Zaggle Prepaid Ocean Services Limited IPO

About the company:

Incorporated in 2011, Zaggle Prepaid Ocean Services Limited is a leading player in spend management. They have issued over 50 million prepaid cards in partnership with banks, serving more than 2.27 million users as of March 2023. The company is among a small number of uniquely positioned players with a diversified offering of fintech products and services. The company focuses on simplifying corporate spending through automated and innovative solutions. It provides fintech and SaaS products and services to companies engaged in various industries like banking, finance, technology, healthcare, manufacturing, FMCG, infrastructure, and automobiles. Their SaaS platform is designed for business spend management, rewards and incentives management for employees and channel partners, and gift card management for merchants, which is referred to as a customer engagement management system (CEMS). Zaggle serves a wide range of clients, including renowned names like TATA Steel, Persistent Systems, Vitech, Inox, Pitney Bowes, Wockhardt, Hiranandani Group, Cotiviti, Greenply Industries, and more.

The Objective of the Fresh Issue:

The company intends to utilize the net proceeds received from the fresh issue towards:
- Expenditure toward customer acquisition and retention.
- Expenditure towards development of technology and products.
- Repayment of existing borrowings, in full or in part, availed by the company.
- General corporate purposes.

Key Strengths and Opportunities:

- India’s spend management software and services market is dominated by the software segment, with a share of 75% in Fiscal 2023. This segment is poised for robust growth, with projections indicating a potential surge to ?131 billion by the year 2027 from the estimated ?73 billion in 2021. This growth is underscored by a commendable CAGR of approximately 25%. The increasing demand for technologies for process automation such as artificial intelligence and machine learning can further drive the growth of this segment.

- The company has strategically designed a multifaceted business model by diversifying its income streams. It acquires large user bases through its corporate and SMB customers thereby effectively managing the costs associated with the user acquisition, distinguishing itself from the other B2C and retail-oriented players. Furthermore, the platform is also equipped for cross-selling and up-selling capabilities, augmenting its revenue potential.

- It has a strong customer retention capability and has been successful in reducing the negative impact of low switching costs associated with a SaaS business. This resilience is further bolstered by the provision of subscription-based services, ensuring a dependable and recurring revenue stream for the organization.

Risks:

- Any termination of, or failure to maintain the relationships with any of the banking partners, or any changes to the fee structure due to a variety of factors, could adversely affect the business operations, and financial condition.

- India’s spend management market and the financial technology (“fintech”) space is rapidly evolving, increasingly competitive, fragmented, and subject to changing technology, shifting user and customer needs, new market entrants, and frequent introductions of new products and services. This implies that the company operates in a highly competitive industry, and an inability to compete successfully could have a material and adverse effect on its business, financial condition, and future prospects.

- The company is highly dependent on its senior management and other key management personnel for setting its strategic business direction and managing the business. If it is unable to retain these personnel, it could have an adverse effect on its business operations.

- The Company does not have any listed industry peers in India or abroad and it may be difficult to benchmark and evaluate its financial performance against other operators who operate in the same industry.

Financial Snapshot:

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