Zaggle IPO: Unveiling a Distinct Blend of Fintech and SaaS

If you’ve been employed for more than a decade, you might recall the practice of receiving cash or specific coupons as rewards for your good work. These rewards would often appear as an envelope left on your desk, and you’d stow them away in your wallet for future spending. However, this process could be quite cumbersome.
Back in 2011, the founders of Zaggle Prepaid Ocean Services (the “Ocean” part remains a bit of a mystery) recognized this inconvenience. Their goal was to simplify the lives of both employees and companies, and their solution was to introduce cards that could streamline this process.
Now, you might be wondering, how could Zaggle issue these cards without being a bank or an NBFC (Non-Banking Financial Company)? The secret lies in Prepaid Payment Instruments (PPIs).
Picture PPIs as digital wallets or cards that function like miniature bank accounts. You can load them with funds, much like a gift card. The cardholder can then use this “stored” money for any purchases they desire. The beauty of it is that you don’t need to be a bank to deal with PPIs. You can simply partner with organizations like Zaggle to get started.
For nearly three years, Zaggle focused on enhancing the rewards and recognition (R&R) market through these cards, making significant strides in that arena.
But let’s rewind the clock by another decade. You might remember receiving paper slips alongside your monthly salary. These slips could be used to pay for meals at the cafeteria or for grocery shopping, and the expenses covered by these slips could be claimed as tax-free up to a certain limit. However, these slips often caused headaches, as they were easily misplaced and irreplaceable.
In 2016, Zaggle saw the logical next step. They teamed up with Visa to launch a multi-wallet card that employees could use both online and offline. Whether it was for meal vouchers, transportation, or other expenses, this card made everything straightforward.
This marked the beginning of Zaggle’s transformation into a fintech company. They positioned themselves perfectly at a time when the use of such prepaid cards was on the verge of taking off.
Next up was a significant move – handling expenses.
Imagine you had to rush to another city for an urgent client meeting. In such cases, you’d often end up using your own credit card to cover expenses. The arduous part came after – meticulously collecting and safeguarding receipts for every expense, from that airport coffee to taxi fares and meals. Then, you’d submit them and wait for what seemed like an eternity to get reimbursed.
Now, shift your focus to the HR department in your company. They’d likely express their reluctance to tackle the tedious task of tracking and reimbursing employee expenses. Dealing with stacks of paper receipts isn’t exactly their idea of a productive day. In large organizations, this could turn into a monumental headache. HR professionals would much prefer to avoid these mundane activities and channel their energy into more value-added tasks that boost employee engagement and motivation.
This is where Zaggle recognized a golden opportunity to expand its business horizon. They set out to develop software that would digitalize the entire expense management process. Companies could now effortlessly oversee all expenses from a centralized dashboard. Zaggle offered this software through a subscription-based model. What’s more, they didn’t stop at just expense management; they also had software to handle employee rewards and recognition, signaling their transformation from a mere card provider.
Zaggle’s business encompasses various other services, but the crux of it lies in these segments. It’s a diversified company, and you can now grasp how they’ve evolved into a fintech and Software-as-a-Service (SaaS) provider.
Now, let’s talk about Zaggle’s diversified sources of revenue.
First and foremost, they rake in revenue by providing corporate clients with reward points, known as Propel points, which they distribute to their employees. These points can be redeemed within the platform. Additionally, they earn money through collaborations with banks when prepaid cards are utilized at both physical and online points of sale, which falls under their “Program fees.” Customers are charged various fees for implementing their products, and they also enjoy continuous subscription income from the software they offer. Moreover, Zaggle has ventured into earning commissions through their “value-added services.” For instance, they’ve partnered with Fibe and Tata Securities to offer loans and wealth management products that employees can access. Every time someone signs up for these services, Zaggle receives compensation.
As per the Company’s Red Herring Prospectus, the market for expense management is quite vibrant. Investors globally have been injecting substantial funds into companies specializing in this field. This trend aligns with the broader goal of companies, regardless of their size or stage, to enhance cost management.
Zaggle finds itself in a favorable position due to its comprehensive product offerings. They’ve successfully built a loyal customer base, comprising over 2,400 customers. This customer base is divided into 75% large corporate accounts and 25% small businesses. Zaggle’s strong customer retention rate of just 1.50% over the past three years highlights their ability to maintain customer satisfaction. However, it’s important to note that Zaggle is a relatively young company with relatively new products. This low churn rate may face challenges as competition intensifies in the future.
The company seems to recognize this potential challenge. This could explain why nearly 70% of the ₹560 crore IPO consists of new shares. The influx of fresh capital will be primarily utilized to acquire new customers and retain existing ones, likely requiring investments in technology infrastructure.
So far, the prospects look promising, don’t they?
Now, let’s explore the potential risks associated with the IPO. What’s hidden in the fine print?
Firstly, the company’s borrowings have increased significantly. In March, they secured a ₹50 crore loan from a venture debt company. While a portion of the IPO proceeds will be allocated to repay this debt, it raises questions about why a SaaS company resorted to debt financing so close to an IPO. Currently, the company appears to carry a considerable debt load, with a debt-to-equity ratio nearly three times.
Furthermore, despite healthy-looking revenues on paper, Zaggle incurs substantial expenses, particularly related to reward points redemption and gift card usage, which account for 63% of the company’s total expenses. As a result, Zaggle reports a net profit of just ₹20 crores on revenues exceeding ₹550 crores, indicating a relatively modest net profit margin.
Lastly, there’s the issue of valuation. A Price-Earnings ratio (PE) of nearly 70 times has raised concerns among potential investors. Many feel that the company lacks the track record to justify such a premium valuation.
In conclusion, Zaggle may indeed be a unique HR fintech company operating in a promising growth segment. It might even be a 12-year-old startup that’s turning a profit. However, there are certain question marks that should be carefully considered before the IPO closes on September 18th.

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