Zaggle Prepaid Ocean Services Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Strong top-line, guided higher: Revenue grew 33.7% YoY, and management raised its FY24 growth outlook to 40–50%, driven by new products and cross-selling.
• Product mix is reshaping margins: The fast-growing Propel redemption business, accounted for on a gross basis, mechanically compresses the gross margin percentage even though its take rates are higher.
• Incentive costs are trending down: Incentive and cashback expense as a share of revenue fell 7% vs Q1 FY23, and management is actively working to optimize this cost further.
• Balance sheet is deleveraging fast: Post-IPO debt repayment of ₹47 crore will halve finance costs starting H2, with interest expense becoming minuscule by FY25.
• What to watch next quarter: Whether the new Zoyer platform and corporate credit card gain commercial traction, the pace of incentive cost reduction, and any disclosure on transaction values.

Product & Revenue Mix

• Three engines, one platform: Propel (rewards and incentives), Save (employee expense management and benefits), and the newly launched Zoyer (integrated payables platform) are all expected to grow. Propel was 65–70% of income last year, Save 30–35%, and Zoyer is now adding incremental revenue.
• Zoyer’s wedge: The platform integrates card and software, sitting as a “system of engagement” between the card network and the client’s ERP. Management argues a standalone card platform cannot match this because it lacks API integration with the ERP to map transactions to project codes.
• Corporate credit card tailwind: The co-branded corporate credit card launched with Yes Bank and other banks is expected to drive healthy growth in program fees (interchange, network incentives) in coming quarters.
• Propel’s margin mechanics: The business carries a direct fixed cost for the Propel point itself, after which most costs are variable and linked to revenue generation. Management expects a 1–2% EBITDA margin uplift on Propel as the business scales with inflation-linked growth.
• Save’s core use case: The product is primarily an employee reimbursement and expense management tool with bill scanning and cloud storage. The employee tax-benefit component is fairly small relative to the overall value proposition.

Avinash Godkhindi: "A standalone card platform would not be able to understand what the project code is itself, because the standalone card platform doesn't have an API integration with the ERP. Because my system, Zaggle's platform, sits in the middle of the card management system, which is the system of transactions, and the system of records, which is the ERP. We sit as a system of engagement."

Incentive Economics

• The cost is discretionary and declining: Incentive and cashback expense has fallen from ₹140 crores to ₹118 crores to ₹100 crores over the last three years, with a further reduction this quarter. The spend is discretionary, aimed at inducing usage among existing clients rather than acquiring new ones.
• Self-funding model: Incentives are paid out of the revenue generated on a transaction. Management illustrated: on a ₹1 lakh transaction earning ₹1,800 in revenue, a portion (e.g., ₹500–800) may be passed back to the user, so the company is never out-of-pocket on the spend.
• Not attributable to program fees: The incentive spend is designed to drive card usage on networks (RuPay, Visa, Mastercard) and cannot be directly attributed to program fee income or to Propel points.

Raj Narayanam: "this money is spent out of the money what we generate, so if my revenue is let's say 1.8% of a transaction, let's say, there is a one lakh transaction which happens, I earn INR1,800. So out of INR1,800, I might choose depending on who the user is to give him, let's say INR700, INR500, INR800 like that. So, there is never a question of that, we going out of pocket expenditure on this."

Margins & Operating Leverage

• Gross margin compression is mix-driven: The decline in gross margin is led by the growth of the Propel redemption points business, which is accounted for on a gross basis under Ind AS. This changes the margin arbitrage optically, though take rates on these points are higher.
• Operating leverage is structural: The business model is predominantly variable: direct costs, platform maintenance, and most employee costs scale with revenue. Only office rentals and a portion of employee costs are fixed, so headcount growth is expected to lag revenue growth.
• Finance costs halving: Post-IPO repayment of ₹47 crore in borrowings means finance costs in H2 will be roughly half of the prior two quarters, and by FY25 interest expense will be minuscule or zero.
• ESOP expense front-loaded: Total ESOP cost is expected to be close to ₹20 crore in FY24, dropping to a minuscule ~₹4 crore in FY25 and FY26.

Customer & Platform Metrics

• Churn is exceptionally low: The customer churn rate is currently less than 2%, which management calls one of its most significant metrics.
• Seasonality is pronounced: Historically, 60–65% of total revenue lands in H2 (Q3 and Q4), driven by festive sales and year-end card balance utilization. Management expects this pattern to persist while delivering YoY growth.
• IPO funds provide a long runway: The ₹490 crore raised is sufficient for the next three to four years of organic growth. The ₹300 crore earmarked for client retention will be spent over three years, not immediately. Additional capital would only be needed for an inorganic acquisition.

Avinash Godkhindi: "One of the most significant metrics is churn rate, which is currently less than 2% for us today."

Partnerships & Product Pipeline

• Visa Forex co-brand card: A jointly issued Forex card will be distributed to employees of existing corporate clients, integrated with Zaggle’s expense management solution. The product is expected to go live in the next two to three quarters.
• Bank of Baroda mandate: Zaggle will implement a commercial card onboarding and value-added services platform called ZatiX for Bank of Baroda Financial Solutions.
• Propel’s addressable market: Management sees significant runway in digitizing rewards for employees and channel partners, citing the obvious demand for instant, seamless reward delivery versus physical shipment.

Avinash Godkhindi: "Yes, there's a lot of opportunity in this space... because if you look at the number of companies who need to incentivize their employees and channel partners, etcetera, and to do it in a digital manner, in a seamless, rapid manner, it's fairly obvious. Nobody wants to wait for their reward to get shipped after 10 days, 15 days."

Guidance & Commitments

Key Metrics