What you must know about Zaggle Prepaid Ocean Services IPO

Zaggle Prepaid Ocean Services Ltd, was incorporated in the year 2011 to provide fintech products and services to manage corporate business expenses. These were being managed through automated and innovative workflows designed for such specific needs. Zaggle Prepaid Ocean Services Ltd offers fintech and SAAS (software as a service) products to corporates in the field of banking, fintech, healthcare, FMCG, automobiles, infrastructure, industrial manufacturing etc. the SAAS platform of Zaggle Prepaid Ocean Services Ltd is designed with 3 broad purposes in mind. It helps in business spend management; and this includes managing of expenses and of vendors. Secondly, the platform also manages a very efficient and effective rewards and incentives program meant for employees and channel partners based on performance. Lastly, the SAAS platform also handles gift card management for merchants, which broadly falls under customer engagement management. The company has an impressive roster of clients which, inter alia, includes Tata Steel, Persistent Systems, Inox, Pitney Bowes, Wockhardt, Mazda, Philips Carbon Black (PCBL), Hiranandani Group, Greenply Industries and Cotiviti.

The product portfolio of Zaggle Prepaid Ocean Services Ltd comprises of various focused solutions for corporates. The Propel Platform is a SAAS platform for channel rewards and incentives management as well as for employee recognition. The SAVE SAAS based platform also offers a mobile application for digitized expense management, digitized authentication, and employee reimbursements. The Customer Engagement Management Services (CEMS) system enables merchants to manage their entire gamut of customer experience under a single umbrella platform. Zaggle Prepaid Ocean Services Ltd also offers the Zaggle payroll card which is a pre-paid card that allows customers to pay contractors, temporary employees, and contract workers as an alternative to cash or bank payments. Lastly, the Zoyer is an integrated data driven SAAS platform that offers spend management with automated finance capabilities. The IPO will be lead managed by ICICI Securities, Equirus Capital, IIFL Securities and JM Financial. KFIN Technologies will be the registrar to the IPO.

Highlights of Zaggle Prepaid Ocean Services IPO issue

Here are some of the key highlights to the public issue of Zaggle Prepaid Ocean Services IPO.

• Zaggle Prepaid Ocean Services IPO has a face value of ₹1 per share while the price band for the book building IPO has been set in the band of ₹156 to ₹164. The final price will be discovered within this band through the process of book building.
   
• Zaggle Prepaid Ocean Services IPO will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 2,39,02,439 shares (2.39 crore shares approximately), which at the upper price band of ₹164 per share will translate into fresh issue size of ₹392 crore.
   
• The offer for sale (OFS) portion of the IPO comprises the sale of 1,04,49,816 shares (1.045 crore shares), which at the upper price band of ₹164 per share will translate into an offer for sale (OFS) size of ₹171.38 crore.
   
• Out of the 1.045 crore shares put up under the OFS, the 2 promoter shareholders will sell a total of 30.59 lakh shares while the rest of the shares will be sold in the OFS by the non-promoter shareholder investors in the company.
   
• Therefore, the overall IPO of Zaggle Prepaid Ocean Services Ltd will comprise of the issue of 3,43,52,255 shares (3.44 crore shares approximately), which at the upper price band of ₹164 per share will translate into a total IPO issue size of ₹563.38 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. There will be 8 holders offering shares under the OFS portion of which 2 will be promoter shareholders and the other 6 will be non-promoter investor shareholders of the company. The proceeds of the fresh issue portion will be used for customer acquisition, customer retention, development of technology stack and new products as well as pre-payment of some of the debt availed by the company.

Promoter holdings and investor quota allocation quota

The company was promoted by Raj P Narayanan and Avinash Ramesh Godkhindi. The promoter holdings currently stand at 57.91%, which will get proportionately diluted post the issue to 44.07%. As per the terms of the offer, 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while only 10% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of Zaggle Prepaid Ocean Services Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the Zaggle Prepaid Ocean Services IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Zaggle Prepaid Ocean Services Ltd, the minimum lot size is 90 shares with upper band indicative value of ₹14,760. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the Zaggle Prepaid Ocean Services IPO.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Zaggle Prepaid Ocean Services IPO and how to apply?

The issue opens for subscription on 14th September 2023 and closes for subscription on 18th September 2023 (both days inclusive). The basis of allotment will be finalized on 22nd September 2023 and the refunds will be initiated on 25th September 2023. In addition, the demat credits are expected to happen on 26th September 2023 and the stock will list on 27th September 2023 on the NSE and the BSE. Zaggle Prepaid Ocean Services Ltd will conduct the anchor bidding and allotment to anchor investors a day ahead of the IPO opening, on 13th September 2023. Let us now turn to the more practical issue of how to apply for the IPO of Zaggle Prepaid Ocean Services Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Zaggle Prepaid Ocean Services IPO

The table below captures the key financials of Zaggle Prepaid Ocean Services IPO for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of Zaggle Prepaid Ocean Services Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been robust showing the potential that this particular segment has. However, this is a long gestation type of business as is evident from the consistent losses and the negative net worth till the previous year. That makes it a relatively risky proposition.
    
2. The net margins or the return on assets are not really relevant as the company is loss making and the net worth of the company is negative; till the previous year FY22. Hence, investors have to take a view purely based on the latest year data, since that is the only year with profits in the book.
    
3. The company has maintained a very aggressively rate of sweating assets as is evident from the asset turnover ratio. It has consistently been around an average of 3X. There is a lot of front ending of costs, especially, the latest year profits have been sharply hit by more than doubling of cost of points redemption and gift cards. Also, there has been a sharp spike in the trade receivables in the latest year.

While pricing of the IPO does matter here, there is not much of a valuation play that one can assess due to just one year of profit track record on the stock. Also, the net worth of the company was negative till the previous year FY22 and has only turned to positive this year, so the ROE can look a little too overstated. At an industry level, this is a low risk but scalable business. The traction is great on the top line but there is no clarity on when there will be traction on the bottom line. For investors, it has to be a bet on the future of the business model. That would mean; a longer waiting period and higher risk appetite.