IPO Size: Rs. 563 cr

• Rs. 392 cr fresh issue for customer retention (Rs. 300 cr), technology development (Rs. 40 cr), debt repayment (Rs. 17 cr)
• Rs. 171 cr offer for sale (OFS) – 70% by investors like VenturEast and GKFF (31% combined stake to reduce to 19% and 30% by 2 promoters (58% stake to drop to 44%)

Price band: Rs. 156-164 per share

• 75% reserved for institutional investors, as FY20 EBTDA was below Rs. 15 cr
• Rs. 98 cr pre-IPO placement at Rs. 164 per share in mid-Aug 2023

M cap: Rs. 2,004 cr, implying 28% dilution

IPO Date: Thu 14^th Sep to Mon 18^th Sep 2023, Listing Wed 27^th Sep 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Hyderabad-based Fintech SaaS company

Zaggle provides software as a service (SaaS) in the spend management space, such as channel and employee rewards, employee expense management, gift cards, embedded finance, having issued 50 million pre-paid cards in partnership with banks. This fintech company operates on a B2B2C business model, with its new product Zoyer for vendor payments platform being a larger opportunity than existing products. It boasts of strong customer retention with just 1.4% churn rate.

Growing Financials

Company revenue has grown from Rs. 68 cr in FY20 to Rs. 553 cr in FY23. Interchange fees have risen at 47% CAGR to Rs. 169 cr, whereas platform /SaaS fees are up 3x in last 3 years, to Rs. 24 cr in FY23. Gift card business has also been growing, with gross margin surging from Rs. 2 cr in FY21 to Rs. 41 cr in FY23, reflecting increased volumes. Even on YoY basis, FY23 revenue rose 49% YoY. EBITDA margin in FY20 and FY22 stood at 16%. However, one-offs lowered margin to 9% in FY23, as EBITDA declined 20% YoY to Rs. 48 cr - (i) Rs. 14.4 cr non-cash ESOPs charge (ii) undisclosed product development expenses, likely to fetch revenue FY24E onwards. Thus, FY23 reported PAT stood at Rs. 23 cr, and at Rs. 34 cr adjusted for ESOPs.  

Capital-Efficient Business

Company is a boot-strapped business, with only Rs. 17 cr being raised in last 12 years till date (prior to Rs. 98 cr pre-IPO placement). It has built a profitable business, with annual EBITDA of over Rs. 60 cr, and growing. Fresh issue and pre-IPO proceeds of almost Rs. 500 cr will support future growth plans.

Inline Pricing

FY24 outlook is more promising that FY23. Even if FY22 PAT of Rs. 42 cr (EPS Rs. 4.57) is considered, shares are being offered at historic PE multiple of about 36x, which is inline. While there are no exact comparable peers, Route Mobile having B2B SaaS operations and SBI Cards issuing credit cards, are both ruling at similar multiples.

During May-Jun 2022, Zaggle undertook preferential allotment at an adjusted price of Rs.357 per share. Since FY23 reported EPS dropped to Rs. 2.46, from Rs. 4.57 in FY22, current IPO price has been suitably lowered.