Zaggle Prepaid Ocean Services Limited (ZAGGLE) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Zagel Prepaid Ocean Services Limited Q2F527 Earnings Conference Call. Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company which are based on beliefs, opinions, and expectations of the company as on date of this call. These statements are not guarantee of future performance. And it involves risks and alternatives that are difficult to predict. As a reminder, all participants' lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Dr. Raj Narayanam. Thank you.

Thank you so much. A very good evening to everyone. Thank you for joining the earnings call for Zagal Prepared Ocean Services Limited for Q2 and H1 of fiscal year 2027. On behalf of the company, I extend a very warm welcome to all of you. The financial results, press release, and investor presentation are uploaded on the stock exchange and on the company website. I hope everybody has had a chance to look at it. I would like to start by elaborating more on our three key focus areas, which is revenue, EBITDA, and operating cash flow. On revenue, our total revenue growth of 34% reflects strong operational momentum across both our standalone business as well as our subsidiaries. The festive season fueled strong growth in our overall loyalty and reward segment, driving revenue increases not only for Zagel but also for our subsidiary GreenEdge. In Q2 FY27, we also saw SaaS revenue coming from our DICE acquisition, which I will elaborate more on later. Also very glad to announce that for the first time in our H1, we have crossed 1,000 crores. On EBITDA, in Q2 FY27, our adjusted EBITDA margin on a consolidated basis stood at about 7.7%. There are a few points which I wanted to address on the EBITDA margin. As highlighted in the previous quarter, we had increased the transaction-linked expenses and the relocation expenses related to DICE acquisition following the onboarding of 100-plus AI professionals. This quarter, a full three-month salary base for these professionals was recorded under employee benefits expenses. However, this increase in payroll costs was offset by revenue from the novated DICE contracts, and we expect a further uptick as the remaining contract novations are finalized. Currently, about 65% of the contracts are novated, and rest should happen in this quarter. On the subsidiary and investee company performance, we saw green edge, mobileware, and tax banner as well contribute positively to the EBITDA margin. Zag.money, as highlighted previously, we can expect some burn over the next few quarters as we look to scale up our user base there. I will dive deeper into each of these shortly. We also saw a rise in other expenses as we continue to push certain tech and AI costs into P&L directly as guided earlier. Now on the operating cash flow, I am very happy to announce that we have achieved a positive operating cash flow, not only at a standalone basis, but also at a consolidated basis, you know, for Q2 FY27. I would like to take this opportunity to lord the efforts of the business and finance teams to be able to achieve this turnaround. There are some of the actions which we have taken, which have yielded success over the last few months. On the banking side, we are giving preference to those banks who are willing to work on more suitable invoicing patterns and payment terms. On the profile side, we have been extremely mindful of onboarding new corporates who operate on long redemption cycles, and we have also successfully altered payment cycles of a few of our existing customers by switching to a half-monthly invoicing. We have also started taking customer advances from some of our new customers, which also had a positive impact on our operating cash flow. We are keeping our feet on the ground as these are early winds. And we have a long distance to traverse. We remain committed to maintaining and accelerating our efforts towards further improving operating cash flow in the coming quarters. Now, I would like to give an overview of Zagal Investments and Acquisitions. I would like to start with an update on DICE. To refresh memory, we closed the acquisition in the middle of Q1 FY27. As discussed in the previous admin calls, we had incurred expenses relating to relocation and other transaction expenses, plus, you know, all these 100 plus employees, we had to absorb them, and the revenue being expected to kick in from Q2 FY27 onwards. I am very happy to update that we have completed the innovation of around 65% to 70% of contracts with the balance expected to close in Q3. As part of the entire innovation, we have inherited marquee customers such as Hindalco, Trident, Bajel, Akash. IDFC First Bank, HDFC Financial, amongst others. This acquisition has significantly accelerated our technology roadmap, enhancing the AI capabilities of Zagel, and by leveraging DAIS expertise in automated spend analytics, intelligent approval workflows, and predictive expense management, we are delivering greater operational efficiency and value to our corporate clients. Next, I would like to talk about Zag.Money. We have seen a massive increase in the users as well as the transactions count over the last few months, which is largely driven by multiple features delivering a superior user experience. I am glad to announce that despite this unprecedented scale, we were successfully able to monitor and defend against frauds without hampering our user experience, having created multiple layers of defense, such as the in-house intelligence patent checks, RASP network, which is the runtime application self-protection, and SMB, which is the silent mobile verification implementation. Our focus continues to be on user acquisition and growth across our three co-branded credit cards as well as UPI