Equirus Initiates Coverage On Listed Fintech Startup Zaggle, Signals 43% Upside

Brokerage Equirus Securities has initiated coverage on listed fintech startup Zaggle with ‘LONG’ rating and a price target of INR 400, 43% higher than its current market price.

“Zaggle has a unique business model wherein it earns only 10-20% of its revenues directly from corporates who are beneficiaries of the product – a win-win for both parties. Rest of the revenues come from merchants where card spends happen or where reward vouchers are redeemed,” the report read.

Additionally, Zaggle does not have any meaningful competitor with a presence in all three of its product segments.

The brokerage note also mentions that Zaggle’s revenue streams exhibit diversification through multiple channels. First, they generate income from Software as a Service (SaaS) and subscription fees, which are regular charges levied on corporates utilising their platform for software services.

Additionally, it benefits from programme and interchange fees, where banking partners share a portion of the interchange revenue accrued from transactions made with Zaggle co-branded cards.

Finally, Zaggle earns revenue through its Propel platform and gift card fees, derived from the redemption of allocated Propel reward points by employees, distributors, and channel partners.

“We believe Zaggle is in the initial phase of its lifecycle with multiple legs of growth ahead like (a) new customer acquisition, (b) increased cross-selling of products to existing customers, (c) global expansion, and (d) new product offerings,” Equirus said in its note.

The note said regulatory risk is a key risk in terms of interchange charged on cards and the eventual sharing that happens with Zaggle as the company generates 75-80% of its net revenues from interchange.

“While there was a discussion paper floated by the regulator around 1.5 years ago to reassess the charges for various digital payment options, we believe there is no near-term risk to any cut in interchange on pre-paid cards; this is because nothing came further post the discussion paper,” it said.

Founded in 2011, Zaggle is a spend management and corporate employee benefits platform. It helps businesses automate their accounts and issues prepaid cards, in partnership with banking partners, to reward their employees with incentives and gifts. The fintech SaaS startup made its stock market debut last year.

The overall market for spends management was estimated at INR 82 Bn in FY21 and is estimated to reach INR 139 Bn by FY27 with the share of outsourcing increasing from around 37% to above 44% during this period, the report added.

Zaggle reported more than 10X jump in its profit after tax (PAT) to INR 15.2 Cr in the December quarter (Q3) of the financial year 2023-24 (FY24) from INR 1.5 Cr in the year-ago period. Operating revenue increased 35.1% to INR 199.5 Cr in Q3 FY24 from INR 147.6 Cr in the corresponding quarter of the previous fiscal.

The shares of Zaggle were trading at INR 283.45 at 10:39 am on Tuesday (April 16).

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