Zaggle Prepaid Ocean Services Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Record year, guided deceleration: FY25 revenue grew ~68% and PAT nearly doubled, but standalone FY26 guidance calls for 35–40% growth, a deliberate step-down to build incentive discipline and margin.
• Margins are the new priority: Standalone EBITDA margin guidance was raised to 10–11% for FY26, with a long-term target of 15–16% over three to four years, signaling a shift from growth-at-any-cost toward profitable scale.
• The Propel engine is bigger than it looks: Headline Propel growth was 91% YoY, but excluding overriding commissions, the underlying run-rate was 78%, and standalone margins hit 10% in Q4 as those commissions flowed through.
• Inorganic story is live but unclosed: Management has a clear M&A pipeline of seven to nine targets and says it would not have raised QIP funds without a plan, yet no deal has crossed the finish line after some stretched at the last moment.
• What to watch next quarter: Whether any of the advanced-stage acquisitions actually close, the pace of the large retail chain ramp-up, and if Q1 FY26 delivers the guided 30–35% YoY growth.

Growth Drivers & Revenue Mix

• Propel platform surge: Revenue up 91% YoY in Q4, driven by organic growth in the Save and Propel businesses plus a notable rise in credit card issuance under the Zoyer offering. Underlying growth excluding overriding commissions was 78% YoY.
• Interchange fee momentum: FY25 interchange fees grew 70% YoY, largely from Zoyer and BROME solutions, with credit card issuance under Zoyer a material contributor.
• Program fee discipline: Program fees grew from ₹137 crores to ₹157.1 crores YoY in Q4 while incentives actually declined from ₹110 crores to ₹108 crores, a deliberate choice to build market discipline rather than chase top-line with giveaways.
• Mobileware scaling fast: Revenues nearly doubled YoY to ₹33.89 crores, fueled by marquee customer wins (IDFC Bank, Easebuzz, Catholic Syrian Bank, CamsPay) and a full API banking layer implementation at Suryoday Bank.
• TaxSpanner reset: FY25 was a consolidation year with product investment, producing subdued revenue of ₹3.35 crores, but management expects 60–70% growth in FY26 with "relative ease."
• Revenue phasing shift: Historically 65% H1 / 35% H2, the skew has moderated to roughly 57–58% / 42–43% as Zoyer’s contribution grows, though Q2 remains the seasonal peak.

Avinash Godkhindi: "We could have probably shown you much higher growth than at 15%, maybe we could have grown at 30%, 40% if we had given more incentives, right? We wanted to control the incentives and build that discipline in the market because we are not building for one quarter or one result, we are wanting to build that discipline and improve our incentive position over time for the coming quarters and coming years as well."

Margin Trajectory & Cost Structure

• FY26 margin guidance raised: Standalone EBITDA margin guided to 10–11%, up from the prior 9–10%, with management calling FY26 a "deciding year" for the long-term 15–16% target.
• Long-term margin path: Management expects roughly 100 bps of annual improvement over the next three to four years, with scale as the primary lever rather than cost-cutting.
• Q4 margin compression is structural, not alarming: Q4 margins are typically compressed because corporates meet spend thresholds in Zoyer and earn commissions or incentives; this is the nature of the business.
• Propel margin expansion: Propel standalone margins hit 10% in Q4 versus the guided 6–7% range, because overriding commissions due for sales generated across the first nine months flowed through in the final quarter.
• Other expenses spike: Sequential jump driven by business promotion and advertising spend across multiple conferences, plus higher network charges and switch costs when integrating new clients; as a percentage of revenue, management expects these to stay in the 1–2% range.
• Employee costs stable sequentially but up YoY on additional headcount; depreciation rose on product capitalization and the new office building.

Raj P Narayanam: "While the margin expansion will come, it will also come at scale, okay. The scale which we have to achieve will come only by having a little bit aggressive growth plan."

M&A & Capital Allocation

• Pipeline is real but unexecuted: Management has identified seven to nine targets in adjacent spaces (payment solutions, loyalty management, merchant card software) and is in very advanced stages with some, but one or two deals have stretched at the last moment during due diligence.
• QIP proceeds earmarked: Management states it would not have raised funds or diluted equity without a clear acquisition plan; cash is designated for investment activity and acquisitions.
• Consolidated growth math: If all planned acquisitions close before September, consolidated FY26 growth would be roughly 80%, with acquisitions adding about 40 percentage points on top of the 35–40% standalone guide.
• Strategic logic: The thesis is not just scale but narrative change: combining companies creates a new story, not just a bigger one. Targets must have stellar management, sound businesses, product accretion, and easy integration.
• Due diligence timeline: Financial, tax, and legal diligence typically takes three to four months per target.

Raj P Narayanam: "We would not raise money, or we would not go ahead and dilute ourselves if we had not a clear-cut thought process on whom to acquire."

New Products, Partnerships & Platform Expansion

• Zaggle Unified Gig Worker Savings (ZUGS): Launched for gig workers, featuring a DIY journey with multilingual support to claim tax refunds; expected to deepen penetration with quick commerce companies.
• Mesh Payments MOU: US-based AI-powered travel and expense management platform; the technology exchange enables global expense management for Indian customers and supports international expansion.
• TPAP approval from NPCI: Zaggle can now facilitate UPI-based payments directly through its app or platform, impacting over 0.3 crore users and strengthening the BROME solution via Mobileware’s pipes.
• Smart EPP with Redington & Google: Co-developing a Smart Employee Purchase Program in partnership with Redington Limited and Google.
• Bank of India empanelment: Zaggle empaneled as an authorized issuer of prepaid cards, expanding distribution reach.
• New product launches: Zatix, Fleet Solution, and ZIP were launched and capitalized, moving from development-stage to intangible assets.
• Zaggle Co-Pilot: An AI assistant for finance teams, currently in pilot phase, aimed at streamlining workflows and reducing human interface.
• GIFT City collaboration: Co-branded prepaid citizen card and visitor management software system, with long-term revenue opportunities through recurring transactions and data-driven services.
• Large retail chain go-live: The POC was successful and revenues have started to come through from one of India’s largest conglomerates, but scaling across thousands of branches has its own gestation period and significant revenue is still a little while away given the ₹1,303 crores base.

Avinash Godkhindi: "Revenues have started to come through, but it would take us a little while for us to be able to really see very significant revenues. Also, please note that right now the base of revenues that we are looking at is Rs. 1,303 crores, right? So, it has to be significant with that base, and that's a little while away."

Balance Sheet & Cash Flow

• Cash flow from operations turned positive: Stood at ₹19.8 crores in FY25 versus negative in FY24, driven by improved working capital management.
• DSO improvement: Reduced from 82 days to 60 days; management is focused on reducing it further, which would automatically improve cash conversion.
• Other current assets elevated: Business increased significantly YoY, and March-end holidays (29th, 30th, 31st) meant orders were received but fulfillment was not completed; cards were loaded upfront to meet demand and SLAs.
• OCF conversion guidance withheld: When asked for EBITDA-to-OCF conversion guidance, management said only that it will improve gradually and that the focus is on being capital efficient, declining to provide a specific target.

Guidance & Commitments

Key Metrics