IPO Analysis: Zaggle Prepaid Ocean Services Ltd

IPO Rating: Apply for listing gains

About the Issue 

Established in 2011, Zaggle operates within the business-to-business-to-customer (B2B2C) industry, distinguishing itself as one of the select players with a distinctive portfolio encompassing a wide range of fintech products and services. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Re 1. The IPO price range is set between Rs 156 and Rs 164 per equity share, resulting in a total issue size of Rs 563.38 crore at the upper price band. 

The IPO is scheduled to commence on September 14, 2023, and will conclude on September 18, 2023. The anticipated listing on the exchange is set for September 27, 2023. The market lot size for the IPO is 90 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 1,170 shares or a total investment of Rs 1,91,880 assuming the upper price band. 

Objects of the Issue 

The company plans to allocate the net proceeds raised from the issue for the following purposes: 

1. Expenditure towards customer acquisition and retention 

2. Expenditure towards development of technology and products 

3. Repayment/ pre-payment of loans, in full or part, availed by the company  

4. General corporate purposes 

Promoter holding 

Raj P Narayanam and Avinash Ramesh Godkhindi are promoters of the company. The promoters currently hold a pre-issue shareholding stake of 57.91 per cent in the company. 

About the company 

Established in 2011, Zaggle has emerged as a prominent figure in the realm of spend management, characterized by a unique value proposition and a diverse user base.  

The company operates within the business-to-business-to-customer (B2B2C) sector and stands out as one of the few uniquely positioned players offering a diverse array of fintech products and services. At present, the company boasts a user base exceeding 1.7 million individuals and has issued an impressive 45 million prepaid cards since its inception. 

The company’s distinctions include having the largest number of issued prepaid cards in India, maintaining a varied portfolio of Software as a Service (SaaS) solutions, including tax and payroll software, and boasting an extensive network of touchpoints.  

The product portfolio of the company included Propel, Save, CEMS (customer engagement management system), catering to various purposes, and it launched 'Zoyer' in 2022 to simplify and automate business-to-business payments for enterprises and SMEs. 

Financials 

Outlook and Valuation  

The company experienced notable revenue growth over the past few years; however, in FY23, the bottom line (net profit), showed a significant decline compared to the last year. The company attributed this decline to factors such as its Employee Stock Ownership Plans (ESOP) and other one-time adjustments. The company reported a negative net worth in both FY21 and FY22.  

The issue is priced with a P/BV ratio of 31 times, calculated using its Net Asset Value (NAV) of Rs 5.29 as of March 31, 2023. At the upper price cap, it is priced at a P/BV ratio of 3.72, considering its post-IPO NAV of Rs 44.12 per share. When we compute the PE ratio for the company by considering FY23 earnings to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at approximately 87, indicating a highly aggressive valuation. 

While the company maintains its focus on customer acquisition, retention, and the development of technology and products, a significant portion of the net proceeds will also be earmarked for repaying the term loan. The company operates in a highly competitive industry and relies on third-party payment networks and channel partners for various aspects of its business operations. 

The Grey Market Premium (GMP) is the difference between the IPO's issue price (the price at which the company is offering its shares to the public) and the price at which those shares are trading in the Grey Market. In the case of Zaggle Prepaid Ocean Services, there is anticipation of a 12 per cent potential gain upon listing, bolstered by a Grey Market premium of Rs 20 on top of the IPO price of Rs 164. 

Hence, we advise investors to consider a cautious, moderate subscription to the offering, with a focus on a listing gain.