Zaggle Prepaid Ocean Services Ltd – Q1 FY26 Earnings Call Analysis

Zaggle Prepaid Ocean Services Limited is a leading Indian SaaS fintech player specializing in spend management, employee benefits, and rewards solutions. Through its flagship platforms – Propel, Save, and Zoyer – Zaggle helps corporates streamline expenses, vendor payouts, and channel incentives. With over 3,500 clients, 3.4 million users, and strong AI-driven innovation, Zaggle is rapidly expanding domestically and globally, while leveraging acquisitions and partnerships to consolidate market leadership.

Financial Performance Highlights

• Revenue: ₹331 crore, up 31% YoY – marking the company’s best-ever Q1.
• Adjusted EBITDA: ₹33 crore, up 28% YoY.
• PAT: ₹26 crore, up 55% YoY, highlighting operational leverage.
• Cash PAT: ₹35 crore, up 58% YoY.
• Credit Rating: CARE Ratings assigned A- Stable, reinforcing financial discipline.

CFO Aditya Kumar emphasized that all three revenue streams contributed to growth:

• Propel platform revenue up 50.6% YoY.
• SaaS fee income up 19.8% YoY.
• Program fees contributed ₹145 crore.

Management Commentary

Raj Narayanam, Founder & Executive Chairman

• Called Q1 FY26 a “promising start”, with strong PAT growth and sustainable momentum.
• Highlighted 6 acquisitions in the pipeline, of which 2 are completed (Mobileware, TaxSpanner) and 4 are progressing.
• Expected ₹25 crore in annual savings from integration and centralization of finance, HR, and tech teams.
• Noted that acquisitions are delivering results:
  • Mobileware: PBT of ₹2 crore in Q1 FY26, surpassing its FY25 full-year profits.
  • TaxSpanner: Signed Bosch and KarmaLife for employee/gig worker tax solutions.
• Proposed acquisitions:
  • EffiaSoft (merchant services & payments).
  • Dice (AI-led spend management SaaS).
  • GreenEdge (loyalty & rewards).
  • Rio.money (consumer credit cards – strategic entry into B2C credit).

Avinash Godkhindi, MD & CEO

• Stressed Zaggle’s AI-first approach in scaling products.
• Reported 3,500+ corporate clients, 3.4 million users, and a churn rate below 1.5%.
• Key client additions: Hindustan Pencils, Apollo Health, MoEngage, Novozymes, DTDC, CK Birla Healthcare, Truecaller.
• Examples of cross-sell strategy:
  • Manipal TRUtest expanded from sales solution to expense automation.
  • WhiteOak Capital added Zoyer procurement platform.
• Partnerships:
  • Grant Thornton – channel distribution for Zaggle’s spend management solutions.
  • Mastercard – 7-year co-branded prepaid card agreement.
  • Tata Capital & OneAssist – partners for Smart Employee Purchase Program (EPP).
• Awards: Fintech Brand of the Year 2025 (BW Fintech Awards) and Great Indian B2B Fintech Brand.

Aditya Kumar, CFO

• Confirmed focus on EBITDA margin expansion (100 bps annually for 3 years).
• Stressed that AI investments are boosting efficiency, with ₹40 crore invested in FY25 tech development.
• Said cash flows turned positive in FY25 and remain positive in FY26.

Technology & AI Initiatives

Zaggle is embedding AI across its ecosystem to drive automation and efficiency:

• Zintel AI conversational platform for customer engagement.
• Multilingual conversational AI tool to launch in 3–4 months.
• AI-driven bill processing reducing turnaround time by over 80%.
• AI-led claims validation pilot to enhance compliance and efficiency.

Guidance

• Revenue Growth: Maintained at 35–40%, with potential upward revision post-Q2.
• EBITDA Margins: Expected to expand steadily via efficiency and AI.
• Incentive Costs: Targeting 50–60% of program fees over next 3 years (vs 65% now).

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Question and Answer Session Highlight

Q1: Revenue from program fees grew only around 15%, while earlier guidance suggested about 30%. Why this slowdown?

The first quarter is usually slower due to seasonality and geopolitical impacts, especially on travel spends. However, the overall revenue guidance of 35–40% for FY26 remains intact. Efficiency has improved – incentives as a percentage of program fees dropped to around 65% versus 71% last year. Growth will pick up in subsequent quarters.

Q2: Should we assume program fees growth will remain at 15% for this year?

No. Full-year program fees growth should also be in the 35–40% range. The first quarter was an outlier due to seasonality, and spends are already picking up.

