Equirus Securities starts 'buy' rating on Zaggle Prepaid Ocean, raises target price 43%

Equirus Securities has initiated buy rating on Zaggle Prepaid Ocean Services Ltd and increased target price by 43 percent to Rs 400 a share

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Brokerage Equirus Securities has initiated a 'buy' call on Zaggle Prepaid Ocean Services Ltd and raised the target price by 43 percent to Rs 400 a share from its current market price.

Set up in 2011, Zaggle has primarily self-funded its growth as a startup. It specialises in spending management, offering three main products: 'Propel' for corporate rewards and incentives, 'Save' for employee reimbursement and tax benefits, and 'Zoyer' for integrated data-driven spends management.

The Zaggle system provides real-time spending visibility, aids in risk management, implements internal controls, and develops expense-related policies, ultimately reducing time and effort spent on low-value but crucial compliance activities for companies.

Zaggle earns revenue through SaaS/subscription fees from corporates using the platform, interchange fees from banking partners, and fees from redemption of Propel reward points.

"We believe Zaggle is in the initial phase of its lifecycle with multiple legs of growth ahead like (a) new customer acquisition, (b) increased cross-selling of products to existing customers, (c) global expansion, and (d) new product offerings," Equirus said in a note.

Zaggle operates on a distinctive business model, earning only 10-20 percent of revenues directly from benefiting corporations. The majority of its revenue comes from merchants where card spends occur or where reward vouchers are redeemed. It faces minimal competition across its three product segments and boasts a customer churn rate below 2 percent. Its B2B2C model minimises customer onboarding costs. Equirus views Zaggle as a unique and profitable fintech entity.

"We build in FY24-FY27 revenue (net)/EBITDA/PAT CAGR of 47 percent/40 percent/45 percent aided by 32 percent/50 percent gross/net revenue by FY27 coming from a recently launched vendor payments solution (Zoyer). However, a high growth in Zoyer will result in incentives and cashbacks (68 percent of programme revenues in FY27) to stay elevated in the near term. Initiate coverage with long and a FCFF-based March 2025 target price of Rs 400 as we build in FY24-26/FY26-34 revenue CAGR at 49 percent/22 percent with improving EBITDA margins," Equirus said.

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