Zaggle eyes merchant card market expansion through acquisition

Fintech firm Zaggle Prepaid Ocean Services Ltd plans to enter the merchant card network space through an acquisition and is in talks with a potential target, managing director and chief executive Avinash Godkhindi said on Monday. The acquisition will help the company expand its reach and presence with its existing merchant partners.

While the Hyderabad-based company has managed to secure a foothold on the corporate side, which has allowed it to build a strong employee, channel partner and vendor ecosystem, it’s light on merchant partnerships. “We have over 300 merchant partners, but we don’t have a software that sits in the system of these merchants,” Godkhindi told Mint in an interview.

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Zaggle is still in the due diligence phase of the potential acquisition and declined to name the company it is currently in conversation with. Such a buyout, when it goes through, will allow the fintech company to issue prepaid cards and loyalty points to customers that are directly linked to billing systems of their merchant partners.

“When we have billing system integrations, the stock-keeping unit level data begins flowing to us, which allows Zaggle to do more with that data and insight,” he said.

In December, the company raised ₹595 crore through a qualified institutional placement. Zaggle will use that capital to fund the acquisitions. The company reported a 69% year-on-year surge in revenue in the quarter ended 31 December, reaching ₹336.4 crore. Net profit grew to ₹20.2 crore in the quarter, marking a 33% increase from the same period last year.

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However, the net profit was 3% lower sequentially amid higher operating costs, which triggered a slide in the stock price.  The company’s shares remained locked in a 10% lower circuit, ending at ₹424.05 apiece on the National Stock Exchange on Monday.

While they are in conversation with five entities, the fintech player will go ahead with the acquisition of two or three of them over the next few quarters. “The whole idea is that we’re looking for Ebitda-accretive acquisitions. We are looking for companies that are tech-driven or tech-enabled,” he said.

Ebitda stands for earnings before interest, taxes, depreciation and amortization, and is a key measure of a company’s profitability.

The company plans to continue to emphasize on technology investments as part of organic growth, but it is also open to making a separate acquisition where they see “capability can be acquired,” according to Godkhindi.

Foreign expansion

Zaggle has noticed that there are potential avenues to enter other geographies, but as it stands, it is yet to make a move, citing uncertain policymaking in the US. The company had been planning an expansion into the US around eight months ago but decided to hold off on account of the presidential election.

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“We do see inward interest from partners in Southeast Asia, the UAE, the Middle East and, of course, the US. These are the regions we’re focused on,” Godkhindi said, adding that while Zaggle is open to attractive acquisition opportunities in the future, it is in no hurry.