Zaggle Prepaid Ocean Services: Q2-25 Earnings Call Highlights

Raised FY25 revenue growth guidance from 45-55% to 50-55%. Growth driven by expanding product portfolio, cross-selling products, international expansion & acquisitions. Committed to grow margins

Money Muscle

Nov 17, 2024

zaggle.in | NSE: ZAGGLE

1. Key Takeaways

1.1 TLDR

The earnings call conveyed a strong sense of optimism about Zaggle's future prospects.
The company's record revenue growth, strategic acquisitions, and focus on platform expansion are positioning it well for continued success in the rapidly growing spend management market.
While acknowledging the competitive landscape, management expressed confidence in their differentiated offerings and ability to capture market share.

1.2 Operational Highlights:

Record Revenue Growth and Profitability: Zaggle reported its highest-ever quarterly revenue at INR 302.6 crores, a 64% YoY growth. Adjusted EBITDA grew by 36% YoY to INR 29.5 crores, demonstrating the strength and resilience of the company's business model.
Margin Expansion: While maintaining current EBITDA margins, Zaggle expects significant margin expansion in the coming years
Strategic Acquisitions and Investments: Zaggle completed the acquisition of TaxSpanner to integrate tax services into its product portfolio. The company also received board approval for an investment in MobiKwik, strengthening its position in the payment infrastructure space.
Continued Focus on Cross-Selling and Platform Strategy: Zaggle is transitioning from a product-focused company to a platform-based approach. This strategy is driving deeper integration into clients' ecosystems, increasing customer lifetime value, and expanding revenue streams.
International Expansion, Particularly in the US Market: Zaggle is actively pursuing international expansion, recognizing the global potential of spend management solutions. The US market is a key focus area, with strong customer demand and a favorable cost structure for Zaggle.
Proposed Fundraise for Growth Initiatives: Zaggle has received board approval for a fundraise of up to INR 950 crores, subject to shareholder approval. The funds will be used to fuel organic and inorganic growth, including international expansion
New Product Launches & Acquisitions: Zaggle launched new products including Zoyer (petty cash & BBPS solutions) and Zaggle International Payments (ZIP), and acquired Tax Banner, adding comprehensive tax services.
Growth Guidance: The company increased its revenue growth guidance for FY25 to 50-55%.

1.3 Key Themes:

Strong Growth & Market Leadership:
- Zaggle's strong revenue growth is attributed to its comprehensive product offerings, strong customer relationships, and strategic acquisitions.
- The company has benefited from the funding winter impacting smaller competitors, allowing them to capture market share.

"Listing has helped us consolidate our position as the number one spend management company in India."
"Through this year, there has been a heightened focus to sign large enterprise accounts which helps us to sell multiple products and use cases, lowers our CAC and increases the lifetime value of the customer."

2. Product Diversification & Expanding TAM:
- Zaggle's diverse product portfolio caters to a wide range of industries and addresses various spend management needs.
- The company is actively introducing new products and use cases, expanding its total addressable market (TAM).

"By diversifying our product portfolio and introducing more use cases, we have not only diversified our revenue streams but also expanded our total addressable market TAM considerably."
"Zyer our accounts payable platform has found a high degree of acceptance and a major use case that has emerged is pettic expense management."

3. Focus on Cross-selling & Platform Strategy:

Zaggle is actively promoting cross-selling, leveraging its existing customer base to drive adoption of multiple products.
The company is transitioning from a product-focused company to a platform-based company, offering a suite of integrated solutions.

"Our focus is going to be on the cross sell cross sell continues to be a key focus area for us which allows us to deeply integrate into our clients ecosystem. We from a product company are slowly moving towards a platform company."

4. International Expansion & Inorganic Growth:

Zaggle is pursuing international expansion, particularly in the US market, where it sees strong customer demand.
The company is actively exploring strategic acquisitions and inorganic growth opportunities, particularly in the fintech sector.

