The ₹563-crore initial public offering (IPO) of Zaggle Prepaid Ocean Services opened for subscription today, September 14 and will close on September 18, Friday. The firm has fixed the price band in the range of ₹156-164 per share for the issue.
About the issue: The IPO comprises a fresh issue of 2.39 crore shares, aggregating up to ₹392 crore and an offer-for-Sale (OFS) of 1.04 crore shares worth ₹171.38 crore by promoter shareholders Raj P Narayanam, Avinash Ramesh Godkhindi, and others.
Subscription status: The issue has received a weak response from investors. At 1:35 pm on its first day of bidding, the IPO was subscribed to just 11 percent against its offer. It has received bids for 19.89 lakh shares against 1.88 crore shares on offer. The category for retail investors was bid the most, 53 percent, followed by that of non-institutional investors (NII), which was subscribed to just 4 percent. However, the qualified institutional buyers (QIBs) portion has not received any bids till now.
GMP: Shares are commanding a premium of ₹34 apiece in the grey market today, indicating an around 21 percent premium at listing. However, it has reduced from ₹36 in yesterday's deals.
However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.
Objective: The company plans to use the net proceeds from the offering to fund customer acquisition and retention costs, product and technology development costs, general corporate expenses, and the repayment or prepayment of some borrowings that the company has taken out, in full or in part.
Reservation: Zaggle IPO has reserved not more than 75 percent of the shares in the public issue for qualified institutional buyers (QIB), not less than 15 percent for non-institutional investors (NII), and not less than 10 percent of the offer is reserved for retail investors.
Lot size: Potential investors can bid for a minimum of 14 shares and in multiples of 90 shares thereafter. Hence, one lot will cost investors ₹14,760.
About the firm: Founded in 2011, Zaggle Prepaid Ocean Services is a prominent player in the business-to-business-to-customer (B2B2C) segment. The company specialises in delivering fintech products, including prepaid cards and software-as-a-service (SaaS) solutions, to corporate clients across various sectors. ZPOSL occupies a distinctive position at the convergence of the SaaS and fintech ecosystems. It offers a comprehensive SaaS platform geared towards addressing essential business functions, such as business spend management (covering expense and vendor management), rewards and incentives management for both employees and channel partners and a customer engagement management system (CEMS).
Financials: Zaggle’s revenue grew at a 52 percent CAGR over FY21–23, while its Adj. PAT grew 38 percent CAGR during the same period due to an increase of 151 percent in the user base. For FY23, ZPOSL recorded a consolidated net profit of ₹36.9 crore, with its revenue reaching ₹553.5 crore. For the last three fiscals, the company has posted EBITDA margins of 11.5 percent (FY21), 16 percent (FY22), and 11 percent (FY23 adjusted EBITDA), and its Adj. PAT margins were 8.1 percent, 11.3 percent, and 6.7 percent for the corresponding periods, respectively.
Book-running managers: ICICI Securities Limited, Equirus Capital Private Limited, IIFL Securities Limited and JM Financial Limited are the book-running lead managers to the offer. Kfin Technologies Ltd is the offer's registrar.
Important dates: The finalisation of the basis of allotment will be done on September 22, and the initiation of refunds will be on September 25. The company's shares are proposed to be listed on both BSE and NSE, with September 27 as the tentative date of listing.
Brokerage Views
Brokerages were mixed on the issue. Some recommended subscribing to the issue driven by its diverse client base, consistent revenue growth, diversified revenue model, and flourishing digital payments sector. However, the IPO seems aggressively priced, which has kept others on the sidelines.
Geojit Financial Services: Subscribe
At the upper price band of ₹164, ZPOSL is available at an Adj. P/E of 54.3x (FY23), which appears to be aggressively priced. However, several factors contribute to its appeal, including a diverse client base spanning various industries, consistent revenue growth over the years, the company's expansion strategies, a diversified revenue model, and the flourishing digital payments sector. Given these considerations, we recommend a "Subscribe" rating for the issue on a short- to medium-term basis.
Choice Broking: Subscribe with caution
Zaggle has incorporated a wide range of capabilities into a single platform, making it one of the most feature-rich consumer solutions. The company's top line has grown tremendously. The company has a promising future thanks to the debut of its new platform, "Zoyer," and continual efforts to grow its customer base.
According to the company’s RHP, there are no other publicly listed firms, both in India and abroad, that engage in a business similar to that of Zaggle. However, the company’s P/E multiple at a higher price band, after adjusting for post-IPO fully diluted paid-up equity, comes out to 87.4x (to its FY23 EPS of Rs. 1.9), which seems to be aggressively priced and thus we assign 'Subscribe with caution' rating to this issue.
Stoxbox: Avoid
The company demonstrated growth at a CAGR of approximately 51.9 percent during the three years between FY2021 and FY2023, driven by increased usage of digital modes of payment during this period in India. If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, the asking price is at a P/E of 66.7 and we believe it to be priced aggressively. We, therefore, recommend an ‘Avoid’ rating for the issue. However, we would reassess the company on improvement in financial metrics over a sustained period.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.
