Zaggle Prepaid Ocean Services Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Revenue growth accelerates, guidance raised: 69% YoY revenue growth drove management to lift FY25 top-line guidance to 58–63% from 50–55%, with a hint it may be outdone if trends continue.
• Margin story is a mix shift, not a cost story: Adjusted EBITDA margin fell to 9.4% from 11.5% YoY as the revenue mix tilted toward lower-margin Propel Points, masking underlying improvement in higher-margin program and SaaS fees.
• BROME is the new growth engine: The automated bill-fetch and utility reconciliation product landed marquee clients (Blinkit, a major retail chain across tens of thousands of stores) and carries zero dependence on tax regulation, making it management's "star performer" bet for the coming year.
• Partnerships and M&A are stacking the pipeline: A seven-year Mastercard deal, HDFC Bank bundling, Strada's Fortune 500 channel, and three acquisitions in advanced stages (two large, one small) all point to a deliberate build-out of distribution and capability, though none are yet quantified.
• What to watch next quarter: Whether Q4 Program Fees deliver the promised seasonal rebound, the pace of BROME store rollouts, and any definitive timeline on the three M&A targets management hopes to close this calendar year.

Revenue Growth & Mix

• Three engines, one outlier: Program fee grew 54% YoY, Propel platform jumped 87% sequentially, and Zoyer (live only since April 2024) is contributing significantly, with high acceptance among corporate and enterprise customers.
• Program Fees flatness is a timing and mix illusion: The headline ₹136–137 cr quarterly run-rate for four straight quarters reflects seasonality (Q4 is the strong quarter), gestation lags on large enterprise contracts, and a category mix shift toward lower-interchange spend (fuel, grocery) that depresses the blended rate even as GMV grows 15–17% QoQ.
• SaaS growth is muted by design: The enterprise focus makes revenue sticky but slower to ramp; management expects an inflection over the next 2–3 quarters as contracts signed in the last 3–4 quarters go live at a "hectic pace."
• Conglomerate accounts are the whale hunt: A partnership with one conglomerate carries per-account potential of ₹50–65 cr annually; landing 10–15 such accounts over 2–3 years would mean ₹500–600 cr in revenue, weighted toward higher-margin program and SaaS fees.

Godkhindi: "when one of the largest retail chains in India, largest conglomerates in India signs you up for tens of thousands of stores for your solution, then you don't worry about anything. You just see if the contract is, you know, highly profitable or doing well, then you deploy or you invest capabilities to be able to make sure that program works"

Margins: The Mix-Shift Mask

• Headline margin declined, underlying quality improved: Adjusted EBITDA margin fell to 9.4% from 11.5% YoY, but this was driven by the growing weight of Propel Points revenue, which is accounted gross under Ind AS and carries lower gross margins (~3% in Q3, with full-year expected in the 7–9% range). Program fees and SaaS fees carry much higher margins, and their growing share will lift blended margins over time.
• Costs are growing faster than revenue by design: Other OPEX jumped from ₹17 cr to ₹22 cr as the company invested in multiple product launches (fleet solutions, BROME) and large-contract deployment capabilities. Employee costs at ₹17 cr are normalized (including ₹2 cr ESOP). Management frames this as growth-phase investment, not bloat.
• The margin path is a four-year story: Management targets 9–10% EBITDA this year, 10–11% next year, and 15–16% in 3–4 years. The expansion levers are mix shift toward program/SaaS fees, cashback reduction over time, and highly EBITDA-accretive acquisitions in merchant card systems and payment infrastructure.
• Propel margins have a ceiling: Full-year Propel margins may land in the 7–9% range, with most improvement concentrated in Q4 when slab-based overriding commissions from merchants kick in. Acquisitions in merchant card systems are expected to lift Propel margins by enabling breakage and higher issuance margins.

