Zaggle Prepaid Ocean Services Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Strong quarter, guidance held: Revenue grew 35.1% YoY and adjusted EBITDA grew 56.4% YoY, driven by a surge in high-margin program fees; management reiterated its 40-50% revenue growth and 11-13% EBITDA margin guidance.
• Program fees are transforming the P&L: Program fees, which carry ~95% gross margins, hit 44% of total revenue this quarter, lifting overall gross margin from 38% to 51% QoQ.
• Zoyer is scaling fast but investing for growth: The accounts payable platform crossed Rs.2,000 Crores in spends this quarter; elevated incentive costs to drive adoption are a near-term drag, but SaaS fees are beginning to ramp.
• New vectors are opening: A fleet loyalty card win with Torrent Gas, a co-brand card with Kotak, a planned forex card, and early steps toward international expansion all add optionality beyond the core 40% growth story.
• What to watch next quarter: Whether Propel Point margins recover to the promised 11-13%, the pace of client additions from the Paytm disruption, and any quantification of Zoyer’s SaaS fee trajectory.

The Program Fee Mix Shift

• Massive growth in program fees came from increased prepaid and credit card spends, pushing program fees to nearly 44% of total revenue this quarter.
• Gross margin jumped from 38% in Q2 to 51% in Q3, a direct consequence of that mix shift: program fees carry gross margins of 95-96%, while the Propel Point gift voucher business runs at an 88-89% cost of goods sold.
• A deliberate shift is underway within Propel Point itself, moving redemptions from gift vouchers to network gift cards, which carry a much higher gross margin profile.
• Employee costs rationalized from Rs.11.2 crore in Q2 to Rs.8.68 crore in Q3; the Q2 uptick was a one-off from salary hikes and annual bonus disbursement.
• Finance costs dropped 27% YoY after the company used IPO proceeds to prepay Rs.16.8 crore in borrowings.

Raj Narayanam: "We want to focus on our program fees and Saas fees because on the program fees our gross margins are at about 95% to 96%."

Zoyer: Scaling With Investment

• Zoyer crossed Rs.2,000 Crores in spends this quarter, generating interchange income and revenues, with SaaS fees growing 43% YoY to Rs.8.2 Crores.
• Incentive costs are elevated because Zoyer was kick-started this year and Q2/Q3 required higher spending to ramp adoption; these include the cost of funds for credit card issuance and cash backs to users and corporates. Management expects to reduce incentives over time, as it did with Save and Propel.
• Total incentive cost divided by program fee increased only 5%, suggesting the investment is proportional to the revenue it generates.
• SaaS fees from Zoyer are expected to ramp up over the coming couple of years as more intelligence and analytics are layered onto the platform; management expects to give a clearer picture of the trajectory over the next four quarters.

New Growth Vectors

• Fleet loyalty card with Torrent Gas: Zaggle won a contract to enter the fleet loyalty market, which management estimates at Rs.73,000 Crores in India. The program has onboarded 500 fleets and 260 outlets are ready to accept cards; revenue will start flowing in subsequent quarters.
• Kotak co-brand prepaid card: Zaggle is working with Kotak to bundle a corporate salary account with a Kotak Zaggle co-brand prepaid card; integration work is in progress and the product is expected to go live early next quarter.
• Forex card: A partner announcement is expected in the coming quarter, with a go-live in the next couple of quarters.
• International expansion: The product is ready and deployed in hundreds of Indian companies. Management is scanning the US and GCC markets with an 18-to-24-month timeline to go international, citing far higher per-user SaaS fees paid internationally.
• Paytm disruption opportunity: Management is looking to add roughly 200-plus clients over the next two to three quarters from the Paytm disruption alone.

Raj Narayanam: "The total fleet spends market is estimated to be about Rs.73000 Crores in India and we have just started nibbling at it."

Propel Point: Seasonal Compression, Expected Recovery

• Q3 is a gifting season with huge demand for gift vouchers, which caused margin compression in Propel Point; management expects margins to return to 11-13% in the current quarter.
• Redemptions on gift vouchers were down slightly during Diwali because corporates requested network cards in their catalogues instead, a shift that improves the margin profile of the business.
• Q4 is expected to see good growth in Propel Point as well as a surge in transaction volumes and spends across all lines, driven by users seeking to maximize card balances before the financial year-end.
• Management declined to provide the specific Propel spends figure for the quarter or the user count split across Propel, Save, and Zoyer, saying only that spends were "quite healthy" and offering to take the user breakdown offline.

Risk Management & Competitive Posture

• Regulatory derisking: Zaggle works with 10 banks and three networks (ICICI, Kotak, SBI Card, Bank of Baroda, IndusInd, Yes Bank), which management says has significantly derisked the business from concentration or partner failure.
• No specific headwinds cited: Management expressed growing confidence with corporate customers and banks, and described the company’s posture as focused on execution while staying "nimble, humble and frugal."
• Cross-selling push: The company is working to increase cross-selling from 15% to 17-18%, aiming to place its product portfolio in every corporate client.

Avinash Godkhindi: "I have often said that as a profit focused company Zaggle is frugal, nimble and humble. This is at the core of our values and this has led to not just sustain but thrive and prosper in a rather competitive environment."

Guidance & Commitments

Key Metrics