter holdings has been absorbed by Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). This shift indicates a strong institutional interest in Zaggle, suggesting confidence in the company’s growth prospects.

Although, FIIs reduced their stakes in between but that’s because some of the FIIs like Ventureast Proactive Fund, who were early-stage Venture Capitalist that invested long back and so they booked profit however since the June 2024 quarter, Zaggle Prepaid has again come into the radar of FIIs where they increased the stake big time from 5.95% in June 2024 to 9.17% in December 2024.

DIIs are also showing a huge interest in this company where they increased its stake from 5.44% in the June 2024 quarter to 14.56% in the December 2024 quarter. Public holding is currently 36.17% and it is reduced from the June 2024 quarter which is a positive sign. The public shareholding includes a few HNI investors including Mr. Ashish Kacholia who has also reduced some percentage of stake in the company in December 2024, probably to book some profits.

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Zaggle Share Price

Zaggle Prepaid share hit a remarkable 52-week high of ₹597 on December 17, 2024 on BSE, but following a market correction for the last month, currently, Zaggle Prepaid share price is at around ₹443. With its stock, now trading at a significant discount from its recent peak, it presents an interesting scenario for those keeping an eye on the stock. With the company’s strong growth trajectory and its positioning in the SaaS and Fintech space, the current dip might spark interest for potential investors looking for entry points.

While the current dip offers a promising entry point, it’s essential to stay on top of Zaggle Prepaid’s financials to ensure the company is on track for continued growth. This is a classic case of high potential at a discounted price, but like any investment, keeping a close eye on the numbers will be key to maximizing returns.

Needless to say, the purpose of this article is to share my knowledge with you all. This website is my initiative to discuss potential businesses that can grow big but whether you should invest or not is totally your decision because I strongly believe that to create long-term wealth in the stock market you need to have a fair understanding of the business before investing your hard earned money as stock buying based on tips is not really sustainable.

Also Read: Investment: The Key to Secure Your Financial Future

Key Risks in Company’s Growth

Now, let us look at the final part, which is the key risk in the company’s growth thesis. I have identified six key risks in the company’s growth thesis.

1. Seasonality Risk: The company’s business says that a significant portion of revenue comes from H2 which is third and fourth quarters (Q3 & Q4). Q3 is due to seasons like Diwali and end-of-season sales and Q4 is due to the end of the financial year where employees have to use their reward points before they expire. This dependence on a specific period for a large portion of revenue poses a risk of a fall in consumer spending during these critical periods due to any negative sentiment.

2. Reliance on Incentive and Cashback Program: As discussed before, currently Zaggle Prepaid allocates a significant portion of its revenue towards incentive and cashback programs to encourage card usage and attract new customers. While these initiatives are essential for driving customer acquisition and engagement, particularly in the prepaid card segment, they also represent a substantial cost for the company. Hence the effectiveness of these programs in driving sustainable growth and the potential impact of reducing these incentives on user behaviour would be a key area to monitor.

3. Competition in the Fintech Space: The Indian Fintech landscape is highly competitive with many players trying to capture market share and digital payments and spend management systems. Hence, Zaggle has to continuously innovate, make strategic partnerships and do effective marketing to attract and retain customers in a crowded market.

4. Regulatory changes and compliance: As a player in the financial service industry, Zaggle is subject to various regulation and compliance requirements from RBI.

5. Dependence on Key Partnerships: Zaggle’s business model relies heavily on collaborations with banks, payment networks and merchants. The success of these partnerships is crucial for Zaggle to expand its reach, offer a comprehensive range of services and maintain its competitive advantage.

6. Economic Downturn and its Impact on Spending: Zaggle business performance is inherently linked to the overall economic condition and spending pattern. An economic downturn or reduced customer confidence or a corporate spending cut could negatively impact transaction volume and consequently impact Zaggle’s Revenue.

Conclusion

So on one side while the business is looking quite promising, on the other hand, it has its fair share of risk that you must keep in mind before investing your money. Overall, Zaggle is a very innovative business model that operates in the intersection of two rapidly evolving industries: SaaS and Fintech business in the area of spend management solutions for corporates. With a clear vision to double its revenue in the next two years, Zaggle is already on a fast track and is in a sweet spot, capitalizing on the surge in digital payments and the growing demand for streamlined solutions in expense management, vendor payments and employee rewards.

Since it’s a SaaS-based model, it’s a highly scalable business and as the business grows company’s margins would expand and so would profitability. So in my opinion it’s a high-risk, high-reward kind of game, only suitable for high-risk takers to consider locating a small portion of their portfolio in this company.

So, that was all for this article. Now tell me in the comments, what is your take on Zaggle and is it worth investing the money or not? I hope you’ll find this article useful. I’ll see you in the next video, till then take care! Happy Investing!

Disclaimer: We are not a SEBI-registered research analyst. The information provided in this article is intended solely for educational, illustrative and awareness purposes. Nothing contained herein should be construed as a recommendation. Users are encouraged to seek professional financial advice before making any decisions based on the content provided.

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