transactions. With UPI becoming a good engagement acquisition channel for us, the positive transaction on UPI comes at an opportune time, particularly with MDR on UPI on the horizon, which is poised to be a significant tailwind for Zag.Money. Our key funnel still remains the large raggle salaried user base where we anticipate our positive upside coming through while we remain mindful of spends on open sourcing. Next, I would like to talk about our investment in 86400, earlier known as mobileware. Revenues grew to around 22.4 crores in Q2, FY27. EBITDA grew to about 6 crores in Q2, FY27, and TAD grew to around 3 crores in Q2, FY27. I am extremely happy to announce that 86400 has processed transactions worth around 3 lakh crores just in H1 FY27, a 26% jump as compared to the last year. On ongoing engagements, 86400 has progressed well in its first international engagement with Lankapay, and we are looking to close out bank integrations in the upcoming quarter. Along with this, 86400 also went live with Sino Bank for their Bharat Bill payment staff. Next, I would like to talk about GreenEdge, which runs the golf privileges program for various banks and networks like ICCI, Amex, among others, along with the entire reward program for NPCI. The revenues grew significantly to around INR 58 crores. EBITDA stood at about 2.6 crores in Q2 FY27, and PAT was around the same number. Next, I would like to talk about Tax Spanner. I am pleased to announce that Tax Spanner has achieved a revenue of roughly about 2.1 crores in FY27, again making an increase of around 22.6% over the last year. Would also like to note that we are comparing tax standard business on half-year basis due to change in the tax filing deadline in the previous year. And they have achieved a EBITDA break-even in FY27. We remain cautious considering H1 is generally more skewed on the revenue in this business. We continue to work hard to achieve full break-even for the entire year, and we'll keep all of you posted in the subsequent quarters on the same. Having completed the multiple acquisitions over recent quarters, our immediate focus is on seamless integration to unlock synergies and operational leverage. Consequently, our approach to new M&A remains strictly disciplined and selective, targeting high-value opportunities in existing domestic and international markets. Now, I would like to take this opportunity to address our AI investments as well. As always, I will cover this section in two parts. First, the internal efficiency is delivered by AI, and second, how AI enhances our client station offerings. On the internal front, as highlighted earlier, AI-driven initiatives have already delivered tangible cost optimization, generating an approximately 10-15% gain in people cost efficiency. Not only has the development speed accelerated significantly, where our time to launch for new products modules has reduced by roughly 50%, we have also significantly accelerated go-lives with customers aiding in faster revenue realization. Reinvesting this read-up bandwidth and leveraging AI-assisted engineering has allowed us to accelerate our shift towards a modular microservices architecture while systematically refreshing existing product modules. On the client-facing front, there is no better proof of our progress than the successful deployment and go-live of our full-stack in intake accounts payable platform in phase 1 ahead of its time as a very, very large client in the manufacturing and metals and mineral space, which we spoke about in the last earnings call. As part of the deployment, we have embedded seven specialized AI agents within the accounts payable workflow. Together, they automate the end-to-end process, scanning, invoice injection, document extraction, fraud and duplicate validation, auto-categorization, PO matching, GRN matching, and TDS compliance. By deploying our full-stack AI solution, we have rapidly configured and automated four critical finance workflows. First, executing three and four four-way matching across PO, invoices, GRN, and delivery challenge with about 24-plus validation checks. Second, automating liquidated damages calculations across key logistics touchpoints. Third, streamlining vendor payment holds based on shipment compliance. Lastly, applying real-time rule-based TDS and GST tax logic. Through this implementation, we are looking to drive significant operational efficiency in their process, including approximately 60% touchless processing of invoices with zero human intervention. 50% reduction in exception resolution times, 100% end-to-end reconciliation across GST and TDS compliance. This go-live reflects a broader trend across our existing and potential customer base, where we are actively deploying similar agentic AI workflows for major enterprise clients. Groundbreaking deployments like these demonstrate the tangible returns on our AI investments, proving that our technology is both commercially viable and essential for complex, large-scale enterprise operations. We look forward to showcasing these AI developments to give all of you a deeper look into our AI capabilities and our roadmap at our upcoming Investor Day, which we plan to host date on 10th of December in Mumbai. Now I would like to give an update on our international expansion plans. Happy to announce that we have opened our subsidiary Zagal Holdings Ltd. in ADGM, which is Abu Dhabi Global Markets. International financial center and free economic zone. While remaining mindful of regional volatility, we are seeing great traction in early customer and partner conversations. The initial feedback confirms strong product fitment, and we are excited about the growth potential as we build out on our footprint. Now with this, I would want to hand it over to Avinash Ghodgindi, our CEO and MD.