"Additionally, we are working on expanding internationally, leveraging our success in the domestic market to build a strong global presence... In the international markets, US market, you know, remains as a key opportunity due to its vast potential."
"Our focus is to expand our business by tapping into newer, deeper profit pools, increasing our customer base and building a foundation for a stronger growth." -

5. Strong Financial Performance & Future Outlook:

Zaggle delivered strong financial performance with record revenue, robust profitability, and healthy cash flow.
The company is confident in achieving its growth targets and expanding margins in the coming years.

"Given our strong performance this quarter, we are upping our guidance to 50 to 55% growth in our top line for FY25. We are very confident of doubling our FY24 revenues. In next two years, as we rapidly grow our top line, we are committed to protecting and growing our margins over a period of time, which is of paramount importance to us."

1.4 Key Quotes

On growth: "Our performance has exceeded our stated guidance and demonstrates the resilience and agility of our business model. [...] Our comprehensive offerings combining cutting-edge technology with unparalleled customer service makes us a trusted partner for business across industries and geographies."
On product diversification: "By diversifying our product portfolio and introducing more use cases, we have not only diversified our revenue streams but also expanded our total addressable market (TAM) considerably."
On international expansion: "In the international markets, the US market, you know, remains as a key opportunity due to its vast potential. [...] We also see that there is a very strong customer demand in the US for products like ours."
Dr. Raj Narendam on fundraising: "In line with our growth plans, we have taken approval from the board of directors for a fundraise up to rupees 5,950 crores which is 9,500 million subject to shareholders' approval."

1.5 Analyst & Investor Questions & Management Responses:

Margins on Propel Platform: Management explained that lower margins in the current quarter were due to high brand usage (Amazon, Flipkart) and that they expect margins to return to the normal range of 7-9% in H2 FY25.
Split between organic and inorganic growth for the proposed fundraise: Management stated it was too early to determine the exact split but emphasized that the funds would be used for both organic and inorganic growth initiatives, as well as international expansion.
Backward integration through NBFC acquisition: Management clarified that while they are exploring opportunities in the NBFC space, the focus remains on tech-led plays with differentiated value propositions. They are not averse to becoming an issuer of payment instruments if it aligns with customer demand and profitability.
RBI's view on Zaggle's products: Management emphasized their commitment to compliance and working within regulatory frameworks. They partner with established banks and issuers to ensure adherence to regulations.
Revenue streams for the ZIP product: Revenue streams for ZIP include interchange fees, user fees, card issuance fees, and potential forex markups. Zaggle shares revenue with partner banks and issuers based on generated volumes.
GMV for Zoyer and revenue share from other verticals: Management refrained from providing specific breakdowns of GMV and revenue share due to the cross-selling strategy where the same card is used across multiple products and use cases. They confirmed healthy growth across all business lines.
Impact of competition facing headwinds: Management acknowledged that the funding winter in the fintech sector is creating opportunities for Zaggle to acquire customers from struggling competitors.
Revenue breakup between Zaggle Save and Zoyer: Due to the cross-selling strategy, management stated it's difficult to provide a precise breakdown. However, they highlighted that both products are experiencing healthy growth.
Efforts to reduce incentives and cashback: Management outlined their efforts to optimize incentives and cashbacks by encouraging repeat usage, focusing on large enterprise customers, and empowering sales teams to negotiate lower cashback offers.
Insights on fleet management opportunity: Management believes the fleet management solution has exponential growth potential, given the unorganized nature of the market and increasing goods transportation in India. They highlighted partnerships with OEMs and plans to integrate vehicle servicing solutions.

