Overview
We are engaged in the business of providing Digital Trust Services and Enterprise Solutions to individuals and organizations functioning in various industries. As part our Digital Trust Services, we issue a range of certificates including individual/organizational certificates, SSL/TLS certificates and device certificates (used in IoT use cases) to build a digital trust backbone. Under our Enterprise Solutions vertical, we offer a diverse portfolio of Digital Security and Paperless Transformation Solutions, complementing our Digital Trust Services business, to customers engaged in different industries, thereby making our Company a one stop shop player in Secure Digital Transformation to provide a wide spectrum of services and solutions from issuance of certificates as a Certifying Authority to offering identity, authentication and signing solutions. We have issued more than 50 million digital signature certificates since inception. We are the only Indian company accredited by WebTrust and is trusted by all the renowned browsers in the World. We are also the member of Asia PKI Consortium, European Cloud Signature Consortium and Certifying Authority/Browser Forum.
I. Our Portfolio of Services
A table summarizing our business offerings and product portfolio is provided below:
| S. No. Business Vertical | Description of Business | Nature of Offerings | Key Customers/ Industries catered |
| 1. Digital Trust Services | . We provide Digital Trust Services in the capacity of a Certifying Authority in India and internationally, through a WebTrust accreditation. | (a)individual/organizational certificates; | . Large government, banking and other enterprises and small and medium enterprises across all industries; |
| (b) SSL/TLS certificates; and | |||
| (c) Device certificates (used in IoT use cases) | |||
| Our digital signature certificates provide cryptographic digital identities to individuals, organizations, websites and devices controlled over internet (IoT) and ensure authenticity of transactions emanating from the above said entities through cryptographic validation. | All kind of subscribers who use digital signature certificates for income tax return filing, Ministry of Corporate Affairs (Registrar of Companies) filings, tenders, foreign trade, banking, railways and many other needs. | ||
| 2. Enterprise Solutions* | . Our Companys Enterprise Solutions comprise three of the following product offerings: | (a)emSigner - eSignature workflow products, enable paperless workflow with digital signatures | . emSigner and emAS are used by eGovernment platforms, banks and financial institutions and other industries in India as well as internationally. |
| (i) emSigner offering eSignature workflow solutions for paperless office; | (b) emAS - Authentication solutions, enable multi factor authentication, single sign-on and access management. | emCA is used to set up a Certifying | |
| (ii) emAS offering authentication solutions; and | (c) emCA - Public Key Infrastructure solutions, enable issuance of digital signature certificates to individuals, organizations, devices and their lifecycle management. | Authority for issuing digital signature certificates by any enterprise, government agencies and for electric vehicle or smart city devices use cases among others. | |
| (iii) emCA offering public key infrastructure solutions. |
*Our Enterprise Solutions are either cloud based or on-premise, which supports the DevOps based deployment models allowing clients to have rapid deployment of our solutions using continuous development, integration and delivery process using tools such as Docker and Kubernetes.
As a part of our Enterprise Solutions, we provide identity, authentication and authorization solutions, that are both web and mobile app enabled, thereby enabling enterprises to secure, manage, and govern identities of their consumers, employees/partners and manage identities and communication of devices connected over internet. We provide the ability to manage the following identity types:
Consumer: Our platform enables enterprises to provide secure digital identity experiences for their consumers and accelerates their digital journeys while ensuring compliance and governance. User journeys built on our platform provide recognition and personalization across channels and devices, which we believe leads to better customer acquisition, loyalty, and retention while reducing friction and fraud. Consumer use cases as part of our Digital Trust Services include, an individual trying to authorize a fund transfer for banking or digitally signing documents to file taxes. Other consumer use cases as part of the Enterprise Solutions cut across various use cases including, customer onboarding, digital lending, payment instructions, channel onboarding and trade finance.
Employees/Partners: Our platform helps enterprises increase the productivity of their employees by enabling access to appropriate systems during their lifecycle with the enterprise. Our platform also helps reduce enterprise risk by securing system access through multi-factor authentication. Use cases include, an employee trying to access CRM or ERP systems or authorizing/signing documents as part of various internal or external approvals. Other use cases include, operations related approvals for compliance reporting, internal audit and policy creation, legal and risk functions and operations, etc. For legal and risk, use cases would include supplier contracts, agreements, approval letters, etc.
loT: Our platform helps enterprises secure non-human identities, including IoT, machine identities, and bots. IoT use cases include devices such as electric vehicles or smart city devices securely interacting with central command centers or with other devices. Other IoT use cases cut across manufacturing and healthcare in which IoT devices, such as industrial and medical devices, respectively, need to securely communicate.
We have obtained a variety of accreditations, security/compliance certifications which we maintain on an ongoing basis, for example, WebTrust Accreditation to provide services as a public Certifying Authority globally and list our digital signature certificate roots with renowned browsers. We have received certifications of compliance with the standards prescribed under CMMI Level 5 - Software Development Lifecycle Maturity, ISO 27001:2013, ISO 27018:2014, ISO 9000-2015, ISO 20000-1:2018, SOC2 Type 2 - Cloud Information Security, ISO 22031:2019 and EAL 4+ Common Criteria - Product Security for PKI Solution by the Cyber Security Agency of Singapore.
The ongoing pandemic COVID 19 has necessitated adoption of solutions that support presence-less and paperless way of doing business. In view of this, during this period, we have received several new orders for our digital security and paperless transformation solutions as organizations looked to move away from physical transactions to digital transactions. The COVID 19 pandemic also had negative impact on our Companys growth over the preceding two fiscals as decisions for adoption and implementation of new solutions were deferred by some of our customers as a result of budgetary and other constraints such as national and state lockdowns.
Our results of operations and growth depend in part on our ability to attract new customers and increase the demand of our digital products and solutions in domestic and international markets. The growth of our user base and consequent increase in demand of our digital products and solutions is a primary driver of our revenue. To date, we have primarily relied on our marketing efforts, direct sales, channel partners and enterprise solution partners, industry recognition and referrals to attract new customers. One of the main drivers of growth of our active user base has been the introduction of new and upgraded solutions. In addition, we believe we provide a user-friendly, efficient and effec tive user experience that helps us to retain existing users, acquire new users and increase the demand of our digital products and solutions in the domestic and international markets. We have been increasing our efforts to onboard new customers in India and drive awareness and market adoption in the international markets. Our efforts to grow our user base, both in India and overseas, have occurred in the context of increasing awareness and concern among individuals, businesses and governments of cyber security threats and digital transformation needs.
While we believe we have a significant market opportunity and an effective go-to-market strategy to win new customers, we will need to continue to invest in partner engagement leverage, digital marketing, and expand into new markets and new customer segments to maintain or accelerate our customer growth.
II. Business Outlook General Review of Business Environment
The COVID 19 pandemic has been the biggest headline for 2020 and most part of 2021. Economic activity saw a grinding halt due to countries declaring nationwide lockdown for several months. Enterprises declared unprecedented losses thereby affecting GDP growth. While the pandemic has surely been painful for all, it has helped people to think differently. It has become a catalyst for change, where innovations and newer concepts gained centre stage. The COVID 19 vaccine developed in late 2020 has certainly provided a ray of hope after passing through a phase of darkness. The COVID 19 vaccine has been the strongest enabler for controlling the number of daily cases worldwide.
State of the Economy
In the current state of economy, the IMF (International Monetary Fund) has projected a growth of 5.9% in 2021 and 4.9% in 2022 as per the October 2021 "World Economic Outlook Growth Projections". The 2021 global forecast has decreased slightly from what it was in April 2021 WEO (World Economic Outlook). Prospects for emerging and developing countries (especially for some of the emerging Asian countries) have been marked down for 2021. In contrast, the outlook for developing countries is revised up. These revisions are based on improved pandemic situations and changes in government policies.
Inflation
Inflation is expected to settle down with pre-pandemic ranges in most of the countries in 2022 except for some of the emerging markets and developing economies (mostly due to rise in food prices).
Global Financial Conditions
In the larger context, global financial conditions have eased up and have remained supportive of growth despite the negative impact of the COVID 19 pandemic on GDP and fears of higher inflation turn out. Countries like USA have improved financial conditions reaching levels similar to the pre-pandemic days. Equity valuations above pre-pandemic levels, tighter credit spreads, and rapidly climbing house prices remain the growth drivers and indicators of improving economy. For emerging market economies, improvement has been slow (in general) as monetary policy tightening in several countries has offset gains in asset prices.
Digital Growth Levers to GDP Growth
Countries that have a strong digital foot-print have been at the forefront of growth.Toremain ahead in the race of global dominance, countries cannot afford to not take a digital first strategy. With the numerous advantages that digital provides over manual, digital transformation has become the backbone of an economy. Digital economy is the economic activity that results from billions of everyday online connections among the citizens (people), businesses, devices, entities, data, and processes. Connectivity remains primary which means connecting people, organizations, and machines that result from the internet, mobile technology and IoT. Also known as the internet economy, digital economy helps execute existing/mundane tasks more easily with the use of technologies which other-wise becomes far more tiring and time consuming. Digital economy is not just digitalization or automation but takes cognizance of technologies and platforms like hyperconnectivity, IoT, big data, analytics, wireless networks, mobile devices and social media.
