Zaggle Prepaid Ocean Services Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Zaggle Prepaid reported a strong Q3 FY25, achieving its highest-ever quarterly revenue, adjusted EBITDA, and PAT, driven by robust growth across all revenue streams. The company raised its FY25 top-line growth guidance and is actively pursuing inorganic expansion opportunities. Strategic partnerships and new product launches, including the BROME solution, are expected to further accelerate growth and margin expansion, despite some analyst concerns regarding Propel gross margins and operating leverage.

Highlights

  • Revenue for Q3 FY25 grew 69% YoY to INR 336.4 crores.

  • Adjusted EBITDA for Q3 FY25 increased 38% YoY to INR 31.5 crores.

  • PAT for Q3 FY25 rose 33% YoY to INR 20.2 crores.

  • For 9 months FY25, revenue grew 77% YoY to INR 891.2 crores.

  • For 9 months FY25, PAT increased 123% YoY to INR 55.5 crores.

  • FY25 top-line growth guidance was upped to 58-63%.

  • Company completed a QIP of INR 595 crores in December 2024.

  • Evaluating five inorganic expansion targets, with two at advanced stages.

Key financials

  1. Revenue ₹336.4 Cr +69%YoY
  2. Adjusted EBITDA ₹31.5 Cr +38%YoY
  3. PAT ₹20.2 Cr +33%YoY
  4. Adjusted EBITDA Margin 9.4%
  5. Program Fees Revenue ₹135 Cr +54%YoY
  6. Propel Points Revenue ₹192 Cr +87%QoQ
  7. SaaS/Platform/Service Fees ₹8.9 Cr

What they filed

Q1 FY27: revenue up 27.4%, net profit down 30.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue303 337 412 332 432 +43%526 +56%618 +50%423 +27%
EBITDA27 29 36 30 44 +63%52 +79%58 +61%31 +3%
Net profit20 20 31 26 35 +75%37 +85%41 +32%18 −31%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

  • Top-line Revenue Growth Revenue · FY25 · High confidence 58-63%

    Previously 45-50% (then 50-55%) → 58-63%

    And now we are upping our guidance that we possibly will be able to do in the range of about 58 to 63% and this also may be a little bit outdone if the trends are to be seen.

    — Raj P Narayanam

Profitability

  • Adjusted EBITDA Margin Profitability · next 3-4 years · High confidence 15-16%
    So, we are looking at margins of about 15 to 16% in the next four years. That's something that we have already spoken of. And that's what we are aiming towards.

    — Avinash Godkhindi

  • Adjusted EBITDA Margin Profitability · FY25 and FY26 · High confidence 9-11%
    we have guided about 9% to 10% EBITDA margin for this year, and we had said that maybe 10% to 11% next year. So, our range remains between 9% to 11% for this year and next year.

    — Raj P Narayanam

  • Propel Gross Margins Profitability · full year · Medium confidence 7-9%
    But for the full year, do you expect that we will reach that 7 to 9% for the full year? ... It's a little premature for me to comment whether I will absolutely reach there or we will reach there or thereabouts, but we will be more or less there or thereabouts somewhere in that range.

    — Avinash Godkhindi

Expenses

  • Total ESOP Expenses Expenses · FY25 · High confidence INR 9-10 crores
    During FY '25, we expect to record total ESOP expenses in the range of INR 9 to 10 crore.

    — Aditya Kumar

Inorganic Growth

  • Acquisitions Closure Inorganic Growth · this calendar year / next year · Medium confidence 3 transactions
    We are looking forward to, you know, a closure of all these three transactions, you know, in this calendar year.

    — Raj P Narayanam

Revenue Potential

  • Revenue per Conglomerate Account Revenue Potential · per account · Medium confidence INR 50-65 crores
    on an average, per account, you can take the potential could be to do about anywhere, about 50 to 65 crores per conglomerate is how you can look at it.

    — Raj P Narayanam

Revenue Growth

  • Program Fees Growth Revenue Growth · next 2-3 years · High confidence Fastest pace
    But in the next two, three years, we see our Program Fees grow at the fastest pace because there is a lot of traction there.

    — Avinash Godkhindi

Product Performance

  • AI Chatbot Deflection Rate Product Performance · null · High confidence 99%+
    Zaggle's AI-driven chatbot, RazBot, it is called RazBot, has achieved a deflection rate of 60%. And we intend to enhance the deflection rate to about 99%.

    — Raj P Narayanam

Risks & concerns

  • Lower-than-expected Propel Gross Margins

    medium

    Analyst noted Propel gross margins at 3% in Q3, below the 7-9% full-year guidance, which management attributed to Q4 seasonality for overriding commissions.

    Analyst acknowledged

  • Operating Leverage Not Playing Out

    medium

    Analyst observed that despite strong top-line growth, operating margins and PAT margins were not improving as expected for a platform business, with the cost base growing faster than revenues.