Thank you, Dr. Raj. A very warm welcome to everyone joining us on the call today. I'd now like to give an overview of the key matrices. I'm very happy to share that today, around 4 million users actively use Zagal-powered cards and software, a strong testament to the scalability and adaptability of our platform. We now serve more than 4,200 corporate customers across a wide spectrum of industries and sectors. Talking about our consolidated revenue mix for Q2-FY27, our SaaS platform fees contributed around 16 crores, program fees contributed around INR 195 crores, and Propel points contributed around INR 369 crores. Talking about our consolidated revenue mix for H1 and FY27, Our SaaS platform fees contributed around 28.5 crores, INR. Program fees contributed around INR 355 crores, and Propel points contributed around INR 619 crores. I would now like to talk about a few key business highlights. I'll start with our upcoming updates on sales business. On the tax-benefit side of Zagal Safe, momentum remains strong in line with our prior guidance. Favorable updates to income tax regulations have broadened wallet adoption under the new tax regime and increased allowable limits for meal, gift, and employee benefit categories. We have signed multiple marquee names, including R-Systems, The Erla Fiber Optic Network, Vivo Mobiles, Amat Ujala. We have seen a tremendous upswing in the new user onboarding from existing accounts, as well as especially from users who we earlier missed out on being on the new tax regime. On the travel and reimbursement side of our safe business, we have seen the uptake with the nomination of the clear-tip contract, which we inherited from DICE. In addition to the list last quarter, we have additionally completed the nomination of Virla Opus and HDB Financial, to name a few. Next, I'd like to talk about the key updates in our Zoya business. We are experiencing significant positive traction in our Zoya business, driven by a targeted AI-powered rollout across our previously onboarded customer base. The large retail chain whose example I gave in the previous earning calls has seen successful onboarding of more than 5,500 stores. A massive increase from 2,000 stores highlighted previously in a short span of time. We have also signed up marquee names such as First Rand Bank, NetMeds, PN Gargill Jewelers, Bandhan AMC, amongst others. We have also inherited clients from DICE such as Hindalco, Bajaj Electrical Projects, Z Sustainability and Navi, amongst others. Now, I would like to take an opportunity to go deeper on a couple of key projects we are working on. We are currently engaging with a large conglomerate in the textile space. The problem statement we are facing, vehicle inward, material inspection, and accounts payable, were run through a manual disconnected process, and the SAP access was limited due to licensing costs. The solution we have implemented was a fully integrated digital And the entire accounts payable workflow, sitting as a layer integrated with their SAP ERP. We have deployed three agents which cover document extraction, purchase order matching, and an auto-categorization agent. When we think of it, the same line item, which could be a raw material, ancillary cost, packaging, etc., sits on many open purchase orders at once. When this line item appears on every new invoice, the entire matching and categorization to the specific open purchase order happens