Hyperconnectivity: A hyperconnected infrastructure includes all kinds of electronic and computer devices like PCs, PDAs, cellular phones, television receivers, personal radios, GPS systems and more. In the modern-day world, hyperconnectivity includes IoT devices, voice assistants, browsers and 5G networks. 5G is expected to be revolutionary for the future. It would find use cases in smart cities, connected vehicles, industrial IoT, fleet management, logistics and more.
Internet of Things (IoT): IoT is considered as one of the fundamental pillars of digital transformation since it enables and accelerates business creation and opportunities with an aim to ease up work, enable better e fficiency, and improve the way of living. IoT has often been an element of change in the industrial and consumer technology.
Big Data and Analytics: Businesses use big data analytics to better understand customers, develop targeted marketing messages, launch new products, check ideas, improve business processes, and optimize customer journeys. Economies cannot embark in the digitization journey if an ecosystem to churn the citizen data is not put in place.
Wireless Networks: Wireless network is a network arrangement where the device does not remain connected with a wire or a cable of any kind. The computer network makes use of radio frequency (RF) connections between nodes in the network. In a digital economy, consumers can connect to a public wifi and perform digital transactions, search online or browse social media sites.
Mobile Devices: Mobile devices enable people to connect to wireless networks and perform online tasks. Digital payments have reached newer heights and mobile phones have become the fundamental device for transactions. Different mobile applications, developed by governments and private entities, have come up making human lives much easier - from food delivery apps to shopping, cab booking, mobile banking, and maps - all delivered through an app.
Over the last 6 years, India has been riding growth specifically on digital initiatives. The Digital India campaign has been pivotal to the countrys digital focus that has seen significant traction. The Digital India program is a flagship program by the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. Launched by the Government of India and coordinated by Meity (Ministry of Electronics and IT) in July 2015, the Digital India campaign has a vision to ensure that government services are being made available to citizens electronically by reducing paperwork.
The Digital India initiative rests on 9 key pillars:
1. Broadband Highways
2. Universal Access to Phones
3. Public Internet Access Program
4. E-Governance
5. eKranti - Electronic Delivery of Services
6. Information for All
7. Electronic Manufacturing - Target Net Zero Imports
8. IT for Jobs
9. Early Harvest Programs
The Indian government has taken several initiatives as part of the Digital India program: eSign: eSign framework allows for online digital signature by leveraging Aadhaar and other forms (PAN, Bank KYC, etc.) of authentication.
eInvoicing: To make invoices go paperless and bring standardization in reporting/tax collection.
eStamping: Conducted through NeSL which is a government body constituted under Indian Bankruptcy Code to enable complete digital contracting.
National Center of Geo-informatics: GIS platform is used for sharing and collaborating GIS data source, location-based analytics and decision support system.
Information Security Education and Awareness (ISEA) Phase II & Cyber Security: Capacity building in the area of Information Security to address the human resource requirement, training and develop information security awareness.
MyGov app: Citizen centric platform empowering people to connect with the government & contribute towards good governance.
DigiLocker: Digital Locker facility provides citizens a shareable private space on a public cloud and making all documents/certificates available on the cloud.
Swachh Bharat Abhiyaan App: To further the Swachh Bharat mission, the government has launched this app which will be used by people and government organizations.
National Scholarship Portal (NSP): One-stop solution for end-to-end scholarship process right from the submission of student application, verification, sanction and disbursal to end beneficiary for all the scholarships provided by the Government of India.
Wi-fi Hotspots: Under the initiative, the government plans to deploy Wi-Fi at public and tourist places.
India Post Payments Bank: Known as IPPB, it is a specialized division of Indian Post which is under the jurisdiction of the Department of Post, a department under Ministry of Communications of the Government of India.
PayOnline Launch of ePayment Portal: National ePayment gateway is enabling every Indian citizen to make online payments for all Government based transactions, ecommerce payments and other related tasks.
Launch of Online labs for schools: Under this nationwide initiative, online labs will be available in Hindi, Malayalam and Marathi and offered in both urban and rural schools. 30,000 teachers in all Indian states will be provided training on online labs.
eEducation: Providing high-tech education in remote and urban areas using technology like smartphones, apps and Internet services.
e-Hospital: An initiative of Digital India that has made it easy for the citizens to take appointments in major hospitals.
Digital MSME: An ICT initiative launched in the MSME (micro, small & medium enterprises) sector to help adopt ICT tools and applications in their production and business process. TReDS: An electronic platform for facilitating the financing/discounting of trade receivables of Micro, Small and Medium Enterprises (MSMEs) through multiple financers.
The Government of India has taken up 44 mission mode projects under the e-Kranti scheme with centre-state partnership (in some cases) with the vision of transforming e-Governance with a view to enable presence-less, paperless and cashless delivery of services. The e-Kranti scheme has a potential of 400 Mn. e-signatures.
Role of Digital Solutions in the Current Scenario
The rise of COVID 19 resulted in governments imposing social distancing norms and lockdowns. This forced organizations to move to "Work from Home" resulting in the need for adoption of digital solutions that facilitated remote fulfillment of transactions. Use of digital solutions peaked during the pandemic and helped contain the spread of the virus as people did not have the need to physically visit places. People started using online applications for making payments, filling up and signing forms, and transact online to avoid cash or submit forms. Paperless solutions experienced huge spike in demand for signing documents and is expected to stay for long as digital becomes the future.
eSign is one of the most important digital and paperless solutions. The Indian government has been laying strong focus on eSign which is part of the Digital India campaign. eSign is an online electronic signature service which can be integrated with service delivery applications via an open API to facilitate an Aadhaar holder/eKYC compliant user to digitally sign a document. It is aninnovative initiative for allowing easy, efficient and secure signing of electronic documents by authenticating signer using eKYC services. By using this service, a user can digitally sign an electronic document without the need to obtain a physical digital signature dongle. Application Service Providers (ASPs) can integrate the eSign API with their application to enable a user to sign electronic forms or documents. Government agencies, Banks, Financial Institutions and Educational Institutions are the major users of eSign service .
Digital Enablers
Aadhaar: Aadhaar is primarily used as a sole identification proof and serves as a basis for KYC (Know Your Customers) norms used by banks, financial institutions, telecom operators, income tax and GST, and other businesses that maintain customer profiles. In a recent move, the Indian Government has asked its citizens to link Aadhaar with PAN, Ration Card, Bank Accounts, etc. eSign has a strong relevance for online electronic signatures. eSign facilitates Aadhaar holders to digitally sign a document by using eSign services provided by Certifying Authorities (CAs). The unique identity card holders can sign documents using biometric or one tim e password (OTP) as a part of digital authentication which does not require any _paper-based application or document. Authentication of the signer is carried out by e KYC se rvices of UIDAI. Application Service Providers (ASPs) use Open APIs to easily integrate eSign facility into their applications which enables them to accept legally valid and non-repudiable digitally signed documents.
India remains one of the fastest growing Digital Security and Paperless Transformation markets in the world. The Government of India has been aggressive in terms of leveraging digital transformation in its various initiatives. The aim is to bring down corruption, red tapism, improve process efficiency and quicker turn arounds on service delivery without compromising on security. The Digital India (DI) program is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. The DI schemes make use of advanced technologies like automation, artificial intelligence, paperless workflows, and digital signatures to streamline processes and achieve error free outcomes. Paperless workflows are designed to improve the overall user experience while creating a single source of truth for compliance. Through the concept of paperless workplace; convenience, compliance and cost can be taken into account. In the entire chain of processes, authentication remains the most critical factor. Aadhaar linked accounts make sure identity fraud is avoided. From filing GST, income tax returns to passport renewal and ration cards; digital identity is a pivotal instrument.
BFSI is another industry segment that has seen early success/usage of digital security and paperless transformation. Both public and priva te sector banks in India have started to replace traditional processes of paper-based applictions and transactions with digital processes. Digitization in banks enable better customer experience, improve digital presence, and refine internal process alignment with minimal manual intervention. eKYC and Aadhaar Enabled Payment Syste ms are two of the most important applications of authentication in the Indi an banking system.
B. Global
Our growth strategy, in addition to continued focus on India, contemplates increased presence in international markets for the expansion of our user base. As of March 31, 2022, we had end users in regions such as the Americas, Europe, Middle East and Africa and Asia Pacific. While we have steadily increased our focus on enterprise solution partner efforts to drive new user acquisitions outside India, there is a large opportunity for us to leverage our technology infrastructure and expand to international markets.
The global Digital Security Solutions market is the biggest among the three followed by global Paperless Transformation and global Digital Trust Services market. Identity and Access Management (which includes authentication) is the strongest contributor for the Digital Security Solutions market.
Americas (which includes North America and South America) currently contributes to 54.4% of the global digital security and paperless transformation market. Strong growth at CAGR 14.9% is expected in the next 5 years. Other regions like APAC and Europe are likely to also grow fast. India is expected to be one among the fastest growing markets at CAGR 27.5%, ahead of the developed economies. MEA (Middle East and Africa) is likely to grow at CAGR 17.8% till FY 2026 - faster than the growth recorded in the last 5 years. The GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) are likely to be the strongest contributors.
