DigiSpice Technologies Ltd Management Discussions.

The companys business activities fall into two primary segments, digital financial services & digital technology services.

Financial technology services (spice money): spice money, a subsidiary of ‘digispice technologies limited is indias leading rural fintech organisation offering digital financial and e-retail services primarily to underbanked and underserved citizens from semi

Urban and rural india in a technology enabled assisted model.

Digitaltechnology services (digispice): for monitoring purposes, this segment is further classified into two verticals; the digital enterprise and digital telco. The segment provides digital platform and solutions for telco, bfsi and other enterprises across asia and Africa. Financialtechnology services (spice money) market opportunities

Government introduced jam trinity (jan dhan, aadhaar and mobile) in financial year 2014 to integrate identity (aadhaar), mobile infrastructure with banking and payments infrastructure thus improvising its focus to provide easy access of banking facilities and enhance the ability to digitize transactions and constructed a robust infrastructure around financial inclusion for rural and semi-urban india. This expanded use of digital payments by the government for welfare also served as the biggest launchpad for direct benefit

Transfer ("dbt").

Over the last decade, npci has launched various innovative products like upi, national electronic toll collection (netc) and bharat

Bill pay service (bbps), aeps, imps and other retail payment and settlement systems. The convenience of these payment systems along with ubiquitous availability of mobile broadband has ensured acceptance as they provided consumers an alternative to the use of cash and paper for making payments. The participation of non-bank fintechs in the payment ecosystem in the form of prepaid payment

Instruments (ppi) issuers, bharat bill payment operating units (bbpous) and other third-party application providers in the upi platform has furthered the adoption of digital payments in india.

Indias financial inclusion has improved significantly in the past three years, with the adult population with bank accounts rising from 53% (as per global findex database 2014) to 80% (in 2017) with concentrated efforts from the government and various other supporting institutions. However, last mile banking infrastructure hasnt kept pace. Although around 65% of indian households were located in rural regions of india during financial year 2020, the banking infrastructure in these regions is relatively inferior, and thus, there is a gap between the supply and demand of financial services in the rural regions of the country indicating huge room for financial inclusion and banking services penetration.

As of fy 2020-21, there are 305 atms per million population in urban india and 110 atms per million population in semi-urban and

Rural india, which is significantly lower than other developing and developed countries.

Payments banks and fintechs have been growing their presence and reach by increasing touch points through retails outlets which have a widespread presence in india. For large swathes of the indian population, particularly amongst lower income group customers and customers from the semi urban and rural areas, small mom and pop stores remain the primary outlet for retail spending. There are about 63 million micro enterprises in india out of which 32 million enterprises are in rural india. These merchants provide a huge potential for payment banks and fintechs to grow.

Distribution of enterprises (rural & urban area wise): numbers in lakh

Sector Micro Small Medium Total Share
Rural 324.09 0.78 0.01 324.88 51
Urban 306.43 2.53 0.04 309.00 49
All 630.52 3.31 0.05 633.88 100

There are a lot of opportunities for the companies in the financial services sector to bridge the above gaps. And this is where rural fintech leader spice money can provide appropriate solutions. Spice money is indias leading rural fintech organization empowering micro entrepreneurs called spice money adhikaris through digital technology to cater to the needs of semi-urban and rural population in india. Spice money through its cutting edge technology and wide network of spice money adhikaris, is bridging the gaps in access to various financial services for the masses across the length and breadth of india.

Spice money is using the aeps (aadhaar enabled payment system) and matm (mini atm) infrastructure of banks/npci/uidai, to enable last mile kirana stores & other small format stores to provide basic banking services such as cash in and cash out in rural and

Semi urban india. Spice money is also a holder of bbpou licence and provides this service owing to the convenience it offers of round-the-clock bill payments to multiple billers from a single platform. Aeps has seen a strong growth in its transaction volume which increased at a cagr of 178% between financial year 2017 and financial year 2021. In terms of value, it has increased at a cagr of 216% during the same period. Post-covid, the usage of aeps has jumped manifold, indicating the increasing convenience of this channel as well as the change in customer behaviour.

Aeps transaction grew at a cagr of 178% between financial year 2017 & financial year 2021.

Key focus

spice moneys vision has been to create a robust digital infrastructure in india by empowering the countrys rural and semi-urban regions with the largest digital services platform.

? enabling customers to avail atm and banking services using aadhaar enabled payment system at their next door kirana store.

? while focusing on adding new customers through increase in reach, spice money is also building a strong repeat customer franchise. Significant growth in new customers in q1fy21 and q2fy21 was driven by pandemic related subsidy disbursals by the govt during q1fy21.

? this addition has led to a significant and sustained jump in the repeat customer base.

