The initial share sale of Zaggle Prepaid Ocean Services Ltd (ZPOSL), a prominent player in the area of spend management solutions, opened for public subscription on Thursday (September 14). The Rs 564 crore-issue will conclude on September 18.

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The financial technology company has fixed a price band of Rs 156-164 per share, where investors can bid for 90 equity shares in one lot, and its multiples thereof.

According to market observers, the grey market premium (GMP) of the company is around Rs 10 today. The grey market is an unofficial market wherein the IPO shares can be bought and sold till the listing.

Apply or not?

Even though the issue has received several favourable views from analysts given the company's diverse client base, consistent topline growth and the flourishing digital payments sector, some have advised investors to avoid the IPO.

Geojit: Subscribe

"At the upper price band of Rs 164, ZPOSL is available at a adjusted P/E (price-earning) of 54.3 times (FY23), which appears to be aggressively priced. However, several factors contribute to its appeal, including a diverse client base spanning various industries, consistent revenue growth over the years, the company's expansion strategies, a diversified revenue model, and the flourishing digital payments sector," said Geojit Financial Services.

Given these considerations, we recommend a "Subscribe" rating for the issue on a short- to medium-term basis.

Swastika Investmart: Avoid

"The IPO is coming at a P/E valuation of 66.6 times, which is significantly higher than the valuations of its listed peers. The company's debt-toequity ratio is also high. Overall, we believe that the risks outweigh the potential rewards for this IPO. We would avoid investing in this IPO," said Anubhuti Mishra, Equity Research Analyst at Swastika Investmart.

Mishra also said that there are some concerns about the company's financial performance. "The company has a major dependency on third parties,

and it has faced negative cash flow and a decline in its profitability in recent years. Additionally, the company operates in a highly competitive industry."

Ahead of the IPO launch, Zaggle has raised about Rs 98 crore in a pre-IPO placement, where marquee investors including Ashish Kacholia picked up stake.

Purpose of IPO

The IPO consists of a fresh issue of shares up to Rs 392 crore, and the offer for sale is worth Rs 171.4 crore. Proceeds from the fresh issuance of Rs 300 crore will be used for customer acquisition and retention, technology and product development (Rs 40 crore) from FY24 to FY26, and debt repayment (Rs 17.1 crore). The remaining funds will be allocated for general corporate purposes.

At the higher end of the pricing range, Zaggle plans to raise Rs 564 crore via its IPO, at a valuation of Rs 2,000 crore.

Post-issue the promoter/promoter entities will hold around a 42 percent of the paid up equity, while selling shareholders will collectively pare their holdings by a tad over 8 percent.

Under the OFS, the founder and chairman Raj P Narayanam will offload just 0.02 percent from his 44 percent holding. Another promoter Avinash Ramesh Godkhindi, who is also the managing director of the city-based company, will sell an equal amount of stake.

External investor VenturEast Proactive Fund will offload a 2.17 percent, while another external investor GKFF Ventures will pare only 0.02 percent. Besides, VenturEast Sedco Proactive Fund will sell 1.72 percent, VenturEast Trustee Company will sell 3.78 percent, and Koteshwara Rao Meduri, an individual investor, will pare 0.02 percent.

These foreign funds and non-family shareholders collectively own 15 percent in the company pre-IPO, chairman Raj Narayanam told news agency PTI.

ICICI Securities, Equirus Capital, IIFL Securities and JM Financial are the book-running lead managers to the issue, while KFin Technologies is the registrar.

The finalisation of the basis of allotment will be done on September 22, and initiation of refunds will be on September 25.

The company's shares are proposed to be listed on both BSE and NSE, with September 27 as the tentative date of listing.

Business description

Zaggle Prepaid, established in 2011, is a prominent player in the B2B2C segment where the company provides fintech and SaaS solutions to corporate clients in banking, finance, technology, healthcare, manufacturing, FMCG, infrastructure, and automobiles.

It occupies a unique position at the intersection of the SaaS and fintech ecosystems and offers a comprehensive SaaS platform designed to address business functions like business spend management (covering expense and vendor management), rewards and incentives management for both employees and channel partners and a robust customer engagement management system (CEMS).

Zaggle Prepaid Ocean Services operates through a network of seven offices across India with more than 1.7 million end-users and over 1,750 corporate clients. Among their notable clients includes TATA Steel, Persistent Systems, Inox, Pitney Bowes.

(Edited by : C H Unnikrishnan)

First Published:Sept 14, 2023 11:00 AM IST