As of FY 2021, Americas remains the biggest market, contributing 48.0% of the Global Digital Trust Services market with an estimated value of $560.7 Mn. Growth is expected to be in the lines of CAGR 9.3% till FY 2026, making it still the largest market. The exsting revenue base for the region remains strong and near double digit revenue growth is considered healthy. USA is the biggest market contributor in the region as enterprises remain conscious over cybersecurity and digital identity. Europe remains the second biggest market with close competition from APAC. China, South Korea, Japan, Singapore and Australia are also big markets for global trust services. India remains one among the fastest growing in the region. Africa (except for South Africa) remains behind in terms of adoption, thereby contributing less to the MEA market share.
Americas currently contributes to 55.9% of the overall Digital Security Solutions market and is valued at $4402.6 Mn. Double digit growth (CAGR 11.7%) is expected to continue till the end of FY 2026. The higher level of maturity of companies in USA has pushed forward the demand for authentication and IAM solutions. As other regions have started to focus strongly on digital initiatives, the need for IAM solutions will increase globally. APAC is likely to be the fastest growing region with a CAGR of 18.9%. Driven by strong growth in Western Europe, the region (Europe) will see strong adoption and is likely to hold on to its market share at 20.3% for the next 5 years. Smart Cities initiatives in the Middle East would push forward the demand for IAM and PKI solutions.
In the paperless transformation market, Americas currently has a market share of 52.7% and is valued at $1217.6 Mn. In the last year, the market has grown at 25.9%. US based enterprises have been strongly focusing on automation and finding ways to introduce paperless workflows within their customer onboarding and internal processes. Paperless workflows eliminate the need for physical presence of customers and improve turnarounds. Europe currently has a revenue share of 26.0% which is expected to grow even further to 28.5% in the next 5 years. APAC currently has a market contribution of $389.1 Mn and is expected to be the fastest growing (CAGR 33.2%) geography during the forecast period.
III. Opportunities for our Solutions
Market Size and Forecast by Digital Trust Service Applications SSL/TLS Certificates Market in India
The Indian SSL/TLS Certificates market is valued at INR. 1932.8 Mn. in FY 2021. As enterprises increase their online presence and create a digital footprint, it becomes obvious to make sure that websites are secured. Large Volume of data reside on these websites and users rely on them to transact. Without a website, companies often lose to have a mind share among customers. eCommerce and digital banking are significant digital trends that India has seen in the recent past. SSL/TLS help encrypt information sent over the internet and they provide identity assurance, both of which help online consumers to positively identify and trust websites that are safe to transact with. Today, most of the secured websites of the world have s included after using HTTP to convey that the site is secured and digitally trusted. Browsers now issue strong warnings to visitors who try to enter websites that are not secured by HTTPS. SSL/TLS certificates also help websites achieve better SEO ranking which is critical in the competitive world.
eMudhra has been quick to identify the huge market opportunity that lies in the Indian SSL/TLS certificates market. It has recently started selling SSL certificates to all type of customers. The Secure DV (domain validation) certificates are aimed at websites, blogs, personal sites and non-business websites. It comes with HTTPS and secure padlock. The Secure OV (organization validation) certificates are meant for small business and organizations and comes with HTTPS, secure padlock and business information authentication services. The last variant, Secure EV (extended validation) is meant for e- commerce websites or websites holding sensitive information and comes with HTTPS, secure padlock and organization details in the address bar. Most of these certificates come with 1 year validity and at a price point that makes it affordable for most.
The biggest advantage that eMudhra has over its competitors is the fact that it is the largest licensed CA in India with strong DSC expertise which would make eMudhra penetrate into the market much easily than its competitors. eMudhra is the only Indian company to be directly recognized by renowned browsers and document processing software companies such as Microsoft, Mozilla, Google, Apple and Adobe allowing eMudhra to sell digital identities to individual/organization and issue SSL/TLS certificates for website authentication, globally. Also, eMudhra is accredited by WebTrust (again the only Indian company) that makes its digital signature certificates directly recognized by browsers across the world allowing eMudhra to issue digital signature certificates in many countries (the aim of WebTrust is to promote confidence and trust between consumers and businesses on the Internet).
Digital Signature Certificates Market in India
The Certifying Authorities (CAs) issue Digital Signature Certifi cates to enterprises and users. As per the Information Technology Act 2000, documents submitted in electronic form need to have Digital Signatures to ensure security and authenticity of the documents filed electronically. DSCs are mandatory while filing income tax returns, GST, e-tendering, patent and trademark filing, MCA e-filing, LLP registration, customs e-filing, e-procurement, e- bidding, and e-auction. It is allowed to use Digital Signatures issued to a particular individual and is illegal to use Digital Signatures of some other person. DSCs are typically issued with one year and two years validity. These certificates can be renewed on expiry of the period of initial issue. DSC applicants can directly approach CAs with original supporting documents and self- attested copies or by using Aadhaar eKYC based authentication.
Frost & Sullivan estimates the Digital Signature Certificates market in India to be valued at INR. 1774.5 Mn. by the end of FY 2021 at the OEM level. The market is estimated to have grown by 13.4% in the last 5 years and expected to growth at CAGR 19.4% till FY 2026. Currently there are 15 licensed CAs in India as per the cca.gov.in website. While the global CAs have a strong market share worldwide, they do not have the license to operate in India.
DSC is one of the very few markets where resellers/channel partners buy DSCs from licensed CAs in bulk at low price points and sell them to end customers at high values making big profits. The margins could be as big as 5x the original price at which they buy DSCs from the CAs. The retail model works as CAs sell DSCs directly to the end customer through their websites.
eMudhra remains the largest CA in India with 37.9% market share in the Digital Signature Certificates market space in FY 2021. The company has grown at 19.6% in FY 2021 (based on eMudhras financial reporting) as against a market average of 15.1% at the OEM level. In FY 2022, the company has achieved growth rate of 25.7% in digital trust services on consolidated basis. The high growth has enabled eMudhra improve on its earlier market share of 36.5% in FY 2020. eMudhra is the only Indian company to be admitted as a member of the European Cloud Signature Consortium as well as Certifying Authority/Browser Forum, a global forum that governs the use of SSL/TLS certificates. Being a member of the aforementioned global forums is a matter of pride for any vendor thereby making eMudhra unique and different from others in the segment.
loT Device Certificates Market in India
IoT is believed to be one of the strongest pillars of Digital Transformation. The number of IoT connected devices is estimated to be around 10.07 Bn. in 2021 and 25.44 Bn. by 2030. IoT would find use cases into all major industries starting from commercial to industrial, smart cities and consumer. Opportunities remain huge in IoT.
Cyber threats remain the biggest concern for these IoT devices. Cyber criminals are likely to target unsecured IoT devices that are placed in remote locations. Miscreants could also plant unauthorized IoT devices into networks to steal data. IoT device certificates help to verify and grant device access to the network. No device can be synced in with the enterprise network without the right authorization. While the market for IoT device certificate is currently small, potential remains high and the opportunity is likely to increase with higher customer awareness over the period of time. The Indian IoT device certificate market is estimated to be around INR. 70.0 Mn. by the end of FY 2021 and expected to grow at CAGR 29.7% in the next 5 years.
IoT Device Certificate solution providers in India take a channel driven strategy to reach out to end customers. Enterprises are the major users of IoT device certificates, not consumers. IoT Device Certificates are often sold to enterprises as part of larger transformation deals where System Integrators participate.
The global players are the major stakeholders of the IoT Device Certificate market in India. This includes players like GlobalSign, Digicert, Entrust, etc. Indian companies have limited expertise in IoT device certificates with no major focus. eMudhra is aspirational in terms of investing in the market due to the high growth opportunity. Since the market is still niche in India, an early mover advantage could be beneficial for eMudhra. Being a major playerin the domestic Digital Certificates Market, it wont be difficult for the digital security provider to enter into the space. IoT Device Certificate Market is a near term market opportunity area for eMudhra.
The Digital Security and Paperless Transformation market can be tracked at 2 levels:
(1) at the OEM level ( revenue that the OEM/solution providers generate): This is revenue registered at the solution providers India book of accounts.
(2) at the end-user level ( revenue that the channel partners clock in by re-elling the solution to the end users): Most of the Digital Security and Paperless Transformation market solution providers take a channel driven approach to sell products to end users in India. The additional markup cost that channel partners add to the original cost of the product includes applicable taxes. In few cases (like digital signature certificates), the channel partners buy the solution in bulk at a much lower price and sell it off to the end -users in the retail market at much higher rates.
The Indian Digital Security and Paperless Transformation market at the OEM level stands at INR. 18635.5 Mn. by the end of FY 2021. Historically the market h as grown at CAGR 15.3% since FY 2016 and likely to grow at CAGR 27.5% in the next 5 years.
At the end-user level, the market is currently valued at INR. 32180.7 Mn. in FY 2021, a value much higher than the actual OEM level market. The huge difference is due to high cost difference at which digital signature certificates are sold to the end-users by the channel partners. Till FY 2026, the market at the end-user level is likely to grow at CAGR 25.1%.