within seconds, helping in a quick turnaround post the material inspection. The impact of this is that the combination is seeing faster vehicle turnaround, revenue leakage control through credit note automation, and a centralized access control dashboard where information is available to relevant stakeholders. The next example I would like to give is I want to talk about our engagement with a large EPC company, which manages an ecosystem of more than 10,000 vendors, most of which are classified as MSMEs and processes around 40,000 invoices a year across its different manufacturing and project sites. The problem statement they are facing is as follows. One, the entire vendor onboarding was manual and took more than four days to onboard a single small vendor. Two, invoice processing ran on a manual email-driven workflow that needed more than 15 resources to reconcile and process. Three, procurement, invoicing, and payments sat on different systems. Not only making it harder to manage operationally, but also making it hard to enforce statutory compliance for tax and MSME payments. The solution we have implemented was our Core Accounts Table stack, which has helped in automating these workflows. We are also deploying our AI-driven RFX module consisting of multi-set templates and questionnaire builders along with a weighted multi-attribute option mechanism. Here, we are providing co-pilots for vendor onboarding, IAPX drafting, Negotiation and collusion detection along with agents for document verifications and statutory validations. The impact is as follows. One, vendor onboarding fell from four days to 15 minutes with 14 statutory validations being automated. Two, entire invoice processing is now AI-powered, not only for data extraction but even three-way matching. The entire load is now managed by just three people, where earlier 15 people were used, freeing up significant bandwidth and resource cost. The digitalization of the process has helped them get near-real-time visibility into their working capital, and instances of duplicate payments, delayed MSME payments, have reduced considerably. Next, I would like to talk about the key updates in our profile business. As always, we see positive uptick in redemptions in the current festive period. During the quarter, we signed up marquee names such as DCM Sridam, HeroCycles, amongst others. Now, I want to briefly touch base on our cross-sell initiatives. Leveraging AI, we have equipped our on-ground sales teams to pitch and solution for multiple products in the same go while dealing with different stakeholders across varied problem statements. In Q2 FY27, marquee cross-sell wins included Techno Sportswear, Centurion Pharma, SmartWorks, Aditya Auto, amongst others. Lastly, I would like to talk to all of you through some key financial updates with reference to PropelPoint's margin on a consolidated basis. We have reached a margin of around 5.3%. The PropelPoint's margin has normalized in the current range from the earlier quarter. Which is Q1 of FY27, which had some spillover of overriding commissions and hence seemed elevated. With reference to a cashback as a percentage of program fees, we saw the cashback at around 66.2% in Q2 of FY27, which is a marginal improvement in the cashback from the previous quarter. But a massive improvement from Q4 of FY26, where cashback was around closer to 69%. With this, I'd like to open the floor for questions.