? roadmap to core banking and payments use cases with new products:

? enterprise (microfinance nbfcs, logistics companies in semi-urban and rural) representatives who collect cash from market, can now deposit it at nearby spice money adhikari in the village. This way the enterprises get near real time credit and the adhikari can use this cash to serve customers with cash withdrawal services.

? enable delivery of financial services (savings, insurance, credit) and digital services (travel, healthcare, government services etc.).

? removing entry barriers (eg. Zero entry fee and zero rental since feb21) with focus on long term transactions revenue growth, expanding geographical reach as well.

Spice money holds the following licenses and approvals:

Licenses Regulator Licenses utility
Ppi Rbi Enables spice money to issue and operate semi-closed prepaid payment Instruments (ppi) in india
Bharat bill payment Rbi & npci Enables spice money to operate as bharat bill payment operating unit (bbpou) under bharat bill payment system (bbps) in india.
Irctc Principle Agency Irctc Enables spice money to act as principal service provider (psp) of indian Railway catering and tourism corporation limited (irctc) for booking Of railway e-tickets, for travel in trains of indian railways.
Gsp Gstn central government Entity Enables spice money access to gst apis through a secured network for Providing gsp services to the taxpayers, directly by itself or indirectly Through any third party appointed by it.
Aua/ kua Uidai Enables aadhaar based e-kyc of customers. This is currently under Suspension by uidai due to the supreme court order.
Corporate Agency License Irda Enables spice money to act as corporate agent (composite) for Solicitation and servicing of insurance business in india.

our key partners who we serve, potentially cover 1 billion citizens in india:

? Public and private sector banks: provide sound financial banking services conveniently.
? Insurance companies: penetration in rural areas and meeting our financial inclusion goals.
? Nbfcs: enabling credit products in rural india.
? Utility service providers: facilitates easy online bill payments.
? Telecom operators: provides telecom services like top-ups.
? Multiple enterprise categories like microfinance nbfcs, logistics, banks etc. Enabling hyperlocal and digital collections.

Digitaltechnology services (digispice)

The convergence of new technologies, data penetration and an increase in the number of smartphone users are driving the new trends where video streaming tops the trend chart closely followed by music streaming, social media surfing and online gaming.

The digispice business is further divided into two segments; telco and enterprise

Digital telco: highlights about the industry and opportunity

1. 4.72 billion people, globally, used the internet in april 2021, which is approx. 60 % of the worlds total population. The average global internet user spends almost 7 hours online, each day. Source: datareportal – april 2021

2. Global video on demand (vod) market to reach us $85 billion (out of total digital content revenue of us $300 billion) by 2025.

Source: adroit market research – may 2021

3. The global mobile application market size was valued at $106.27 billion in 2018 and is projected to reach $407.31 billion by 2026, growing at a cagr of 18.4% from 2019 to 2026. This offers a huge potential for the growth of ott apps.

4. In 2019, the worlds smartphone users downloaded more than 200 billion mobile applications, spending a total usd 120 billion on apps and app-related purchases.

5. Ericsson estimated that for the year 2020, the worlds mobile internet users consumed more than half a trillion gigabytes of mobile data, with roughly two-thirds used to stream and download video content.

Digital solutions remain as the key focus area for the organization. As an innovation-led company, our objective is to offer personalized and end-to-end solutions to the customers from video/ music apps to live streaming and from digital marketing to multiplayer gaming services backed by in-house state of the art analytical platforms.

1. Geographical focus

from the geographical perspective in our existing business, africa is a focus area. With the digital advent, like everywhere, we have seen a revenue shift in africa too (legacy to digital services). However, app revenues in africa have grown in accordance of the trends and have grown by more than 200% from fy19 to fy21. We also continue to focus in india, middle east, indonesia, nepal and bangladesh for launching our digital services.

2. Product focus

we continue to focus on our multi-channel content service suite which offers white-label product & services to telcos, enabling delivery of wide range of voice, video and rich media content across genres such as music streaming, karaoke, video, games and other multimedia content. We are also very excited about the super app for telecom operators, a one-stop platform offering customer care features and the best of web experience to telecom customers through a curated set of apps & services for all their mobile application needs. Super app bundles together bill payments, customer service, entertainment, loyalty, marketplaces, travel, food, loans and many more services. Digital sdp "horizon" is a unified digital service delivery platform, that enables 360-degree view of customers life cycle for telecom operators which helps in reducing customer churn, ensure revenue growth and streamline personalization through data science models. It encompasses content management module and subscriber life cycle management module with strong marketing & promotion capabilities in form of personalized and segmented campaigns to users. Horizon helps from the stage of customer acquisition to consumption and finally retention.