The Indian Digital Security Solutions market (which includes IAM and PKI) is the biggest contributor of the Digital Security and Paperless Transformation market. IAM is the single largest revenue pocket within all sub-segments of the market. Digital Trust and Paperless Transformation contribute to 20.3% and 15.1% of the overall market respectively. Growth of Digital Trust Services is expected to be 17.1% in the next 5 years as against 15.9% in the last 5. This high growth will primarily be driven by strong use of digital signature certificates across industries like Govt. and BFSI in India. Also, as the number of IoT devices increase, enterprises would be bothered about their security and hence look towards IoT device certificates. The growing number of cyber-attacks would be a strong growth driver for the Indian SSL/TLS market in the years to come.
Industry Vertical Analysis
The Contribution from the Government industry vertical has become the largest in last few years. Its revenue share has increased from 22.3% in FY 2016 to 24.0% in FY 2021 and likely to become 27.3% in the next 5 years. The various central and state government initiatives have pushed forward the demand for Digital Trust Services. DSC has strong use cases in the Government industry and is used while filing income tax return, GST, MCA e-filing, LLP registration, customs e-filing, e-procurement, e-bidding, and e-auction. Similar strong use case of trust services is seen in the BFSI sector as well. Instead of physically visiting banks, customers can open bank accounts easily through eSign services. While doing eKYC, trust services are often used by customers. Investments on digitalization has increased in the healthcare sector which as a whole would push forward the demand for trust services.
Market Size and Forecast
While the Indian government and enterprises focus on various digital initiatives, authentication and IAM remains as a fundamental area of focus. It is important that identity- based frauds are minimized through the use of right authentication techniques. MFA, SSO,
OTP, Digital Signatures, and biometric are few of the authentication modes prevalent in digital interfaces.
Frost & Sullivan estimates the Digital Security Solutions market which includes Authentication, IAM and PKI is currently valued at INR. 12045.4 Mn. in FY 2021 and expected to grow at CAGR of 28.6% during the forecast period. Last year, the market grew at 23.0% amidst the COVID 19 pandemic. Strong growth is expected to sustain in similar range in the next 5 years.
IV. Our Strategy
Maintain Leadership in Indian Trust Services Market and Capitalize on Industry Opportunities
Increasing threats to data security and the prevalent trend of working from home during the ongoing pandemic, has opened up new opportunities for digital security and digital signature solutions industry. Digital identity is foundational to the growth of enterprises in the era of digital transformation because it enables enterprises to create frictionless user experiences that are both simple and secure. Enterprises are under ever- increasing competitive pressure to deliver personalized and seamless omnichannel experiences and often compromise on experience or security to achieve these outcomes. This competitive pressure is driving enterprises to focus on digital trust, security and transformation as a key strategic initiative to provide differentiated experiences to increase loyalty with consumers, enhance productivity for employees and mitigate risk and fraud in a secure environment. Data security, trust services and enterprise solution are still an underpenetrated sector in India and across the world. Initiatives under the Digital India programme are examples of how technology is being leveraged to power Indias transition to a presence-less and paperless society.
To capture the opportunities arising out of such initiatives, the changing regulatory requirements and the growing demand for data privacy, data protection and digital transformation, our Company is proposing to further penetrate the domestic and international market and further expand and diversify our customer base to cater to diverse industries through expansion of our channel partner and enterprise solution partner network, enabling more customers to buy directly through online channels and continuous innovation in solutions related to our industry. We further propose to integrate our product and service offering with renowned software products including in the ERP, CRM and BFSI space to enable easy adoption of our products. We plan to further adapt our products to various international local market requirements to allow us to expand.
Leveraging Existing Data Centre Infrastructure and Set Up New Data Centres in Overseas locations
Our customers use our data centers and digital solutions to access business systems and store data concerning their employees, contractors, partners and customers, among other things. With the growing need of digital signature services in the Indian and international markets, we propose to invest in enhancing our existing data centre infrastructure and settng up new data centres. As part of our strategic initiatives, we propose to enhance our data centers in India and set up additional data centers at overseas locations to support our technological infrastructure and our plan of venturing into foreign jurisdictions for future growth.
We propose to utilise approximately ^463.64 million of the Net Proceeds of the Offer towards purchasing of equipments and funding of other related costs for the data centre proposed to be set up in Bengaluru and Chennai in India and in overseas locations, including but not limited to, European Union in countries like Netherlands and Germany and in Asia Pacific in countries like, Indonesia. The investments in domestic and overseas data centres will enable us to meet customer volume, transaction, SLA requirements and data residency requirements and set up physical and logical security controls, climate control and monitoring systems, servers, various computing and storage devices, virtualization, networking, power backup and internet redundancy facilities.
Enhance Solution Offerings to Tap Growing Needs of Digital Transformation
We believe that adoption of digital identity, security and paperless transformation solutions are now forming part of strategic initiatives for global enterprises to meet the increasing need for personalized and omnichannel experiences. As enterprises compete with new age technology, they have to quickly adopt and implement solutions that are plug and play, offer high level of scalability and support compliance with regulatory needs. The market offers opportunities with respect to emSigner (eSignature workflow), emAS (Identity and Access Management) and emCA (PKI solutions) to cater to enterprise digital transformation needs. We have been working relentlessly with several large and small businesses to build seamless digital and paperless experiences with their clients without compromising on security by leveraging most advanced technologies in AI, ML and Automation. We have been consistently designing and developing diverse products under various product lines - Digital Trust Services, digital security solutions and paperless transformation - by understanding customer requirements and implementing solutions to address their challenges. Most of the products come with in-depth features and easy to infer User Experience making it easily deployable. Our solutions come with on-premise and cloud versions making it a solution of choice for the highly regulated industry verticals like BFSI and Government. Our products are developed by adhering to various industry regulations and mandates.
Digital identity is a unique identifier assigned to users in cyberspace. The user can be an individual, an organization, or a device. The digital identity is linked to multiple sub-identifiers such as email account, social login, department, or privilege. The Digital Trust Services market which includes SSL/TLS certificates, Digital Signature Certificates and IoT device certificates has strong growth potential. In view of the above, we plan to invest in enhancement and development of our product portfolio by developing new products in areas, namely, IoT Certificate Management, Certificate Discovery and Remote Signing that are complementary to our business. To develop such products, we propose to utilize ^150.30 million from the Net Proceeds of this Offer to hire large technical teams with the right skillset to develop, support and manage these products and also propose to invest and buy the right tools and platforms to support the proposed product development. We have constantly invested into augmenting product capabilities to build ourselves as a one stop shop player in digital transformation, innovating and developing new products in the areas of digital identity management, authentication and authorization or digital signatures for our customers. Our Company, in order to achieve consistent growth, needs to continuously invest in our R&D team and resources to develop new and diverse products around digital security and paperless transformation.
We also plan to further expand our product portfolio and our research and development team by hiring qualified professionals to develop and devise new and innovative solutions in upcoming technologies such as Blockchain, IoT, Quantum Computing, Web 3.0, etc.
Grow Presence in Overseas Markets
While we continue to innovate and provide better products and services to our customers in India, there is a large opportunity for us to leverage our technology infrastructure and expand to international markets. North America remains the largest in the Digital Security and Paperless Transformation market space. Americas (which includes North America and South America) currently contributes 54.4% of the global market. Strong growth at CAGR 14.9% is expected in the next 5 years .
As on FY 2021, Americas remains the biggest market contributing to 48.0% of the Global Digital Trust Services market to value $560.7 million. Growth is expected to be in the lines of CAGR 9.3% till FY 2026 making it still the largest market. The existing revenue base for the region remains strong and near double digit revenue growth is considered healthy. USA is the biggest market contributor in the region as enterprises remain conscious over cybersecurity and digital identity. Americas currently contributes to 55.9% of the overall Digital Security Solutions market and is valued at $4402.6 Mn. Double digit growth (CAGR 11.7%) is expected to continue till the end of FY 2026. The higher level of maturity of companies in USA has pushed forward the demand for authentication and IAM solutions. In the global paperless transformation solutions market, Americas currently has a market share of 52.7% and is valued at $1217.6 Mn. In the last year, the market has grown at 25.9%. US based enterprises have been strongly focusing on automation and finding ways to introduce paperless workflows within their customer onboarding and internal processes. Paperless workflows eliminate the need for physical presence of customers and improve turnarounds.
In pursuit to tap these opportunities a nd to harbour the benefits offered by the market in the United States of America to companies functioning in the IT sector, we propose to invest ^152.67 million out of the Net Proceeds in our Subsidiary, eMudhra INC for the purpose of augmenting its business development, sales, marketing and other related costs for future growth. Pursuant to such investment, we propose to build a local infrastructure of technical and skilled staff who will aid us in marketing and selling our solutions to end users, channel partners and enterprise solution partners and develop products and solutions in-house for the specific data security challenges faced by the customers. We intend to utilise the Net Proceeds of the Offer to create a local hosting of our Digital Trust Service and Enterprise Solutions platforms in the United States of America and develop a local IP/integration/interface with local software platforms. We also propose to incur costs relating to hiring and engaging personnel for application development, maintenance and support and investing and buying in right tools and platforms. We also propose to invest in a dedicated sales team and marketing initiatives by recruiting, retaining and training sales personnel as well as equipping them with the necessary technology. As part of the sales and support expansion, we may also need to lease appropriate office space in the United States of America, engage with market research firms and incur costs towards database subscriptions for demand generation, conducting training programs for end customers and channel partners.