Narayanam: "If I were to go back to those 2022 days, it is not very difficult for me to see how we will achieve about 16% EBITDA. And that is our stated goal, that we will reach about 15 to 16% EBITDA in the next 3 to 4 years."

BROME & Product Expansion

• BROME is the bet on non-tax-dependent growth: The Branch Recurring Operating Monthly Expense solution automates bill fetch and utility payment reconciliation for enterprises with distributed physical footprints. Management calls it the "star performer in the coming year" with "absolutely zero dependence on any statutory or regulatory environment."
• Marquee wins signal scale: Blinkit (500 dark stores), a major retail chain (tens of thousands of stores), Zepto, BigBasket, Dr. Batra, Berkowits, and Subways are signed; hundreds of demos are ongoing.
• Fleet solutions launched: Agreement with AGP City Gas (Pratham and Think Gas) went live in December 2024 with thousands of cards issued and hundreds of gas stations enabled; several other clients are in the pipeline with "very good demand and deep profit pools."
• New wallets broaden the platform: Health and wellness wallet, cafeteria solution, and employee gadget solution all launched this quarter, alongside BBPS enablement for bill payments and an FD booking feature offering rates up to 9% per annum.
• Travel bundling deepens stickiness: Agreements with EaseMyTrip, FCM, Riya Travels, TBO Paxes, and Yatra create bundled expense-and-travel solutions; a self-booking tool integrating preferred travel suppliers is under development.

Narayanam: "we think that this could be our star performer in the coming year, next year, with absolutely zero dependence on any of this statutory or regulatory environment."

Partnerships & Distribution

• Mastercard (seven-year global deal): Mastercard will recommend Zaggle's software platform and card solutions to its corporate customers, banks, and fintechs globally.
• HDFC Bank bundling: HDFC credit cards will be bundled with Zaggle's software, expense management, employee benefits, and Zoyer platform and offered to HDFC's corporate customer base.
• Strada (Fortune 500 channel): The large MNC HRMS provider will offer Zaggle's SaaS and payment products to its clients, opening a distribution channel into large global enterprises.
• Quantification is premature: Management declined to attribute a per-user revenue number to these partnerships, calling it too early, but expects them to add to both top and bottom line in coming years.

Regulatory & Competitive Landscape

• Budget 2025 tax reforms pose negligible risk: Meal benefits from employees in the ₹5–15 lakh salary range form only 0.48% of current revenue; management has seen no customer complaints or requests to discontinue programs. The Old Tax Regime's continuation is slightly beneficial but the company does not want to depend on tax benefits going forward.
• UPI on prepaid is a tailwind: The RBI now permits prepaid cards on UPI with third-party payment apps; interchange on UPI prepaid is about 1.1%, and management expects a "very positive blend to the overall interchange numbers" as transaction mix shifts. The company is in the process of qualifying.
• AI chatbot RazBot achieved a 60% deflection rate this quarter; management intends to enhance it to 99%+ and expand AI bot usage across product functions.

Narayanam: "the interchange on UPI on prepaid is about 1.1%. You know, what we see overall is that when the mix happens and the number of transactions which will start happening on UPI specifically from the system, I think it will have a very positive blend to the overall interchange numbers."

M&A Pipeline

• Three targets in advanced stages: Two large acquisitions and one smaller one, all in merchant card systems and payment infrastructure. Management describes them as "highly EBITDA accretive" and coming at "a great multiple."
• Timeline is calendar-year 2025: Management hopes to close all three transactions in this calendar year, though they may not close this financial year. A definitive timeline is expected "possibly in the next quarter."
• Strategic logic: Acquisitions in merchant card systems will increase Propel margins by enabling breakage and higher issuance margins, while payment infrastructure deals deepen the stack.

Narayanam: "in due time, which is, you know, possibly in the next quarter, we would be able to give you a definitive timeline. We are looking forward to, you know, a closure of all these three transactions, you know, in this calendar year."

Guidance & Commitments

Key Metrics