Zaggle Prepaid Ocean Services IPO subscribed 43% on Day 2

Zaggle Prepaid Ocean Services IPO: Zaggle Prepaid Ocean Services, a SaaS-based fintech platform, is facing a muted response to its IPO, even as the second day of bidding on September 15 concludes. The IPO only garnered a 43 per cent subscription at the end of the second day, with bids received for 82.98 lakh equity shares out of the total offered size of 1.93 crore shares.

Retail investors have shown relatively strong support for the IPO, subscribing to 1.9 times their reserved portion, which accounts for 10 per cent of the total IPO size. However, high-net-worth individuals (non-institutional investors) and Qualified Institutional Buyers (QIB) have shown limited interest, subscribing to just 29 per cent and 0.02 per cent of their respective allocated portions, which constitute 15 per cent and 75 per cent of the overall offer size.

Even on the first day of bidding, which was September 14, the IPO managed to secure only a 19 per cent subscription rate.

IPO capital structure

The IPO aims to raise Rs 563.38 crore through a combination of a fresh issuance of shares worth Rs 392 crore and an offer-for-sale (OFS) of 1.04 crore shares valued at Rs 171.38 crore, with selling shareholders including promoter Raj P Narayanam, Avinash Ramesh Godkhindi, and corporate entity Zuzu Software Services.

Notably, the company had already raised Rs 253 crore through the anchor book on September 13, a day prior to the IPO opening. Global investors like Neuberger Berman, Morgan Stanley, Matthews Asia Funds, Eastspring Investments, Copthall Mauritius Investment, Societe Generale, Goldman Sachs, and domestic fund houses like Kotak MF, ICICI Prudential, LIC Mutual Fund, and Abakkus participated in the anchor book.

The funds raised from the fresh issue will be utilised for customer acquisition and retention, technology and product development, debt repayment, and general corporate expenses.

Strategic fintech position

Zaggle holds a strategic position at the intersection of the SaaS and fintech sectors, offering a comprehensive suite of features on a single platform. The company has achieved remarkable topline growth, with operational revenue increasing at a CAGR of 100.8 per cent from FY20 to FY23, driven by the addition of new customers and an expanding user base among existing customers.

With the launch of its new platform 'Zoyer' and ongoing efforts to expand its customer base, Zaggle is optimistic about its future prospects. However, some analysts have noted that the IPO appears to be aggressively priced, warranting caution.

Margin performance analysis

While profitability margins improved in FY22, they witnessed a significant decline in FY23, with EBITDA margin and EBIT margin both showing substantial decreases.

The IPO is being offered at a price band of Rs 156-164 per share, translating to a P/E multiple of 87x based on FY23 figures.

Hem Securities has assigned a long-term "subscribe" rating to the IPO, citing Zaggle's differentiated SaaS-based fintech platform, which offers a combination of payment instruments, mobile applications, and API integrations. The brokerage highlights the company's in-house technology, strong network effect, diversified revenue sources, and low customer acquisition and retention costs as appealing factors.