We propose to expand our Digital Trust Service backbone to international markets either directly using our global root or through setup of local trust service operations or through various trust service and enterprise solution partners. We will continue to explore international opportunities, especially in the developed markets including, the United States of America, where we can either launch our services and solutions independently or collaborate with partners to launch diverse digital products and services specific to digital certification and signature requirements.
Expand Share of Revenues among Existing Customers and Broaden our Partner Network and Customer Base
Our Company has a wide and diversified customer base in the domestic and international markets. We also have a large network of channel and enterprise solution partners who are integral to our Companys business operations. We presently cater to customers operating in various industries such as banking, eGovernment, automotive, information technology, consumer durables, etc. and propose to enhance our presence in various other industries such as manufacturing, logistics, healthcare, etc.
We also intend to cater to new age industries which are significantly more dependent upon an enhanced cyber security framework and would therefore require our trust and digital signature services on a regular basis. These include use cases in the Electric Vehicle space and Smart Cities where devices connected to the internet need to be identified and authenticated securely. We also plan to continue to expand our channel and enterprise solution partner network while also deepening our partnerships with existing enterprise partners. We will continue to expand our service offerings and innovate to offer wider selection of trust and Enterprise Solutions some of which may be verticalized to cater to domain specific needs. While we already have a large and diversified customer and partner base, we believe that there is continuous scope for expansion given the under-penetration of the various products and services we offer. We endeavor to continue to increase the engagement and retention of our consumers and merchants on our ecosystem by offering them better products.
R&D and Product Development
The market for digital secure products and solutions is competitive and characterised by rapid changes in technology, user requirements, industry standards and frequent new product introductions and improvements. As a result, our revenue growth has been steered by our R&D efforts to design and develop new digital products and solutions with the latest technology and augment our resources in the form of skilled and technical staff that can respond to the needs of our end users. Constant innovation and customisation of our digital products and solutions to meet user requirements and updates to existing products and our R&D resources, aimed at helping our users in their digital transformation initiatives and at the same time protecting them from evolving threats has helped us to grow the number of new users and retain existing users, which drives our revenue. We seek to strengthen our R&D capability continuously by expanding our R&D team with relevant skills and expertise. For the year ended March 31, 2022, we spent ^43.06 million (March 31,2021: ^30.94 million) on our product development costs which formed 2.4% (March 31,2021: 2.4%) of our revenue from operations (net) in this period.
The number of our R&D employees increased from 219 employees as of March 31, 2021 to 240 employees as of March 31, 2022. We expect that our ability to anticipate technological advances, retain and recruit qualified and talented R&D staff and develop innovative solutions for our users to meet their requirements in a timely and cost-effective manner will have a significant effect on our results of operations.
Adoption of digital identity, security and paperless transformation solutions are now forming part of strategic initiatives for global enterprises to meet the increasing need for personalized and omnichannel experiences. The market offers opportunities with respect to emAS (Identity and Access Management), emSigner (eSignature workflow) and emCA (PKI solutions) to cater to enterprise digital transformation needs. To capitalise these opportunities, we propose to invest in enhancement and development of our product portfolio by developing new products in areas, namely, IoT Certificate Management, Certificate Discovery and Remote Signing, that are complementary to our business.
We have constantly invested into augmenting product capabilities to build ourselves as a one stop shop player in digital transformation, innovating and developing new products in the areas of digital identity management, authentication and authorization or digital signatures for our customers.
Our revenue from operations grew 38.8% during the fiscal 2022 which reflects the market acceptance of our existing products such as emSigner, emCA and emAS, which in turn has provided the necessary growth impetus to our Company. We have invested in large technical teams with relevant skillsets to build, support and manage our existing products and have also invested in the required tools and platforms to make such products user friendly and easily available to our end users.
Our Company, in order to achieve consistent growth needs to continuously invest in our R&D team and resource to develop new and diverse products around digital security and paperless transformation.
V. Results of our Operations
COVID 19
The ongoing COVID 19 pandemic and efforts to mitigate its impact have significantly curtailed the movement of people, goods and services worldwide, including in the geographic areas in which we conduct our business operations and from which we generate our revenue. It has also caused societal and economic disruption and financial market volatility, resulting in business shutdowns and reduced business activity. We believe that the COVID 19 pandemic has had a modest negative impact on our business, financial condition, and results of operations, primarily as a result of:
• Certain enterprises, delaying or pausing digital transformation and expansion projects and negatively impacting IT spending, which has caused some potential customers to delay or forgo purchases of our services and solutions and some existing customers to reduce their usage or fail to expand their usage of our platform due to the COVID 19 pandemics impact on their business;
• Restricting our sales operations and marketing efforts, reducing the effectiveness of such efforts in some cases and delaying or lengthening our sales cycles; and
• Delaying the delivery of our services and solutions to our customers
The COVID 19 pandemic may cause us to continue to experience the foregoing challenges in our business in the future and could have other effects on our business, including disrupting our ability to develop new offerings and enhance existing offerings, market and sell our products and conduct business activities generally.
In the longer term, we expect positive impacts on our business as a result of the COVID 19 pandemic. We believe the COVID 19 pandemic has accelerated the trend of enterprises pursuing digital transformation initiatives in order to remain competitive, with identity being a key enabler of such transformation. Further, the COVID 19 pandemic has led to a rapid expansion of digital identities, as more consumer transactions are being undertaken over the internet and more employees are working remotely. We believe that these impacts of the COVID 19 pandemic will benefit our business in the future.
While COVID 19 pandemic still continues, and there are lockdowns and other restrictions, our Companys business continuity plans and work from home plans are working well and are able to take care of most of the requirements. The COVID 19 pandemic has also driven some temporary cost savings to our business.
Financial Results
Please refer to our Standalone and Consolidated Financial Statements in this Annual Report for detailed schedules and notes.
The function-wise classification of the Consolidated and Standalone Statement of Profit and Loss is as follows:
Consolidated Statement of Profit and Loss
| March 31,2022 | % | March 31,2021 | % | |
| Income | ||||
| Revenue from operations | 1,826.37 | 100% | 1,315.93 | 100% |
| Other income, net | 10.98 | 0.6% | 8.61 | 0.7% |
| Total revenue | 1,837.35 | 1,324.54 | ||
| Expenses | ||||
| Operating expenses | 119.93 | 6.6% | 129.12 | 9.8% |
| Purchase of stock-in -trade | 311.33 | 17.0% | 179.56 | 13.6% |
| Changes in stock of finished goods | (14.26) | -0.8% | 7.50 | 0.6% |
| Employee benefit expenses | 468.15 | 25.6% | 417.11 | 31.7% |
| Finance costs | 52.71 | 2.9% | 8.41 | 0.6% |
| Depreciation and amortization expense | 130.71 | 7.2% | 87.67 | 6.7% |
| Other expenses | 264.20 | 14.5% | 183.37 | 13.9% |
| Total expenses | 1,332.76 | 1,012.74 | ||
| Profit/(Loss) before exceptional items and tax | 504.59 | 311.80 | ||
| Exceptional items | - | - | ||
| Profit/(Loss) before tax | 504.59 | 311.80 | ||
| Tax expense | ||||
| Current tax | 88.94 | 4.9% | 52.15 | 4.0% |
| Deferred tax | 4.28 | 0.2% | 6.06 | 0.5% |
| Total tax expenses | 93.22 | 58.21 | ||
| Profit/(Loss) for the year | 411.37 | 22.5% | 253.59 | 19.3% |
Standalone Statement of Profit and Loss
| March 31,2022 | % | March 31,2021 | % | |
| Income | ||||
| Revenue from operations | 1,530.21 | 100% | 1,093.67 | 100% |
| Other income, net | 7.18 | 0.5% | 3.90 | 0.4% |
| Total revenue | 1,537.39 | 1,097.57 | ||
| Expenses | ||||
| Operating expenses | 139.55 | 9.1% | 162.01 | 14.8% |
| Purchase of stock-in -trade | 302.28 | 19.8% | 180.52 | 16.5% |
| Changes in stock of finished goods | (14.25) | -0.9% | 3.37 | 0.3% |
| Employee benefit expenses | 373.33 | 24.4% | 328.09 | 30.0% |
| Finance costs | 52.56 | 3.4% | 8.41 | 0.8% |
| Depreciation and amortization expense | 105.07 | 6.9% | 66.66 | 6.1% |
| Other expenses | 188.37 | 12.3% | 142.24 | 13.0% |
| Total expenses | 1,146.92 | 891.30 | ||
| Profit/(Loss) before exceptional items and tax | 390.47 | 25.5% | 206.27 | 18.9% |
| Exceptional items | - | - | ||
| Profit/(Loss) before tax | 390.47 | 25.5% | 206.27 | 18.9% |
| Tax expense | ||||
| Current tax | 86.99 | 5.7% | 50.77 | 4.6% |
| Deferred tax | 3.11 | 0.2% | 3.93 | 0.4% |
| Total tax expenses | 90.10 | 54.70 | ||
| Profit/(Loss) for the year | 300.37 | 19.6% | 151.57 | 13.9% |
1. Revenue
| Standalone | Consolidated | |||||
| INR in million | FY 2022 | FY 2021 | % Change | FY 2022 | FY 2021 | % Change |
| Revenue from operation | 1,530.21 | 1,093.67 | 39.9% | 1,826.37 | 1,315.93 | 38.8% |
The increase in revenues was primarily attributable to considerable increase in enterprise revenues, wins of large deals.
