Zaggle Prepaid Ocean Services Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Strong Q1, guidance raise likely deferred: Revenue grew 31% YoY to INR331 crores, with PAT up 54.8% YoY. Management is "tempted" to raise the 35-40% growth guidance but will wait until Q2, citing geopolitical uncertainty.
• Inorganic strategy is accelerating: Two acquisitions completed, four more in progress, and one "pretty decent sized deal" on the verge of closing. Once finalized, the workforce would more than double with 600-700 added people.
• Margin expansion story intact: Incentive costs as a percentage of program fees fell to 65-66% from 71% last year, and the steady-state target is 50-60% over three years. The 100 bps annual EBITDA margin expansion guidance was reaffirmed.
• Spend management category bet is explicit: Management believes spend management will become an established category like ERP or CRM within 10 years, and Zaggle aims to be the "torchbearer" in India.
• What to watch next quarter: Whether the guidance raise materializes, closure of the "decent sized deal" and 1-2 acquisitions by September 30, and any quantification of inorganic revenue contribution.

Revenue Performance & Seasonality

• All streams contributed: Propel platform surged 50.6% YoY, SaaS fee increased 19.8% YoY, and program fees grew, though Q1 is traditionally a slow quarter for program fees due to seasonality.
• Travel headwind: Travel was impacted by the geopolitical situation through the quarter, but spends are already picking up reasonably well.
• Profitability outpaced revenue: PAT surged 54.8% YoY to INR26 crores, and cash PAT (including depreciation and ESOP expenses) increased 57.6% YoY to INR35 crores.
• Other expenses declined sharply: The drop reflects management's focus on efficiency and increasing margins and profitability.
• Mobileware turned the corner: Generated PBT of INR2 crores in Q1 FY26, surpassing its entire FY25 PBT.
• Cash flow turned positive: FY25 operational cash flows turned positive after being negative in prior years, when the 50-60% growth phase required reinvestment. Management is optimistic the positive momentum will continue in the current year.

Raj Narayanam: "While I'm tempted to give you a guidance, which is probably higher than what we have earlier stated of 35% to 40%, but I would wait till Q2 to be able to give you, especially keeping in mind the ongoing geopolitical uncertainties and macroeconomic volatility."

M&A & Consolidation Strategy

• Six targets in play: Pursued investment or acquisition of 6 companies, successfully completing 2 and progressing with 4 more. Proposed acquisitions include EffiaSoft (merchant servicing and payment processing), Dice (spend management and AI capabilities), Greenedge (loyalty and rewards), and Rio.money (consumer credit card segment).
• Workforce to more than double: Once finalized, acquisitions would add roughly 600-700 people to the current workforce.
• Near-term closures expected: Management hopes to close 1 or 2 acquisitions by September 30, with one more large acquisition this year to be announced in due course.
• Dice economics: Revenue expected at INR20-22 crores this year, acquired at approximately 6x forward-looking revenues, pure SaaS revenue with an opportunity to bundle payment capabilities. Migrating payments to the platform will take some time.
• Integration is the real work: Management acknowledged that "acquisitions are easy, but integrations are tough" and that significant bandwidth will go into ensuring integration results. Organizational changes include consolidating technology/engineering teams into a central function, unifying finance under a group CFO, and centralizing HR, with envisaged savings of around INR25 crores over the next year.
• International entry is calibrated: Targeting MENA and the U.S. at the right time, with a strategy of maximum impact and minimum investment, including small-ticket VC fund investments in early-stage SaaS companies in the U.S. Revenue contribution from international markets is too early to quantify.

Avinash Godkhindi: "We believe this space is right for consolidation. There's a lot of value that gets built through scale and operating efficiency. And we are able to today attract a lot of opportunities given the position that we are in. And we are able to hopefully close those deals at very attractive valuations."

Margin Trajectory & Cost Efficiency

• Incentive cost ratio improved: Incentives as a percentage of program fees declined to 65-66% from 71% last year, moving in a 1:1 correspondence with program fees. The steady-state target is 50-60% over the next three years.
• EBITDA margin guidance reaffirmed: Increasing 100 bps every year for the next three years, driven by efficiency, operating leverage, reduction in incentive costs, and AI-driven efficiencies.
• Organizational savings targeted: Envisaged savings of around INR25 crores over the next year from consolidating technology, finance, and HR functions, with savings expected to increase as efficiencies kick in.
• ESOP cost visibility is limited: Management declined to guide on ESOP cost for FY27, citing potential ESOP costs that may come in as part of acquisition structures.
• Inorganic quantification deferred: Management called it "a little early" and "a little hard for us to quantify" the incremental growth contribution from acquisitions this year, as some are still being closed.

Product & Partnership Developments

• AI tools launched: AI-powered bill processing automation tool deployed with 80%+ reduction in turnaround time for bill processing. AI-driven claim validation and approval workflow is in pilot stage. A multilingual conversational AI tool is planned for launch in 3-4 months.
• Mastercard agreement signed: A 7-year customer business agreement for Mastercard Premium Foreign Currency co-branded prepaid cards, with launch- and spend-linked incentives.
• Channel partnership with Grant Thornton: Entered into an agreement to promote spend management solutions to Grant Thornton's corporate and enterprise clients.
• Smart EPP expanded: Onboarded Tata Capital as leasing partner and OneAssist as insurance partner for the Smart Employee Purchase Program.
• TaxSpanner gaining traction: Marquee customers signed including Bosch (employee wellness) and KarmaLife (tax filings for gig workers). The platform serves sophisticated needs (foreign income, crypto, rental) through a corporate-to-employee channel, not a mass-market approach.
• Cross-selling momentum: Built on cross-selling with clients including WhiteOak Capital, Daulat Ram, Apollo Health and Manipal TRUtest. Examples: Manipal TRUtest added drone solution and branch recurring monthly expenses solution; WhiteOak Capital added Zoyer solution for procurement and vendor payouts.

Raj Narayanam: "We are also on the verge of closing one more, which is a pretty decent sized deal. Fingers crossed, if we are able to do that, that will be great. But again, between cup and lip there is a slip."

Category Thesis & Competitive Positioning

• Spend management as the next ERP: Management drew a parallel to the emergence of ERP, HRMS, and CRM categories, believing that in 10 years spend management will be a very established category, with Zaggle aiming to be the "torchbearer" in India.
• Scale and efficiency as moats: The consolidation thesis rests on the belief that significant value gets built through scale and operating efficiency, and Zaggle's current position allows it to attract opportunities at attractive valuations.
• Credit rating support: CARE Ratings assigned a credit rating of A- stable for availing credit facilities from banks.
• Awards provide brand validation: Fintech Brand of the Year at Business World Fintech Awards 2025, Great Indian B2B Fintech brand, and Pioneering Fintech Innovation in Spend Management Award.

Avinash Godkhindi: "30 years ago, sir, ERPs were relatively unknown. 20 years ago, HRMS was unknown. 10 years ago, CRM was a little unknown. We believe in 10 years' time, spend management would be a very established category. And we hope to be the ones who are the torchbearers of this category, at least in India."

Guidance & Commitments

Key Metrics