Thank you very much.

We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference, please restrict your question to two per participant. Should you have a follow-up question, please rejoin the queue. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rohan from Equator Securities. Please proceed with your question.

Good evening, sir. Thanks for the opportunity and congrats on the operating cash flow turning positive. Sir, with respect to the guidance for FPA27 on EBITDA, can you share how should one think on that? Since the DICE acquisition is completed and we now have all the first items in place.

Hi, Rohan. Thanks for the good wishes. See, our focus, as we have previously also reiterated, has been to look at turning positive on the operating cash flow, and that remains a key focus. While EBITDA margins are lower than last year, we expect them to be in the similar range as we currently are, around 7-8%. So we want to be very calibrated in, you know, how we look at our cash flows and our capitalization. So that is the whole idea that we want to control the capitalization, and we want to be positive on the OCS.

Got it. Secondly, sir, on the save, the tailors that we are getting from the change in tax regulation, so just if you can highlight in terms of the gross loads or the loads which are happening on the cards this year versus last year first half, are we seeing an increase because the program fee revenues is not showing a meaningful jump? So, let's just try to understand how should one look at the benefit. Is that already flowing through in the flows or it will take time?

See, the flows, Rohan, it's grown significantly. It's a 6x growth in terms of the loads. But, of course, those balances are sitting on the cards, so the spends come through, you know, later. But in terms of the loads, the loads have grown very significantly, and that's quite in line with our internal expectation because, you know, two things have happened, just to reiterate for the group. One, old tax regime and new tax regime both are now able to give meal allowance, gift, All the allowances are now available. And the second is the amount also has gone up multifold. So for example, meal is a 4x, gift is a 3x. So, naturally, the loads have also gone up significantly.

Thank you.

The next question is from the line of Siva from iThought. TMS, please proceed with your question.

Hi, sir. Good evening. My first question would be, how much of our Q2 revenue is from DICE, and what would be the cost base for them as well?

Sir, DICE revenue is entirely in the SAS income, and as we mentioned, about 65-70% of those contracts are novated. Still, about 30-35% of the contracts are novated. Also, as you are aware, novation of a contract doesn't mean that, you know, revenue will start on day zero. Once the contract novates, then there is a lag. So, today, about 16 crores that we have, a small part of it is coming from dive contracts, but as we see in the Q3, Q4, the full impact will come through.

Got it. And could you maybe give us a rough figure on how much the run rate would be, sir, for ties? How much it could add for us?

Last year, their overall steady revenues was about 14-odd crores, so that eventually will come through, and then a lot more will come through for us in terms of deployment of that in contracts that were pending go-live, as well as our ability to be able to take that platform and offer it to our customer base in terms of cross-sell, up-sell. And fresh market acquisition.

Thank you. Before we take the next question, we would like to remind participants that you may press star and 1 to ask a question. The next question is from the line of Indra Deh from Eternal Access. Please proceed with your question.

Hello. Good evening, sir. This is Indra. I have a three-part question on UPI monetization. My first question is, government's recent move to introduce tired MDR on high-value merchant UPI transaction while keeping a small payment fee. How do you see the regulatory stance evolving from here? My second question is, the overall financial impact of this partial MDR rollout on the intake sector. And especially one diagram, especially as you scale your UPI, T-Pay offering. Okay, sir.

Thank you. Thank you. I think I briefly sort of got your question. What I understand is you wanted to... Ask whether UPI on MDR is going to have a positive impact on our business, and overall, how is it going to look on the fintech industry? We see this to be a very significant move for Zagl, and ZagMoney especially, which is a TPAT. Because today we are doing huge volumes of transactions, over 3 million transactions a month, and, you know, those are all going to generate some amount of revenue going forward, you know. So that's going to be a plus for us. And when will it get implemented? Of course, sir, that's dependent on the government. The message that we've heard is it's after Diwali. So hopefully sometime soon this measure will be in force.

Thank you, sir.

The next question is from the line of Harsh from HRS Enterprises. Please proceed with your question.

Hello, from Audible.

Yes, yes, sir. Yes, sir, your Audible.

Thank you for the opportunity. So I wanted to inquire about there is one line item in our balance sheet under other assets called prepaid card loading. And I'm talking about the year end balance sheet and the amount corresponding amount is 264 crores. And in previous coin calls, I think you've mentioned that, you know, we have been preloading some cards to help our clients with their working company. So I just wanted to understand, when we say preloading of cards, are we talking about the expenses we bear on, you know, on our side, or are we talking about the balance that is there in that card?

Thanks for your question, Hash. It's the balance on the card. We load those cards because we want to be able to deliver those cards at near real time. And when people make a loading request, which is sometimes not, you know, even rounded number, you may then need to, depending on the points that they have, right? You need to have some balances already there and cards loaded across different denominations to be able to fulfill that need. So that is something that is a fairly standard industry practice. Having said that, overall, we've got a good handle on our other current assets, and if you see those numbers have come down slightly from the year-end numbers that you're mentioning. So I think we're in good shape there.