Margins on Propel Platform: Management explained that lower margins in the current quarter were due to high brand usage (Amazon, Flipkart) and that they expect margins to return to the normal range of 7-9% in H2 FY25.
Split between organic and inorganic growth for the proposed fundraise: Management stated it was too early to determine the exact split but emphasized that the funds would be used for both organic and inorganic growth initiatives, as well as international expansion.
Backward integration through NBFC acquisition: Management clarified that while they are exploring opportunities in the NBFC space, the focus remains on tech-led plays with differentiated value propositions. They are not averse to becoming an issuer of payment instruments if it aligns with customer demand and profitability.
RBI's view on Zaggle's products: Management emphasized their commitment to compliance and working within regulatory frameworks. They partner with established banks and issuers to ensure adherence to regulations.
Revenue streams for the ZIP product: Revenue streams for ZIP include interchange fees, user fees, card issuance fees, and potential forex markups. Zaggle shares revenue with partner banks and issuers based on generated volumes.
GMV for Zoyer and revenue share from other verticals: Management refrained from providing specific breakdowns of GMV and revenue share due to the cross-selling strategy where the same card is used across multiple products and use cases. They confirmed healthy growth across all business lines.
Impact of competition facing headwinds: Management acknowledged that the funding winter in the fintech sector is creating opportunities for Zaggle to acquire customers from struggling competitors.
Revenue breakup between Zaggle Save and Zoyer: Due to the cross-selling strategy, management stated it's difficult to provide a precise breakdown. However, they highlighted that both products are experiencing healthy growth.
Efforts to reduce incentives and cashback: Management outlined their efforts to optimize incentives and cashbacks by encouraging repeat usage, focusing on large enterprise customers, and empowering sales teams to negotiate lower cashback offers.
Insights on fleet management opportunity: Management believes the fleet management solution has exponential growth potential, given the unorganized nature of the market and increasing goods transportation in India. They highlighted partnerships with OEMs and plans to integrate vehicle servicing solutions.

Zaggle Prepaid Ocean Services Limited Q2 FY25 Earnings Call FAQ

1. What were the key financial highlights of Zaggle for Q2 FY25?

Zaggle achieved record-breaking quarterly revenue of INR 3026 million, a 64.2% year-on-year growth. Adjusted EBITDA grew by 36% to INR 295 million. Cash profit, including depreciation and ESOP expenses, increased by 43% to INR 238.7 million, also the highest ever recorded.

2. Why were Propel platform gross margins lower than usual this quarter?

The lower margins (3.5% vs 8-10%) were due to higher brand usage on platforms like Amazon and Flipkart. This is expected to be temporary, with margins returning to the 7-9% range in H2 FY25 due to overriding commissions from brands.

3. How will the proposed INR 950 crore fundraising be allocated between organic and inorganic growth?

The exact allocation is yet to be determined and depends on market opportunities. The funds will support organic growth, international expansion, and strategic acquisitions in areas like NBFCs, payments, and SaaS.

4. Is Zaggle considering acquiring an NBFC, and what are the potential risks and benefits?

Zaggle is exploring various M&A opportunities, including NBFCs, to expand its offerings and profitability. While acquiring an NBFC could bring additional capital requirements and credit risk, it also presents an opportunity for backward integration into payment instruments and deeper customer penetration.

5. How is Zaggle benefiting from the challenges faced by its competitors?

The current funding winter has caused some fintech companies to struggle with profitability, leading to closures or abandonment of growth plans. This provides Zaggle with opportunities to acquire new customers from these struggling businesses.

6. What are the key features and benefits of Zaggle's BBPS solution within the Zoyer platform?

The BBPS solution simplifies utility bill payments for businesses. It offers one-time biller registration, automated bill fetching, and multi-level approval workflows, streamlining payments, avoiding penalties, and ensuring timely bill submissions. This integrates seamlessly with Zaggle’s business credit cards.

7. What are Zaggle's plans for expansion into the ONDC platform?

Zaggle intends to leverage the growth of ONDC by offering its solutions on the platform. They anticipate significant opportunities in corporate rewards and gifting, particularly from government and public sector entities.

8. How does Zaggle plan to compete in the fleet management solutions market against established players like WEX?

Zaggle aims to capitalize on India's expanding road network and the growth of goods transportation. Its solution caters to the largely unorganized fleet management sector, offering fleet owners spend control, tracking, and integration with fuel providers and OEMs. This presents a high-growth opportunity for Zaggle, potentially growing exponentially in the coming years.

Source: Link to Earning Call Recording

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