The consolidated revenues from trust services and enterprise solutions for fiscals 2022 and 2021 are as follows:
| Consolidated | |||
| INR in million | FY 2022 | FY 2021 | % Change |
| Trust Services | 845.60 | 672.50 | 25.7% |
| Enterprise Solutions - India | 631.86 | 388.62 | 62.6% |
| Enterprise Solutions - Global | 348.91 | 254.81 | 36.9% |
The revenue growth across segments is due to winning large business deals in the last fiscal and was also due to increased revenue from global markets as we started billing the customers in Europe and Americas region during the last fiscal.
During the period, our enterprise solution customer base has increased from 518 in the financial year 2021 to 714 for the year ended March 31,2022. Also, our partner base for the enterprise solutions have also increased to 572 while comparing with the previous fiscal. This comprise of 288 partners in India and 284 partners globally as well.
Our trust service business partners have also increased from 88,467 in the previous year to 95,877.
2. Expenditure Cost of Goods Sold
The cost of goods sold, comprises of commission expenses, direct personnel cost, purchase cost of inventories and movement of inventories. Cost of goods sold on a consolidated basis marginally declined from 23.9% in FY 2021 to 22.7% as a percentage in FY 2022 to the total revenue of the respective year. The commission expenses have reduced as a percentage of total revenue from 4.9% to 3.9% in the fiscal 2022 on standalone basis. The cost of our direct personnel, has decreased as a percentage of total revenue from 1.3% in fiscal 2021 to 0.5% in fiscal 2022 on a standalone basis and has increased from 1.1% in fiscal 2021 to 1.8% in fiscal 2022 on a consolidated basis. The purchase cost of inventories has increased as a percentage to total revenue from 13.6% to 16.9% in the fiscal 2022 on consolidated basis and has increased from 16.4% to 19.7% on standalone basis. This was mainly a result of augmenting the purchases towards supply of materials related to certain large orders won during the fiscal 2022.
Employee Benefit Expenses
Our employee benefit expenses has reduced as a percentage of total revenue from 29.9% to 24.3% in the fiscal 2022 on standalone basis and has reduced from 31.5% to 25.5% in the fiscal 2022 on consolidated basis. The reduction is on account of operational leverage we have in our operations. Our number of employees increased to 659 employees as of March 31, 2022 from 547 employees as of March 31, 2021.
Financial Costs
Our financial cost consists of interest expenses on term loans, overdraft accounts and interest on lease liabilities. Our financial costs increased as a percentage of total revenue from 0.8% to 3.4% in the fiscal 2022 on standalone basis and also has increased from 0.6% to 2.9% on consolidated basis. The increase in finance cost in the current financial year is due to non-capitalisation of finance cost since we have completed the construction of our new digital campus office building.
Other Income
Other income primarily includes foreign exchange gains on consolidation, interest income of fixed deposits, profit on sale of assets, write back of provisions no longer required and miscellaneous income. The other income as a percentage of total revenue has reduced from 0.7% to 0.6% on a consolidated basis and has increased to 0.5% from 0.4% in the fiscal 2022 on standalone basis. This is primarily due to write back provisions no longer required amounting to INR 4.07 million and due to increase in interest income by INR 2.37 million in the standalone basis as well as on consolidated basis. This increase has been partially offset in consolidated financials by decrease in foreign exchange gain on transactions amounting to INR 5.48 million.
Depreciation and Amortization Expenses
Our depreciation expense as a percentage of total revenue has increased from 6.7% to 7.2% on consolidated basis and has increased from 6.1% to 6.9% in the fiscal 2022 on standalone basis. The increase is predominantly due to increase in depreciation of property, plant and equipment as result of capitalization of our new office building amounting to INR 9.40 million and also due to increase in amortization of right to use of assets by INR 24.32 million and the due to increase in amortization cost of intangible assets by INR 9.32 million.
Increase on standalone basis is primarily due to increase in depreciation of property, plant and equipment by INR 9.39 million, increase in amortization expenses by INR 4.7 million, and due to increase in depreciation of right to use assets by INR 24.32 million.
Provision for Tax
We have provided for our tax liability in India. As on March 31, 2022, there was no tax on international income by virtue of non- tax regions as well as on account of tax adjustments/set offs. The applicable Indian corporate statutory tax rate for both the years ended March 31, 2022, and March 31, 2021 is 25.52%.
| Standalone | Consolidated | |||
| INR in million | FY 2022 | FY 2021 | FY 2022 | FY 2021 |
| Income tax expenses | 90.10 | 54.70 | 93.21 | 58.21 |
| Effective tax rate (in %) | 23.1% | 26.5% | 17.9% | 17.5% |
Effective tax rate is generally influenced by various factors such as differential tax rates, non-deductible expenses, etc.
VI. Financial Condition
Equity Share Capital
We have only one class of equity shares of par value INR 5 each. During the year, there is no movement in share capital.
Other Equity Comprises mainly Reserves and Surplus and other Comprehensive Income
The movement in retained earnings was on account of profit earned during the year and due to foreign exchange translation reserve. On a standalone level, other reserves include profit on transfer of business transactions between entities under common control. Other equity also consists of preference share capital of INR 86 million held by the promotor group.
Capital Work-in-Progress
During the year the company had INR 429.16 million on consolidated basis and INR 306.39 million on standalone basis in this towards continuous development of tangible as well as intangible assets which is pending to be put into the operational and hence to be capitalized.
Inventory
The inventory of the company stood at INR 21.38 million as against INR 7.14 million for the FY 2021 on consolidated basis and increased by INR14.25 million and stood at INR 17.25 on standalone basis compared to FY 2021 which are convertible in the normal course of business.
Financial Assets
a) Trade receivables
Days sales outstanding has increased to 88 days for FY 2022 from 41 days in the previous year on consolidated basis and increased to 73 days from 45 days on a Standalone basis. However, management is not foreseeing any threat to the collection in spite of steep increase in high value billings. The increase in outstanding days were due to extension of credit period to few of the strategic government customers.
b) Cash and cash equivalents
Our cash and cash equivalents comprise of balance with current account as well as deposit accounts with banks within India as well as outside India. The closing cash and cash equivalents are INR 132.55 million and INR 91.81 million on consolidated and standalone basis respectively.
c) Loans
We have provided personal loans to very limited number of employees and loans to employees stock options trust. Loans ,amounted to INR 30.64 million on consolidated basis and INR 35.04 million on standalone basis as o n March 31,2022.
d) Other financial assets
This represents unbilled revenues, rent and other deposits, prepaid expenses, advances to capex vendors as well as to regular suppliers, etc. This has increased by INR 119.63 million and INR 106.79 million on consolidated and standalone basis respectively. The increase is primarily due to increase in unbilled revenue amounting to INR 91.39 million and INR 95.07 million respectively on consolidated and standalone basis.
Deferred Tax Assets/liabilities
Net deferred tax liabilities comprising deferred tax liabilities less deferred tax assets it has increased during the fiscal 2022 primarily on account of temporary difference on depreciation/amortization expenses of the company while comparing with income tax depreciation/amortization. The net increase is INR 4.28 million and INR 3.11 million respectively on consolidated and standalone basis in fiscal 2022.
Financial Liabilities
This represents borrowing from banks as well as from the directors or from the group company. This will also include advances from customers towards various services, provision for income tax in India, employee benefits payable, both gratuity and leave encashment, amount payable to expenses/capital creditors and employee benefits payable and lease liabilities towards equipment as well. This increased by INR 82.29 million and INR 49.03 million for FY 2022 on consolidated and standalone basis respectively.
VII. Liquidity
Our principal source of liquidity are cash and cash equivalents and cash flow that we generate from operations. Our growth has been partially financed from net cash flow from the operating activities as well as from the specific term loans obtained for the same purpose. Our total cash and cash equivalents stood at INR 132.55 million as at March 31,2022. This grew by 71.8% as compared to the previous year cash and cash equivalents. Our current ratio in the fiscal stood at 1.33 times, which measures our ability to pay short-term obligation or those dues within one year. This way, we can satisfy current debts as well as other payables.
VIII. Related Party Transactions
These have been discussed in detailed in Annexure 37 to the consolidated financial statements of the Company.
IX. Events occurring after Balance Sheet date
The Company has completed its public issue of shares during May 2022 and has been listed in BSE and NSE on June 01,2022. The Company has raised INR 1610.00 million through IPO and has also made a preferential allotment of INR 390.00 million through pre-IPO in the same month. The promoter and the promoter group including their family members of the company has also made offer for sale in the IPO worth INR 2517.86 million and has diluted the stake from 91.37% to 69.44%. This transaction has increased the paid-up equity share capital of the company from INR 350.90 million to INR 390.36 million and will increase the securities premium by INR 1861.98 million. We have also made application to our monitoring agency, Kotak Mahindra Bank Limited, to close our term loans and overdraft facilities amounting to INR 350 million. This will considerably strengthen the companys financial position and make it into zero debt company. Other than this there is no significant event after the balance sheet date which is likely to affect financial position/result of the company.
