Zaggle Prepaid's Q1 Profit Jumps To ₹17 Cr | NDTV Profit
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00:00All right, we're in the thick of earnings.
00:08First off, welcome to NETV Profit.
00:09I'm Harsh Saita.
00:10And we continue to focus on numbers.
00:13And we have Zagil prepaid, a very strong set, at least when it comes to growth, very, very
00:22strong set of numbers.
00:24And to try and break those down a little bit more, we have Avinash Godkindy, who's the
00:28MD and CEO at Zagil Prepaid.
00:31He's also the co-promoter there.
00:34First off, welcome, Avinash.
00:35You know, we've spoken to you at various points over the last quarter.
00:40Orders continue to trickle through for you, and at a very strong rate, I must admit.
00:47Just talk to us.
00:48You've guided for roughly 50 percent growth on top line versus last year, which is FY24.
00:53You closed FY24 at 770.
00:56You've done 250 plus in this quarter, and likely you will only go up from here sequentially.
01:05Would you therefore revise your top line guidance, because you'll be well past 1000 and well
01:10past 50 percent?
01:11Yeah, we're tempted to, Harsh.
01:14Thank you so much for having me on your show.
01:17We're tempted to.
01:18And if you look at the year-on-year growth, it's 113 percent, right, 113 percent in revenue
01:26and, of course, PAT has been 713 percent, right?
01:29So let's keep the PAT number on the side for a minute.
01:34The revenue numbers have grown very strongly, and we expected them to grow well, but this
01:41has exceeded our expectation.
01:43So two reasons.
01:44One, the demand in the market for digitization, as such, with enterprise customers.
01:51And also, we are getting the benefit of being a clear market leader in spend management
01:57as a space.
01:59And when you get a market leadership position, the participants in the ecosystem tend to
02:05gravitate towards you.
02:06So we are tempted to up our guidance, but so far, we are going to hold our guidance
02:10of 45 to 55 percent overall year-on-year growth, which would be about 1,150 to 1,200 crores
02:18for now.
02:19So depending on how Q2 goes, we may up our guidance.
02:23Got it, Avinash.
02:24Let me zoom out, Avinash, and for the benefit of viewers, give us – you're a fintech
02:30plus SaaS.
02:32Give us a lowdown and try and simplify this business for us, for the viewers, to try and
02:38give us a lens as to what the business is all about and what's the growth potential
02:43like and what's the kind of traction you are seeing in terms of demand.
02:47More on the business, less on the traction and demand.
02:49Sure, Arsh.
02:50So if you think of it, right, any company – and NETV is a customer of ours as well
02:54– any of your enterprise and mid-market customers are all trying to figure out how
03:00can they manage their spends better, right?
03:03You want to reduce leakage, you want to reduce friction, you want to make it very convenient
03:07for your users, whether it's your employees, whether it's your vendors, whether it's
03:10your channel partners.
03:12And that's the way the world has evolved.
03:15That's the way India has moved, and we are very clearly the number one player in the
03:20fintech space in the world today as India.
03:24And consumers and corporates demand that the solutions are working seamlessly.
03:29So it's not about software or a payment instrument.
03:33What the customer is asking is software and payment instrument, and the entire experience
03:39has to be integrated and seamless.
03:41And that's what we are able to provide through our platform, whether it's SAVE, which is
03:45our employee expenses and benefits platform, or ZOIA, which is our vendor payments platform,
03:51or PROPEL, which is our channel incentive platform, where each of these platforms integrate
03:56with the ERP on the one side, with the HRMS on the other side, and all these integrations
04:01are bringing in data, information, allowing corporates to set policies, limits, as well
04:07as to be able to view the data of the spends in a single unified view through very easy
04:16to understand dashboards, whether it's pie charts, bar graphs.
04:19So any layperson can understand what's happening in terms of the spends, not just your accounts,
04:24folks.
04:25Historically, it's only the CFO's office which has been responsible for controlling costs.
04:29And it's been a old complaint of CFOs that revenues seem to be the prerogative of everybody
04:34in the company, but cost control is a burden of only the CFO.
04:40This allows you to spread that responsibility across the organization.
04:44Got it.
04:46Okay.
04:47So yes, more simplified, but if you can also give us what's the kind of market share, if
04:54there is one, if there is a metric, what's the kind of market share you have in the space?
05:01Because for one integrated player to be doing all the businesses that you're doing, that's
05:08unique in itself.
05:09So if you can give us product-wise or how does it work?
05:14So Harsh, we're clearly the number one player in the spend management space in India today.
05:20And the market is recognizing it.
05:23The rest of the competition is highly fragmented.
05:26It's hard to create an ecosystem the way we have.
05:30And I say it with all humility that it's taken us a 13-year journey and we've just scratched
05:37the surface so far.
05:39So it's hard to be able to integrate with all these systems, acquire these corporates.
05:44Today we have 14 bank partners, some of the best banks in the country like SBI, ICICI
05:50access, et cetera.
05:52So market share-wise, we are very clearly the market leader to pinpoint a percentage
05:57is hard because there's a lot of fragmentation in the market when it comes to the point solutions
06:04which others offer, whether it's expenses, whether it's benefits, whether it's channel
06:09incentives.
06:10But overall, if you look at it, we are a top five player in the commercial card space today
06:14in India, red card.
06:16We are one of the leading issuers of prepaid cards in the country.
06:22So that way you would obviously see where we stand.
