Buy this IT stock, says JM Financial; sees 49% upside in Zaggle Prepaid

Brokerage firm JM Financial has initiated coverage on Zaggle Prepaid Ocean Services with a “Buy” rating, seeing a significant upside of around 49 per cent from its current market price. The brokerage has set a target price of Rs 520 per share for the SaaS-fintech firm, citing its strong growth visibility and a long runway for expansion in an underpenetrated market. Shares of Zaggle Prepaid were trading at Rs 348.25 on Tuesday.

JM Financial highlighted Zaggle’s unique position as an “integrated SaaS-Fintech platform” that is digitising and simplifying business spending for enterprises. The company, founded in 2011, has evolved from a corporate gifting player to a comprehensive spend management platform. Its portfolio, including key products like Save, Propel, and Zoyer, allows corporations to automate and monitor expenses across employee benefits, vendor payments, and channel partner rewards.

Growth and valuation

The brokerage is bullish on Zaggle's financial trajectory, forecasting an impressive revenue and Profit After Tax (PAT) Compound Annual Growth Rate (CAGR) of approximately 34 per cent and 52 per cent, respectively, over FY25-27E. This growth is expected to be fuelled by "steady SaaS adoption, operating leverage and incremental growth from new products and adjacencies". JM Financial also anticipates a sharp improvement in profitability as the company's revenue mix shifts towards higher-margin subscription income.

The target price of Rs 520 is based on a 30x multiple of the company's estimated September 2027 Earnings Per Share (EPS). JM Financial noted that this valuation multiple is "slightly conservative compared to other B2B internet peers," taking into account a recent dip in margins and increased working capital needs for its Propel business.

Strong moat and strategic acquisitions

According to the report, Zaggle benefits from "strong network effects," which result in high customer stickiness and an exceptionally low churn rate of less than 1.5 per cent. The company serves over 3,550 corporate clients and has an active user base of around 3.3 million. Its asset-light model is strengthened by robust partnerships with 19 banks and all major card networks.

Zaggle's competitive edge is further sharpened by strategic acquisitions. The firm has successfully integrated companies like Mobileware, Effiasoft, TaxSpanner, and GreenEdge to enhance its technological capabilities. These moves have helped create a "strong moat," positioning Zaggle as a full-stack "'Spend-as-a-Service' platform rather than just a card issuer".

Key risks

While the outlook is positive, the brokerage report also identified potential risks. These include the slower-than-expected adoption of new products, the possibility of large banks launching their own corporate cards leading to "disintermediation risks," and potential margin volatility from investments in new ventures, acquisitions, and international expansion.