While there is an overall reduction in telco revenue due to a change in technology and customer preferences from traditional to digital services, the revenues from the digital telco products grew from rs. 3 cr in financial year 19-20 to rs. 6 cr in financial year 20-21.

Digital enterprise: highlights about the industry and opportunity

Our focus is on offering a communication platform to enterprises to provide personalized, contextualized and conversational communication to our customers across the complete customer lifecycle, through our inbuilt business intelligence and analytics system.

Communication platform as a service

1. The total value of the cpaas market is expected to reach $25 billion in 2025; rising from an estimated $7 billion in 2020.

2. Over 95% of the cpaas revenue is attributable to sms in 2020 owing to the ubiquity of sms amongst mobile subscribers. However, as alternative rich media messaging solutions gain traction, by 2025, sms will drop to 70% of the revenue.

Marketing automation

1. The global marketing automation market size is expected to grow from usd 3.3 billion in 2019 to usd 6.4 billion by 2024, at a Cagr of 13.9%.

2. Enterprises are increasing focus on leveraging advanced technologies to automate the marketing process and enhance customer experience.

At the digital enterprise unit, we help businesses to improve their customer experience by adoption of new age technologies, digital transformation and automation, enabling them to thereby increase customer lifetime value and reduce costs. We offer a transaction based delivery model for enterprises to seamlessly integrate their own and third party applications and enable them to add real time, omni-channel communication capabilities. It is dlt ready with inbuilt campaign management and other marketing automation features for driving contextual conversations and improving conversion rates.

Customer segment focus and client profile:

? Large enterprise: on premise or cloud based customer communication platform with omni channel orchestration capabilities
? Msme: accelerate their digital transformation journey
? We serve 3 out of top 5 in fortune india 500 companies, 2020 list
? We have 50+ live clients across bfsi, utilities and misc. Industries

During the financial year 20-21, we onboarded 30 enterprises. Our enterprise revenues grew by 34%, from rs. 65 cr in financial year 19-20 to rs. 87 cr in financial year 20-21.

Business performance & outlook spice money

Over the last 3 years, we have significantly increased our retail entrepreneurs - growth in spice money adhikaris (sma), total gtv, average gtv per sma and other metrics are mentioned below:

? Registered customer service points have a towering cagr of 89% in the last two years.
? While being present in all the 700+ districts in india, spice money has created dense presence in 140 districts (as of march 2021) Where there is at least 1 adhikari per 1,000 rural population.
? Aeps market share increased from 8.9% in fy 2018-19 to 11.8% in fy 2019-20 to 13.7% in fy 2020-21.
? Our growing csp network is a benchmark of their growing trust in spice money, which is also evident from the increase in gtv At a cagr of 142% in the last two years.
? By the end of fy19, spice money launched mini atm (matm) that allows customers to dispense cash at their nearest kirana store And the product has scaled and contributed a gross transaction value in excess of rs 8,638 cr during fy21.
? Spice money is in the process of enabling micro-services and open api architecture based digital technology platforms.
? Enabled new product categories in financial services like enterprise collection services and credit.
*in cr (gtv)
Year 2018-19 2019-20 2020-21
Period Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Gtv 1,975 2,568 4,278 5,574 7,480 8,661 9,393 10,696 18,824 19,213 21,069 23,005

Financial performance:

Companys financial performance for fintech segment (spice money) is as follows:

(in lakhs)
Particulars March 21 March 20
Revenue from operations 57,803 25,023
Total expenses 57,011 25,110
Ebitda * 2,064 872
Profit/ (loss) before tax & interest** 1,165 79

*ebitda= pbt+ finance cost + depreciation- other income ** profit/ (loss) before tax & interest= pbt- interest income + interest cost

Digispice consolidated financials

Consolidated revenue from continuing operations is rs. 712.10 cr for the financial year 2020-21 as against rs. 407.18 cr in the financial year 2019-20, a growth of 74%.

Companys net profit for the year is rs. 5.59 cr vis-a-vis loss of rs 55.71 cr. In the previous financial year 2019-20.

Apart from the provisions already made considering the impact of covid 19 on the receivables position of the company, the management believes that there may not be any further significant impact of covid 19 on the financial position and performance of the company, in the long-term. The company estimates to recover the carrying amount of all its assets including receivables and loans in the ordinary course of business, based on information available on current economic conditions. These estimates may change and be affected by the severity and duration of the pandemic. The company is continuously monitoring any material change in future economic conditions. Financial ratios

Digispice consolidated
Key ratios Units Fy 2021 Fy 2020 Yoy change %
Debtor turnover Times 16.42 6.77 143%
Interest coverage ratio (1) Times 9.17 -0.48 2010%
Current ratio Times 1.16 1.08 7%
Debt equity ratio Times 0.14 0.11 25%
Operating profit margin (%) (2) % 2% 0% 200%
Net profit margin (%)* (3) % 2% -2% -
Return on net worth* (4) % 2% -4% -