Q3: Other expenses fell sharply this quarter. What is the reason?

This reflects our focus on efficiency and profitability. We are actively managing costs and margins, and this will continue in coming quarters.

Q4: What incremental growth can we expect from inorganic acquisitions this year?

Some acquisitions are still closing, so it is difficult to quantify. But as seen with Mobileware, which delivered ₹17 crore revenue in Q1 versus ₹33 crore for the whole of FY25, acquisitions are performing strongly. We expect similar benefits from other deals.

Q5: You had guided for EBITDA margin expansion of 100 basis points every year for three years. Is this guidance still valid? What are the drivers?

Yes, the guidance remains intact. Drivers include efficiency, operating leverage, lower incentive costs, and AI-led automation. Over three years, incentive costs should normalize to 50–60% of program fees compared to 65% currently.

Q6: Any guidance on ESOP costs for FY27?

It is too early to comment. Future acquisitions may include ESOP-linked costs, so clarity will come later.

Q7: For customers onboarded via collaborations with partners, are margins lower compared to direct sales?

No. Banks only introduce clients and do not earn on software fees. In the case of consulting partners, they may earn from implementation services, but SaaS margins remain intact for Zaggle.

Q8: How is the company approaching international expansion? Are fund investments part of this strategy?

We are targeting MENA and US markets where SaaS monetization is stronger. The approach is calibrated, combining direct entry with minimal investment and small-ticket VC fund investments in early-stage SaaS startups. This gives us market insights, partnerships, and potential acquisition opportunities.

Q9: Why was a premium paid for the acquisition of Dice, a relatively small company?

Dice has strong AI-driven spend management SaaS capabilities with forward revenues of ₹20–22 crore. The acquisition was at ~6x forward revenue. Their pure SaaS base complements Zaggle’s own SaaS revenues and offers significant upside when bundled with our payment capabilities.

Q10: Will Dice accelerate international expansion plans?

Yes. Dice will support entry into the MENA and US markets. It is early to estimate revenue contribution, but these are the first focus geographies.

Q11: Dice currently monetizes only through SaaS. What are its payment volumes, and when will they flow through Zaggle?

Take rates will be similar to ours, but exact payment volumes are hard to quantify as they currently flow through third-party platforms. Integration to route payments through Zaggle will take some time.

Q12: With agentic AI gaining traction, what opportunities and risks are seen for Zaggle?

Our AI use cases are custom-built for enterprise spend management – travel, expense, procure-to-pay, and rewards. Customers focus on efficiency and compliance rather than AI hype. We are focused on delivering value in these areas.

Q13: With Jio entering the tax filing space at low prices, how will TaxSpanner compete?

TaxSpanner is not aimed at the mass market. It offers advanced compliance for employees with complex income such as foreign, rental, or crypto. We reach users through corporates like Bosch, HCL, and Accenture, rather than retail channels.

Q14: What areas are being targeted for upcoming acquisitions?

The focus remains within SaaS fintech and spend management adjacencies. The criteria are that acquisitions must be either EBITDA accretive or product accretive, and culturally a good fit.

Q15: Are AI initiatives being developed in-house or through partnerships? What was the tech capex in FY25?

Most initiatives are in-house across acquisitions and investee companies. We are consolidating tech teams for synergies. Around ₹40 crore was invested in FY25 specifically for technology development.

Q16: What are the use cases of the core products – Propel, Save, and Zoyer?

Propel manages channel incentives and rewards. Save focuses on employee expenses, travel, and benefits. Zoyer is for vendor payouts and accounts payable. All integrate with ERP and HRMS systems, enforcing policies, automating approvals, and providing analytics for corporates and employees.

Q17: Who are the main competitors in India? Do payment players like Razorpay overlap with Zaggle?

To our knowledge, no Indian player offers an enterprise-grade platform covering rewards, employee benefits, accounts payable, and prepaid/credit/UPI solutions together. Some payment players are actually our partners rather than competitors.

Q18: What is the rationale behind multiple acquisitions in recent years?

The space is ripe for consolidation. Acquisitions help us scale rapidly, improve efficiency, and capture value at attractive valuations. They also enable cross-selling and strengthen market leadership.

Q19: How are cash flows shaping up? What percentage of EBITDA is being converted?

Operating cash flows were negative in earlier years due to growth investments but turned positive in FY25 and remain positive in FY26. More clarity on conversion ratios will be shared in the next quarter.