From a flat IPO debut to nearly 2X share price: What is Zaggle getting right?

Raj P Narayanam, Founder, Zaggle Prepaid Ocean Services Image: Vikas Chandra Pureti for Forbes India
 
“You want an honest answer?” asks Raj P Narayanam. A company that has been profitable for three consecutive years, says the founder was realistic in its expectations when it hit the public market in September last year. It was 2023, the Indian startup ecosystem was in the midst of a bitter and prolonged funding winter, and Narayanam was betting big on the conventional wisdom that stock markets—unlike venture capital (VC) or private markets—would value profitable companies.
 

Zaggle had the right set of numbers to impress retail investors. Profitable since 2020, the fintech company was among the leading players in the corporate spend management space and notched a heady growth in revenue since March 2021. It closed FY21 at ₹239.96 crore in operating revenue, the next fiscal, it jumped to ₹371.25 crore, and in FY23, the revenues leapfrogged to ₹553.46 crore. The B2B player had ticked all the boxes needed for a blockbuster IPO. Narayanam hoped for a modest outcome. “Going by this logic, we thought the stock would list at a minimum of 20 percent premium,” recounts the founder of Zaggle Prepaid Ocean Services, which had an offer price of ₹164.

There was a gross mismatch, though, in expectations and reality. The stock was listed at the offer price. “It was devastating,” confesses Narayanam, who founded Zaggle in 2011. “This is my honest answer,” he says, alluding to his reaction to the muted listing. “We had everything that a company needs for a stellar listing. Yet, the output didn’t match the input,” rues the founder who had coined a smart tagline for his company ‘why haggle when you can Zaggle’.



The catchy pitch worked with the corporates. During the formative years of operations, Zaggle was one of the first companies in India to come up with a RAN (restricted authorisation network) prepaid card which it issued along with a bank. “We named that card as ‘BOMB’, which meant ‘box office movie bonanza’,” he recalls, justifying the wacky name as it was meant for corporate employees. A dozen years later, Zaggle’s IPO listing almost bombed. Narayanam resisted his urge to get into a haggle mode with stock market pundits who had predicted a different outcome. He reluctantly accepted the odious verdict.

Seven months after the listing, Zaggle is having a dream run. The SaaS fintech stock has jumped close to 90 percent—it was trading at ₹308.25 at 10.40 am on April 29—which mirrors the financial performance of the company that posted its best quarterly numbers in the third quarter of FY24 and has issued over 50 million pre-paid cards since inception. It has doubled its corporate customer base in two fiscals—from 1,092 in FY21 to 2,411 in FY23—and has continued to post profit for over 15 consecutive quarters.

Narayanam decodes the wild swing of the stock market from being tepid to more than gratifying. When Zaggle entered the public market, he explains, the company had a sound financial track record. The market, though, remained cold due to two reasons. First, the segment in which Zaggle operates—B2B SaaS fintech—was almost alien to the retail investors. Second, the retail investors wanted to see if the company could continue to remain consistent after the listing. “It’s discovery and delivery. They (retail investors) discovered us when we delivered on our promise,” says Narayanam, adding that the stock market tests the tenacity of the companies. “If they notice that you are impatient in action, but patient in expecting results, they will reward you,” he reckons. 

Also read: Fintechs have pioneered innovation. Next stop: Profitability

The risk-reward ratio, however, didn’t work in the private market. Though Zaggle had a few private backers on its board, it managed to raise less close to two million dollars in its journey. The problem for the company largely revolved around two issues. First, Zaggle was a B2B company. Over the last decade and before the onset of the funding winter, venture capitalists were largely biased towards B2C and consumer stories. Though most of the B2B ones had a sustainable and profitable track record, they lacked the glamour quotient. “The unofficial word in the market was that we were not fundable,” says Avinash Godkhindi, CEO of Zaggle Prepaid Ocean Services. “I must have heard this countless times that our business model was not made for a VC business,” says Godkhindi, who joined Zaggle in 2012.

The second problem was an offshoot of the first one: Zaggle was a SaaS fintech company. “If B2B was like a tough question, then SaaS was like an ‘out of syllabus’ question for the VCs,” says Godkhindi, a banking veteran who has had stints across Citi, Barclays and ING before joining Zaggle in February 2012. Just three years into his new role, Zaggle was on the verge of running out of money in 2015. “We came close to running out of cash,” says Narayanam. Interestingly, an investor meeting over rajma chawal turned out to be the much-needed food for thought for the founder and the CEO. “You should be able to do business without raising money,” reckoned the investor who shied away from backing the company. “I mean why can’t you have a negative working capital like HUL,” he added. The feedback, which was initially perceived as a taunt, made the founder relook at his business model, which was subsequently steered towards a recurring business model.



Cut to 2024, Zaggle is one of the few profitable and thriving B2B SaaS fintech companies in India.

The backers are delighted with their pick. “The Zaggle leadership has built the trinity (differentiated tech, profitability with capital efficiency, and market leadership) that every investor looks for,” reckons Sanjeev Yamsani, partner at VenturEast, one of the early and few backers of Zaggle. “We believe the founding team is well-positioned to sustain this trinity over the next decade,” he says. The bigger opportunity now, he adds, is to go deeper into the India SME market and take the company overseas. “There is an ‘India-to-the-world’ opportunity for Zaggle,” he underlines.

Narayanam, meanwhile, prefers to stay focussed. “We are still running a marathon, and we are building a sustainable company that would outlive us,” he signs off.