X. Key Financial Ratios
In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, the Company is required to give details of significant changes (change of 25% or more as compared to the immediate previous financial year) in key sector-specific financial ratios. The Company has identified the following ratios as key financial ratios:
| Particulars | March 31,2022 | March 31, 2021 |
| (a) Current ratio [times] | 1.33 | 1.32 |
| (b) Total Debt-Equity Ratio | 18.7% | 23.3% |
| (c) Debt Service Coverage Ratio [times] | 8.55 | 10.91 |
| (d) Return on Equity Ratio | 30.4% | 24.2% |
| (e) Inventory turnover ratio[times] | 20.83 | 17.18 |
| (f) Trade receivables turnover ratio | 24.2% | 11.3% |
| (g) Trade payables turnover ratio | 4.9% | 2.7% |
| (h) Net capital turnover ratio | 1.35 | 1.26 |
| (i) Net profit ratio | 22.5% | 19.3% |
| (j) Return on Capital employed | 34.3% | 24.1% |
Net profit for the year has increased from INR 253.59 million to INR 411.37 million on a consolidated basis and from INR 151.57 million to INR 300.36 million on a standalone basis which has resulted in increase in the average return on equity.
XI. Enterprise Risk Management
Listed below are some of the key risks, anticipated impact on the company and strategies. mitigation
| Key Risk | Impact on the Company | Mitigation | ||||
| Business risk | eMudhra operates in two business segments: Trust Services comprising of | • As our revenue from global markets including trust service and SSL business grows, concentration risk associated with revenues from a single geography or regulator or type of certificate will reduce | ||||
| • Issuing digital signature certificates for individuals, organizations under license from Government of India. The operations are audited yearly and license is renewed every 5 years | • Newer areas of certificate issuance for IoT devices while classified under Trust Services are not subject to regulation | |||||
| • Individual, Organization under emSign Root (accredited under WebTrust) and empaneled/licensed by various Governments (UAE, Kenya, Mauritius etc.) | • Over time, we anticipate enterprise solutions to grow faster and this will change the revenue mix in favor of Enterprise Solutions | |||||
| • SSL/TLS certificates under emSign Root (governed by CA Browser Forum) | ||||||
| • WebTrust Audits are conducted every year Enterprise Solutions comprising of • emSigner - eSignature Workflow Platform | ||||||
| • emAS - Authentication and Access Management | ||||||
| • emCA - PKI Solution | ||||||
| The revenue split between Trust Services and Enterprise Solutions is 46.3% : 53.7% for the year ended March 31, 2022. | ||||||
| The revenue split between India and International is 80.9% : 19.1% for the year ended March 31, 2022. | ||||||
| • The trust services business is a licensed business and is predominantly generated from India. This exposes 46.3% of our yearly revenue of fiscal 2022 to risks inherent with operating a licensed activity in a single geography | ||||||
| • Enterprise Solutions are not operated under or subject to licensing requirements and to this extent are directly correlated to the demand for cybersecurity and digital transformation solutions | ||||||
| Disruption and uncertainty in business due to the COVID 19 pandemic | The COVID 19 pandemic is a global humanitarian and health crisis, which continues to impact some of the operating geographies/segments that we operate in. The actions taken by various state governments as well as countries to contain the pandemic, such as closing of borders and lockdown restrictions, has resulted in significant disruption to people as well as businesses. While vaccines have been made available, there are increased instances of variants and infections, and consequential stress on the health sector. India, where most of our operations are located, has experienced multiple waves of infections, including new variants of the COVID 19 virus. There was marked increase in the number of cases across regions where our development centers are located, and a small percentage of our employees or their families were adversely affected. However, the continued stress on the medical infrastructure and any increase in the cases in India may impact the health and safety of our employees. The COVID 19 pandemic has impacted, and may further impact, all our stakeholders - employees, clients, vendors, investors and the communities we operate in. During fiscal 2022, the impact on our revenue due to supply and demand risks we experienced from the COVID 19 pandemic was not significant. | • Ensure all the employees and their families ae vaccinated | ||||
| • Empower employees to return to workspace by providing a flexibility through hybrid model. | ||||||
| • Leveraging the use of apt technology to face the upcoming CoVID 19 waves/variants. | ||||||
| • Regular communication with customers about measures taken to maintain business services and reporting of their operations status | ||||||
| . • Regular connection with the key suppliers for uninterrupted supply of services/goods | ||||||
| Coemption Risk | We are faced with competition from global payers as listed below: | • In terms of global competition, we are the Only Indian player to have the range of capabilities in our space | ||||
| Type of Service | Global Player | |||||
| Digital Trust Services | ||||||
| SSL/TLS Certificates | DigiCert (USA), Entrust (USA), Sectigo (USA) | • In Trust Services in India, we continue to maintain market leadership | ||||
| Digital Signature Certificates | DigiCert (USA), eMudhra (India), Entrust (USA), GlobalSign (Belgium) | • Our product suite and trust services position us as a One Stop Shop giving us a unique positioning | ||||
| IoT Device Certificates | DigiCert (USA), Entrust (USA), GlobalSign (Belgium) | • Our products have several marquee reference customers and featured in many global market research reports | ||||
| Digital Security Solutions | ||||||
| Identity and Access Management | Microsoft (USA), IBM (USA), Ping Identity (USA), Okta (USA), Sailpoint (USA), Ilantus technologies (USA), Saviynt (USA), Thales (France), Broadcom (USA) | • Our technology is fully in-house and proprietary allowing us to be flexible and nimble both from a delivery and pricing standpoint | ||||
| • Our delivery centers are in Bangalore at lower cost as compared to global players who have a substantially higher cost of delivery | ||||||
| Public Key Infrastructure | Hardware: Thales (France), HID Global (USA), Keyfactor (USA) Software: Entrust (USA), Nexus Group (Sweden) | |||||
| Certificate Discovery | DigiCert (USA), Sectigo (USA), AppViewX (USA), Venafi (USA) | |||||
| Cloud Infrastructure | Google (USA), AWS (USA) | |||||
| Paperless Transformation Solutions | ||||||
| Paperless Transformation/ Workflow Solutions | Adobe (USA), OneSpan (USA), DocuSign (USA), Alpha Trust (USA), WISeKey (Switzerland) | |||||
| In the digital signature certificate/CA market, we are faced with the following competition in Indian markets: | ||||||
| Licensed CAs | Class 1-3 DSCs | eSign | SSL and Code Signing Certificates | Time Stamping | ||
| eMudhra | Yes | Yes | Yes | Yes | ||
| Safecrypt | Yes | Yes | No | Yes | ||
| IDRBT | Yes^ | No | Yes^ | Yes^ | ||
| (n)Code Solutions | Yes | Yes | Yes* | Yes | ||
| CDAC | No | Yes | No | No | ||
| Capricorn | Yes | Yes | No | Yes | ||
| NSDL e-Gov | No | Yes | No | No | ||
| V Sign (Verasys) | Yes | Yes | No | No | ||
| Indian Air Force | Yes^ | Yes^ | No | Yes^ | ||
| CSC | No | Yes | No | No | ||
| RISL (RajComp) | Yes | Yes | Yes* | Yes | ||
| Indian Army | Yes^ | Yes^ | Yes^ | Yes^ | ||
| ID Sign | Yes | Yes | No | Yes | ||
| CDSL Ventures | No | Yes | No | No | ||
| Pantasign | Yes | No | No | |||
| *The Root CA Certificate of India is listed only in Microsoft products (including IE) ** Accredited to all leading browsers like Microsoft, Mozilla and Apple A only for private use | ||||||
| Technology Risk | • eMudhra is heavily dependent on technology for the delivery of services to its customers. | • Our technology teams are constantly upgrading the products with release roadmaps planned well in advance | ||||
| • eMudhra develops proprietary IP for the delivery of trust services and enterprise solutions and manages | ||||||
| • Application Development Lifecycle | ||||||
| • Product Customization, Maintenance and Upgrades | • Use of open source software is studied with respect to the usage rights and only those software which are usable without redistribution of our source code is used. All other software is distributed only through commercial redistributable licenses | |||||
| • Product Security | • Our infrastructure is setup for High Availability and Redundancy and continuously being upgraded in line with recommendations from Board Technology Committee | |||||
| • The technology delivery also can be broadly categorized into | ||||||
| • Delivery of services through eMudhras data centers - This includes trust service applications, eSign service and portals for partner, customer management | ||||||
| • Delivery of services through Cloud hosting providers - This includes eSignature workflow offerings | ||||||
| • Applications hosted on customer data centers - This includes emSigner, emAS and emCA | ||||||
| This presents us with the following risks: | ||||||
| • Technology Obsolescence | ||||||
| • Talent Risk | ||||||
| • Risk of using open source software | ||||||
| • Physical infrastructure management (in the context of applications hosted and offered by us through a Software as Subscription) | • All products and infrastructure undergo regular internal and external VAPT assessments | |||||
| • Product, Infra security and Cyber Risks | ||||||
| • Key members of the technology team are retained through a combination of salary, incentives and ESOPs. For the other members, we have a strong lateral/fresher hiring system combined with adequate training for them to get upto speed quickly | ||||||
| Legal/Regulatory Risk | eMudhras Trust Service and Enterprise Solutions business is reliant on Licenses being obtained from regulators for the issuance of digital signature certificates for individuals/organizations. Ongoing Webtrust accreditation, compliance with CA/Browser Forum requirements and acceptance of our Root Certificate by the Browsers for the continued issuance of SSL certificates. | • Digital Signature acceptance is driven by UNCITRAL Model Law on eSignatures 2000 which has been incorporated into most countries Electronic Transactions Act or Information Technology Act. Thus, the acceptance of technology has been there for > 20 years | ||||
| • Verification, storage and processing of identity data of individuals/organizations and therefore compliance with relevant privacy regulations | ||||||