    Analyst acknowledged

  • Impact of Union Budget 2025 Tax Reforms

    low

    Management clarified that the tax reforms would have 'very little or no impact' on their SAVE business, as meal benefits for the affected salary range constitute a meager 0.48% of current revenue.

    Management downplayed

Areas of evasion (1)

  • specific breakdown of Program Fees revenue by business line for 9 months (offered offline)

Q&A highlights

2 direct
Propel Gross Margins and Overall Cost Base Partial
Basically, a lot of the ORCs, overriding commissions, are something that come in the Q4... For full year, do you expect that we will reach that 7 to 9% for the full year? ... It's a little premature for me to comment whether I will absolutely reach there or we will reach there or thereabouts, but we will be more or less there or thereabouts somewhere in that range.

Analyst questioned the lower-than-expected Propel gross margins and the faster growth of the cost base compared to revenues, challenging the operating leverage.

Asked by Ankush Agrawal

Operating Leverage, Margin Trajectory, and Inorganic Investment Areas Direct
The way we look at it is how was our solution bringing value to our customer, A, and overall is our EBITDA and margins growing? We can see operating leverage kick in. It's just that the way the accounting Ind AS rules are, we need to account for Propel Points as a gross number.

Asked by Manish Ostwal

Zoyer/Program Fees Inflection and Margin Expansion Drivers Direct
Obviously, one of the acquisitions which we are doing is on a merchant card system. When you deploy that particular SaaS product at the merchant store level, your Propel margins are going to increase significantly.

Asked by Debashish Majumdar

3 min read 6 chapters

Detailed narrative

Strong Q3 FY25 Financial Performance

Zaggle Prepaid delivered a milestone quarter, reporting its highest-ever performance in Q3 FY25. Revenue surged by 69% year-on-year to INR 336.4 crores, while adjusted EBITDA grew 38% to INR 31.5 crores. Profit After Tax (PAT) increased 33% year-on-year to INR 20.2 crores. For the nine months ended December 31, 2024, revenue reached INR 891.2 crores (up 77% YoY), and PAT more than doubled, growing 123% YoY to INR 55.5 crores.

Upped FY25 Guidance and Strategic Inorganic Expansion

Building on strong performance, the company raised its top-line growth guidance for FY25 to 58-63%, an increase from previous estimates of 45-50% and 50-55%. Zaggle successfully completed a Qualified Institutional Placement (QIP) of INR 595 crores in December 2024, aligning with its inorganic expansion strategy. Management is currently evaluating five targets in the spend management and adjacent spaces, with two at advanced stages and aiming for closure of all three transactions by the end of calendar year 2025.

Product Innovation and Key Partnerships

Zaggle continues to enhance its platform with AI and machine learning, achieving a 60% deflection rate with its AI-driven chatbot, RazBot, with a target of 99%+. The company expanded its travel and expense solutions through partnerships with major travel companies like EaseMyTrip and TBO Paxes. Significant new client wins include Blinkit and Zepto, with Blinkit adopting the new Branch Recurring Operating Monthly Expense (BROME) solution. Strategic partnerships with Mastercard and HDFC Bank are expected to drive significant top-line and bottom-line growth.

Margin Trajectory and Profitability Outlook

While adjusted EBITDA margin for Q3 FY25 stood at 9.4% (down from 11.5% in Q3 FY24), management attributed this to a changing revenue mix with higher growth in lower-margin Propel Points revenue and investments in new capabilities. The company reiterated its long-term goal of achieving 15-16% EBITDA margins within the next 3-4 years, with an expectation of 9-11% for FY25 and FY26. This improvement is anticipated from operating leverage, declining cashbacks, and the EBITDA-accretive nature of planned acquisitions.

Revenue Stream Dynamics and Seasonality

In Q3 FY25, Program Fees contributed INR 135 crores (up 54% YoY), and Propel Points revenue was INR 192 crores (57% of total revenue, with the Propel platform growing 87% sequentially). Management noted that Program Fees are expected to grow at the fastest pace over the next 2-3 years. While Propel gross margins were lower in Q3, management expects them to revert to the 7-9% range for the full year due to Q4 seasonality and overriding commissions. The impact of the Union Budget 2025 tax reforms on the SAVE business was deemed minimal, affecting only 0.48% of current revenue.

Growth in Software and BROME Solutions

The software side of the business, though growing at a slower pace due to the sticky nature of enterprise SaaS, is expected to see a 'marked improvement' and 'inflection' in growth rates over the next 2-3 quarters. This is driven by new contracts signed in the last 3-4 quarters going live, particularly the BROME product. Ad hoc expenses related to new product launches, such as fleet solutions in Q3, contributed to a temporary increase in other operating expenses, which are expected to normalize as a percentage of revenue.

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