Thank you.

The next question is from the line of Rohan from Equivirus Securities. Please proceed with your question.

Thanks for the opportunity again. This is a follow-up to the same GTV question that we were discussing. So since we are seeing a 6x load, whatever spines happen during the second half of the year, will that not slow down to EBITDA and help improve EBITDA margin for the second half? Just trying to understand why we are waiting for a flattish EBITDA for the full year.

Again, good question. SAVE has two components. One is T&E, and the other is your employee benefits, first of all. Overall, program fees get generated across Propel, SAVE, and Zoyer. And program fees is one of the three components that we have, right? So you can see how many layers are there in the revenue. Yes, it will have a positive impact on the program fees, but we just want to be cautious about, you know, giving any guidance around EBITDA, so we are, you know, erring on the side of caution, but yes, you know, it should have a positive impact on our program fees revenue line.

In terms of, if you look at the disclosure, Greenwich and MobileWare, EBITDA declined sequentially. So, what explains that?

Yeah, once in MobileWare, some of the EBITDA that came in last quarter was because of one time, one time, One-time events. And similarly, in Greenwich, while the revenue has grown, you have to also appreciate that that business, just like PropelPoints, as revenue grows, it's not necessary that the margin will grow sequentially. We've also invested in these businesses a lot in ensuring that the security is top-notch because mobileware is a UPI switch and plus-plus. As well as, you know, GreenEdge, you're running redemptions for NTCI. So that has its own set of investments that go in in terms of ensuring the... You know, running smoothly in a safe manner.

Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star and one now. The next question is from the line of Siva from iThought PMS. Please proceed with your question.

Hi, thanks for the follow-up. Sir, on the program fee, so the growth has slowed down to around 10%, right? Which I understand is because we are working around partner banks for better invoicing for cash flows. I just wanted to understand by when can we expect this growth to go back to a 20-30% rate? Thank you.

Thank you for your question, Siva. See, ultimately, we are balancing out on two factors, right? Keeping the cash back at a controlled level. So we have expected about 66%. Thank you. We've also focused on trying to get revenues at a faster pace from, as in the cash flow from a faster pace from our customers, right?

Quarter on quarter, we've grown 22%.

Year on year, you're right, we're at about 12.5%. But, you know, we see some momentum kicking in this quarter, and hopefully between this quarter and next quarter, we will see some good momentum coming through.

Understood. And, sir, on our program fee, how much of the GTV is currently from UPI, sir, and how much would be eligible for MDR? I'm just trying to understand how much could be our incremental revenue.

So, right now, the GTV that we talk of, Sivad, does not include the UPI transactions, right? So, that's – I just shared the number for Zag money was about 3 million transactions month on month. So, the number of transactions and values are significant. So, hopefully, we'll see some good outcomes there.

Got it. But would it be possible to quantify any numbers, sir, like any rough figure, how much would be incremental for us?

Difficult to quantify, Siva, but we also mentioned to you on 86400, for example, that we've processed in H1 3 lakh crore, INR 3 lakh crore worth of transactions. So that's 86400. So then again, we should see some upside on the UPI transactions. Difficult at this moment to quantify because we also don't exactly know finally what is the quantum of MDR that the government will... We will bring in and when they will bring in.

Thank you. Ladies and gentlemen, that was the last question from the participant. I now hand over the conference to management for their closing comments.

Thank you all for participating in today's call. We hope we have addressed all your queries and provided valuable insights. We remain optimistic and focused on the future growth of the company, and we are excited about the opportunities ahead. For any further information, we request you to get in touch with SGA, our investor relations advisor. Thank you, and have a nice day.

Thank you. On behalf of Zagel Prepaid Ocean Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.