06:27Overall, to say that this is our market share is a little tricky because this is yet a nascent
06:33industry, very fast growing and with the tailwinds of a demon, GST, COVID, all kicking in towards
06:43digitization.
06:45So there are a lot of those tailwinds.
06:46So the market continues to expand very rapidly on a daily basis.
06:52All right, let's talk margins profitability.
06:55First off, with regard to your adjusted EBITDA margins, as you'd call it, which for viewer
07:01context just about excludes ESOP.
07:03So margins excluding ESOP, you've suggested that that number should be 11 to 13 percent
07:11in the medium term, maybe a year or two is what I guess give us that guidance as to how
07:15quickly you get there.
07:17are fluctuating between that maybe 9 to 12, 11 odd percent bracket?
07:24Yes, we are this quarter at about 10.1 percent.
07:28And our guidance is that for this year, we'd be in similar levels by FY28 or so.
07:35We've been in the range of 15 to 16 percent.
07:39And the way we look at the margin expansion is if you think of it, you know, how those
07:43typically margins expand.
07:45It's firstly the growth in top line.
07:47I'm talking of a growing industry and growing company.
07:50So your top line grows, then your gross margins grow.
07:52Our gross margins have started to grow very healthily.
07:55So this quarter, our gross margins were about 56 to 57 percent compared to the same Q1 of
08:02last year, which was about 51 percent.
08:05So we're seeing expansion of the gross margin and eventually in the next two, three years,
08:10it will flow right down to PAT through EBITDA and, you know, into PAT.
08:15So we're seeing the expansion.
08:16But right now, our guidance for margins for adjusted EBITDA is around 10 percent for this
08:24year.
08:25Got it.
08:25And so maybe a year or two from now, we will make the journey to 13.
08:30And thereafter, FY28-16 is mine.
08:34So we would have to understand how that goes.
08:39Sometimes, you know, these things take a little while longer, but we are fairly bullish about
08:44the fact that by FY28, we should be in the range of 15 to 16 percent.
08:48Whether that happens, you know, right off the bat or maybe it takes a little while and
08:52then it kickstarts in a big way.
08:56We'll have to wait and see.
08:58Right.
08:59And you've guided for doubling of revenue versus FY24.
09:04FY24 at roughly 770 crore, doubling by FY26.
09:10Where should that go?
09:11Because you're growing at nearly 50 percent over FY25 and 26.
09:16If that were to continue to happen, you'll likely double maybe 50 and 40 and you'll likely
09:22double, you know, to around 15 to 1600 crore.
09:26Where does that go?
09:27Because the base gets higher then.
09:29How much of that is annual recurring and where does that go to?
09:33So, one, we are very confident of comfortably doubling, you know, in two years.
09:41We potentially would outdo that.
09:45And, you know, the beauty of being in a country like India and in a market like spend management
09:53is the market size of the time, so to say, is so large.
10:00And we are now experiencing the benefit of being the market leader.
10:04I can't emphasize this enough.
10:06How enterprises and, you know, mid-market customers gravitate towards somebody who has
10:13a high quality solution which is established in the market.
10:17And given the number of, you know, startups and fintechs who've had a tough time, being
10:23listed, being profitable is a very big sign of stability.
10:29Last five years, we are profitable at a back level.
10:32And the corporates and banks really give a very large premium to that profitability.
10:38So, we are very confident that going forward also after those two years, the growth will
10:43be very robust.
10:45What it will be may be a little premature for me to say, but internally our targets
10:49are very robust right up to 2032.
10:53Got it.
10:53And, you know, I want to try and understand if your EBITDA margins are 16 percent.
11:00So, currently margins are at around 10, 10 and a half.
11:03You know, your PAT margin is roughly 6 and a half, 7.
11:08Once they reach 16, your EBITDA margins, where does PAT margin lie?
11:13Because you'll have a significantly higher cash flow coming in.
11:18Likely those interest expenses will go away.
11:22Your depreciation is largely insignificant compared to the larger top line you'll have
11:26by then.
11:27So, I want to try and understand, will that completely flow to bottom line?
11:31Is that the right way to look at it?
11:32Is that the right way I'm looking at it?
11:35So, Harsh, you're very, very bang on, right?
11:38I mean, it would very largely flow into PAT.
11:41Of course, there's a tax component.
11:45So, obviously, there's there, but from a PVT perspective, a very large portion of the
11:49expansion and EBITDA will flow into the PVT and, of course, the PAT as well.
11:54Got it.
11:54And with regard to cash, where are you deploying?
11:58Where are you investing your free cash?
12:00It's a high cash generating business.
12:02So, just want to get that as well.
12:05See, on cash, if you look at it, cash would go into organic and inorganic growth levels.
12:13And we are looking at opportunities for inorganic growth very seriously.
12:19Both domestic and international.
12:22We're also looking at opportunities where these acquisitions are EBITDA accretive.
12:28The challenge there, Harsh, is profit or EBITDA accretive acquisitions are rare to find,
12:34especially in the spend management space.
12:36But we are looking at them.
12:38And if not, then we would definitely make sure that that acquisition is bringing significant
12:43value to us in the product side or the geographic expansion side.
12:48And a lot of investment is going on in adding high quality talent in the organization,
12:56leveraging technologies like AI.
12:59We've spoken extensively in the analyst call as to how AI and OCR and NLP are really making
13:05a big difference in the lives of our users and corporate customers.
13:10And we'll continue to invest and double down on that.
13:17Thank you.