| • Acceptance of digital signature certificates by relying parties such as Governments, Banks etc. for authentication, signing and other use cases | ||||||
| • Signing of contracts with customers with potentially stringent clauses including liability and indemnity In the above context, eMudhra faces the following legal/regulatory risks: | • eMudhra maintains strong document archival/retrieval system coupled with audit trails to be able to respond to information requests in an expedited manner. eMudhra has had clean audits for the last 14 years of operations | |||||
| • Inability to comply with changes in guidelines, audit requirements or maintain its license in India or other geographies | ||||||
| • Being subject to request for evidence, litigation in case of digital signature mis-use | ||||||
| • Insufficient regulatory push, adverse changes to Electronic Transactions Act or lack of relying party adoption | ||||||
| • Local data storage requirements for operation of trust services in geographies such as European Union, Indonesia etc. | • eMudhra continuously maintains various ISO certifications for Information Security, privacy certifications for GDPR and HIPAA | |||||
| • Inability to comply on an ongoing basis with privacy guidelines such as GDPR | ||||||
| • eMudhra is bound by contractual obligations for timely delivery, support, fulfillment of SLA obligations, IP infringement protection, confidentiality and other clauses. Material breach of these clauses typically triggers service credits, liability and indemnity cover that we provide to our customers | ||||||
| • Being an early mover in the space, eMudhra regularly conducts/participate s in global bodies that drive digital signature adoption. eMudhra works with global regulators to build awareness and use cases for technology adoption | ||||||
| • Generally, in our agreements, we limit our liabilities to actual damages only and indemnity cap of previous 12 months fee received from the client. The only exclusions include IP infringement, confidentiality, gross negligence and willful misconduct | ||||||
| Operations Risk | eMudhras operations are broadly split into the following areas: | • Identity verification personnel form part of a Trusted Personnel List who undergo onboarding training, skill assessment and periodic reassessment to ensure they are fully aware of guidelines | ||||
| • Identity Verification or Validation Operations | ||||||
| • Customer Support | ||||||
| • IT Operations | ||||||
| In the above context, eMudhra faces the following risks: | ||||||
| • In terms of identity verification, eMudhra is responsible for following appropriate guidelines for identity verification for issuance of digital signature certificates. Incorrect interpretation of guidelines or inaccurate vettng could result in potential audit violations | • In terms of customer support, eMudhra has a strong training program to ensure customer support agents for both trust service/enterprise solutions are adequately trained and are able to support customers effectively. This is further enhanced to quality and audit initiatives to assess and recalibrate support effectiveness and resolution. | |||||
| • In terms of customer support, eMudhra deals with a large set of retail customers and partners for trust services business and supporting them requires a dedicated team of experts. Continuous poor experience in delivering support could result in brand and reputation risk and risk of renewal | ||||||
| • eMudhra also deals with several large and midsize Enterprise customers who demand timely delivery and support for products supplied. Poor support experience could result in reputation risk | ||||||
| • eMudhra runs internal IT Operations teams for managing user infrastructure, source code systems, secure network connections etc. Improper management could result in service disruptions that affects our ability to deliver services effectively to our clients | ||||||
| • eMudhra maintains redundancy/backups for critical internal systems ensuring minimal service disruption for internal IT systems | ||||||
| Financial and Compliance Risk | The following financial risks could typically affect eMudhras ability to maintain profitability and cash flows | • eMudhra follows a robust mechanism for collection of | ||||
| • Receivables Risk, eMudhra provides credit period to its partners and customers for sale of its products. These are unsecured credit and typically based on history of association of customer with eMudhra. | receivables and extends credit only to trust worthy parties or parties with whom eMudhra has a history of association. | |||||
| • eMudhra also deals with certain sectors in certain countries across emerging markets which may be considered risky from a payment recoverability standpoint | • eMudhra regularly transfer prices foreign exchange collections and brings the money to India to minimize the impact of currency movements from time of receipt | |||||
| • Any non-recoverability of amounts could result in provisioning in P/L and consequent reduction in profitability and cash flows | ||||||
| • Foreign Exchange risk, eMudhra derives 19.1% of its FY 22 revenues from international operations where realization happens in USD, EUR, AED and other currencies. Adverse movements in currencies as compared to INR could result lower | • With the IPO net proceeds, eMudhra will repay its borrowings in full essentially making eMudhra a debt free company | |||||
| realization in INR where substantial costs are incurred | ||||||
| • Leverage risk, eMudhra has been borrowing term loans, working capital loans on an ongoing basis to fund construction of its office campus, working capital gap. Any reduction in profitability, inability to meet covenants could trigger loan recall The following financial risks could typically affect eMudhras ability to maintain profitability and cash flows | • eMudhra has a strong compliance team with oversight through secretarial audit, internal audit, external audit and committees of the Board for supervisory duty | |||||
| • Compliance Risk, as a public company, eMudhra is subject to various laws and guidelines such as SEBI guidelines, Income Tax Act, Companies Act, FEMA guidelines etc. which involve several monthly, quarterly and annual compliance and reporting. Lack of timely compliance could involve penalties, tax notices etc. | ||||||
| Human | Being a technology focussed company, eMudhra is dependent heavily on its people for: | • eMudhras key employees at management level, 2nd and 3rd level from Chairman are incentivized through a combination of healthy salary, bonus and ESOP and a conducive working environment creating a high level of stickiness | ||||
| Resource | • Building innovative products | • As a player operating in a niche but growing space, eMudhra provides a strong career path for those associated with the company | ||||
| Risk | • Delivering these products as services or solutions to its customers | • eMudhra maintains a robust fresher hiring and training program helping us mitigate effects of employees leaving the company | ||||
| • Supporting them | ||||||
| • Like other IT companies, eMudhra faces the risk of continuously being able to attract and retain talent and cost pressures as a result of high compensation hikes | • eMudhra also continues to invest in automation of various processes through tools reducing the dependence on manpower for certain processes to a significant extent | |||||
XII. Internal Financial Control Systems and their Adequacy
eMudhra Limited has aligned its current systems of internal financial control with the requirement of Companies Act 2013. The Internal Control - Integrated Framework (the 2013 framework) is intended to increase transparency and accountability in an organizations process of designing and implementing a system of internal control. The framework requires a company to identify and analyze risks and manage appropriate responses. The company has successfully laid down the framework and ensured its effectiveness. Our internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use, executing transactions with proper authorization and ensuring compliance with corporate policies. eMudhra has a well-defined delegation of power with authority limits for approving contracts as well as expenditure. Processes for formulating and reviewing annual and long-term business plans have been laid down. eMudhra uses centralized Tally. ERP to record data for accounting, consolidation and management information purposes.
eMudhras management assessed the effectiveness of the companys internal control over financial reporting (as defined in Regulation 17 of SEBI LODR Regulations 2015) as of March 31, 2022. Manohar Chowdhary and Associates, the statutory auditors of eMudhra have audited the financial statements included in this annual report and have issued an attestation report on the companys internal control over financial reporting (as defined in section 143 of Companies Act 2013).
We have appointed Suri and Co. to carry out internal audit of its activities. The audit is based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors and approved by the audit committee. In line with this, the conduct of internal audit is oriented towards the review of internal controls and risks in the companys operations such as software delivery, accounting and finance, procurement, employee engagement, travel and insurance.
eMudhra also undergoes periodic audit by specialized third party consultants and professionals for business specific compliances such as quality management, service management, information security, etc.
The audit committee reviews reports submitted by the management and audit reports submitted by internal auditors and statutory auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. The audit committee also meets the statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the board of directors informed of its major observations periodically.
Based on its evaluation (as defined in section 177 of Companies Act 2013 and Regulation 18 of SEBI LODR Regulations 2015), the audit committee has concluded that, as of March 31, 2022, the companys internal financial controls were adequate and operating effectively.
XIII. Conclusion
eMudhra continuously evaluates risks applicable to its business on an ongoing basis and takes corrective measures to mitigate the effect of such risks. At a high level, the key focus of the company from a de-risking standpoint would be on:
. Product Innovation . Geographical Diversification . Segment Diversification
. Strong Financial/Operational MIS with highlight on exceptions on a real time basis
. Compliance Management
. Talent acquisition and retention through Strong HR/Recruitment program
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