1. Interest coverage ratio: ebit/ finance cost. (ebit defined as earning before interest, tax and exceptional items)

2. Operating profit margin: ebit/ revenue

3. Net profit margin: net profit from continuing operations before exceptional items/revenue

4. Return on net worth: net profits before exceptional items/(equity including minority interest)

Internal control systems& their adequacy

The company has strong internal control systems commensurate to its size and scale of operations. The systems ensure efficiency, reliability, completeness of accounting records and preparation of reliable financial and management information. It also ensures compliance of all applicable laws and regulations and protection of the companys assets. The company continues to work on using technologies to build better internal control systems. The company has well defined and detailed procedures covering the activities of planning, review, risk management, investment etc.

The company has appointed internal auditors to ensure that the internal control processes are evaluated for adherence and submit their reports directly to the audit committee with management responses, with special focus on key controls identified as part of the ifc process and their continued relevance & effectiveness. Independent directors are given complete visibility on the operational details and separate meetings are held once in a year between all independent directors to review the performance of the board and feedback given.

The company has a process of periodic audit by third party consultants and professionals for business specific compliances such as system audit, it audit, audit by clients etc. And depending on the requirement of regulatory authorities from time to time.

The companys focus on governance is very high and continuous efforts are made to improve standards of governance within the company and at the board level.

Material developments in human resources

The company has always been committed towards having the right talent for the industry it is in. Recruiting and nurturing the best talent has always been a top priority and will continue to be the same for the organization. The company continuously invests in the development of future leaders while having a robust succession plan at the senior levels.

At the same time, the company has also enabled a flat reporting structure and organization to support faster decision making and rapid growth. The best leaders are assigned larger roles with more responsibilities and a lot of emphasis and importance is given to continuous training and development of the resources.

With more focus on innovation, we have also set up the transformation office where all innovative and transformative work happens. There were 870 employees in the company (consolidated level including all its subsidiaries) as of 31st march, 2021.

Health and safety measures

The company continues to focus on the health and safety of its staff. It adheres to all necessary safety measures to prevent any untoward incidents and is very conscious of the overall well-being and health of its employees. We have also invested in group mediclaim and accidental insurance policy for the employees. Apart from physical well-being, we do consider mental hygiene an important factor making yoga and meditation a crucial part of our training program too.

Risk factors

The companys business is subject to various certain generic and industry specific risks including those specified below:

spice money

The business of spice money involves companys technology platform to which all the agents of spice money connect remotely to conduct many financial transactions which as such is inherently vulnerable to any it/financial risks associated with banking systems in general and in particular the following specific risks as well;

? regulatory: since the business is operated under licenses given by rbi, uidai, irctc, gstn and banks under the banking

Correspondence arrangement and are subject to the rules & regulations of reserve bank of india, any regulatory changes involving introduction and/or modifying existing rules governing, or new compliance requirements etc. May have an impact on the business. Also, there could be changes in kyc norms, interchange fee etc.

??? technological: the implementation of technology has certain inherent risks due to software and network driven concerns like data security, data access, firewall penetration and several others.

??? financial: large numbers of financial transactions are often exposed to risks such as cyber fraud, although they are safeguarded through insurance, kyc norms and standardised processes.

??? competition: new players entering the fintech space with high capital leading to higher cost of acquisition and reduced margins.

Digitaltechnology services

??? infrastructure pipe or customer value management: telcos are facing a dilemma on investing heavily on customer value management in competition with ott players or provide services as infrastructure pipe, which has brought in significant uncertainties.

??? traditionalvas revenue declining: with the drive towards digitalisation and new technologies like 4g and 5g, the ecosystem has posed uncertainties in terms of behaviours of subscribers.

??? money repatriation from international markets: as the company is also operating in international markets which have a risk of currency devaluation/ repatriation restrictions, it may result in lesser realisation of receivable and long delays to get the money repatriated.

??? customer acquisition: cpaas ecosystem continues to be relationship based and new customer acquisition costs are significantly high.

??? pandemic covid -19 in view of the spread of covid19 epidemic, customers have been facing business uncertainties and stress over cash flows and this could adversely affect the companys ability to recover its account receivable from such customers.

??? client concentration risk concentration of revenue from few clients in enterprise sms business. Cautionary statement

Statements in this report on management discussion and analysis describing the companys objectives, outlook, estimates, expectations, predictions, belief and management perceptions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to companys operations include economic conditions in the market in which the company operates, changes in the government

Regulations, tax laws and other statutory and incidental factors.

The company assumes no responsibility in respect of the forward-looking statements herein which may undergo changes in future based on subsequent developments, information or events.