Zaggle Prepaid Ocean Services IPO expected to see tepid listing on bourses

The company will spend fresh issue money for customer acquisition and retention, and the development of technology and products, at a cost of Rs 340 crore. It will also repay its debt amounted to Rs 17.08 crore and the remaining funds will be used for general corporate purposes.

Despite receiving decent investor interest during the initial public offering (IPO), Zaggle Prepaid Ocean Services is likely to see a flat debut on the bourses on September 22, according to analysts tracking the issue.

According to dealers active in the unlisted market, Zaggle Prepaid Ocean Services commanded a grey market premium (GMP) of Rs 14 against the issue price of Rs 164, meaning a premium of about 9 percent.

“We expect Zaggle to list at a 5-8 percent premium to the issue price,” said Astha Jain, Senior Research Analyst at Hem Securities. “We recommend booking partial profits and holding a partial allotment for the long term as the company has a a differentiated SaaS-based fintech platform, offering a combination of payment instruments, a mobile application, and API integrations.”

The SaaS-based fintech platform raised Rs 563.38 crore via the public issue, at the upper end of the price band of Rs 156-164 per share. The offer comprises a fresh issue component of Rs 392 crore worth of shares and an offer-for-sale (OFS) portion of 1.04 crore shares worth Rs 171.38 crore by eight selling shareholders, including promoters.

The company will use the fresh issue money for customer acquisition and retention, as well as the development of technology and products, at a cost of Rs 340 crore. It will also repay its debt amounting to Rs 17.08 crore, with the remaining funds being used for general corporate purposes.

“Although the company operates in a niche market that offers a combined solution for spend management (through payment instruments) and employee management (through SaaS), we believe that the IPO is aggressively priced at a P/E of 66.7x FY23 earnings,” said Shreyansh Shah, Research Analyst at StoxBox.

“Also, the fintech industry in which the company operates is highly competitive, which may affect the company's earnings prospects. We, therefore, advise investors who have received allotment to sell their shares on the opening day and consider other avenues for investment. Market participants can reassess the company on improvement in the company’s financial metrics over a sustained period.”

The company’s revenue from operations grew at a CAGR of 52 percent during FY21-23, and the adjusted PAT increased at a CAGR of 38 percent during the same period due to an increase of 151 percent in the user base. For FY23, it has recorded a consolidated net profit of Rs 36.9 crore on revenue of Rs 553.5 crore.

Anubhuti Mishra, Equity Research Analyst at Swastika Investmart, underlined that Zaggle is a uniquely positioned player in the fintech industry, but it has a major dependency on third parties and has faced negative cash flow and a decline in its profitability in recent years.

“The IPO is coming at a P/E valuation of 67x, which is significantly higher than the valuations of its listed peers. The company's debt-to-equity ratio is also high,” said Mishra. “The current market sentiment may also impact its listing.”

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