DigiSpice Technologies Ltd:Annual Report 2023-24 Analysis

Digispice Technologies Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Digispice Technologies Ltd. was established in 2001.

Headquarters Location and Global Presence:

• Headquarters: Gurugram, Haryana, India
• Global Presence: Presence in South Asia, South-East Asia, Middle East, Africa, and Europe.

Company Vision and Mission:

• To be a leading global technology innovator and provider of cutting-edge solutions that improve lives and drive progress.
• To create sustainable value for stakeholders by developing and delivering transformative technologies, fostering a culture of innovation and excellence, and making a positive impact on society.

Key Milestones in Their Growth Journey:

• 2001: Company Incorporation
• 2005: Launch of first mobile value added services
• 2008: Acquisition of Spice Digital Ltd
• 2015: Launch of Agritech solutions
• 2018: Entered into strategic partnerships with leading technology companies
• 2022: Expansion into new geographies

Stock Exchange Listing Details and Market Capitalization:

• Listed on: BSE (Bombay Stock Exchange) and NSE (National Stock Exchange)
• Market capitalization: To get the most updated figure, refer to BSE or NSE websites.

Recent Financial Performance Highlights:

Refer to the company’s latest annual report or investor relations releases for detailed financial performance highlights, including revenue, profit, and key financial ratios.

Management Team and Leadership Structure:

Please refer to the company’s official website for accurate and updated details of the management team and leadership structure.

Their Products #

Complete Product Portfolio with Categories:

• Fintech: Digital payments, Mobile wallets, Agent banking solutions.
• Agritech: Precision farming, Supply chain management, Farmer advisory services.
• Communication Solutions: Cloud Communication Platform, CPaaS.
• Entertainment: Content aggregation, Distribution solutions, Gaming.
• Artificial Intelligence: AI solutions for healthcare, Fintech, Agritech.

Flagship or Signature Product Lines:

• Agritech platform for farmers.
• Fintech solutions for digital payments and financial inclusion.
• CPaaS solutions for communication.

Key Technological Innovations or Patents:

Refer to the company’s official website and publications for detailed information regarding patents.

Quality Certifications and Standards:

• ISO 9001:2015 certification

Any Unique Selling Propositions or Technological Advantages:

• Focus on rural and underserved markets
• Integrated technology platform
• Strong partnerships with leading technology companies

Recent Product Launches or R&D Initiatives:

Refer to the company’s official website and press releases for details on their recent product launches and R&D.

Primary Customers #

Target Industries and Sectors:

• Agriculture
• Financial services
• Telecommunications
• Healthcare

Geographic Markets (Domestic vs. International):

• Domestic: India
• International: South Asia, South-East Asia, Middle East, Africa, and Europe.

Major Client Segments (agricultural, industrial, residential, etc.):

• Farmers
• Financial institutions
• Telecom operators
• Healthcare providers

Distribution Network and Sales Channels:

• Direct sales
• Partnerships
• Online channels

Major Competitors #

Direct Competitors in India and Globally:

• Agritech: Cropin, DeHaat, AgNext.
• Fintech: Paytm, PhonePe, Google Pay.
• CPaaS: Twilio, Vonage, Route Mobile.

How they differentiate from competitors:

• Focus on underserved markets
• Integrated solutions
• Strong partnerships

Future Outlook #

Expansion Plans or Growth Strategy:

• Expansion into new geographies
• Strategic partnerships
• Investment in R&D

Sustainability Initiatives or ESG Commitments:

Refer to the company’s official website and sustainability reports for detailed information on their ESG initiatives.

Industry Trends Affecting Their Business:

• Digital transformation
• Increasing internet penetration
• Growing demand for data and analytics

Long-Term Vision and Strategic Goals:

• To be a leading global technology company
• To create sustainable value for stakeholders
• To make a positive impact on society

Financial Performance Analysis #

3-Year Trend Analysis of Key Financial Metrics (Consolidated) #

Key Observations: #

• Turnaround: The company has transitioned from a loss-making entity to a profitable one, indicating successful restructuring and focus on the fintech sector.
• Growth: Key metrics related to Spice Money (GTV, Adhikaris) show substantial growth, illustrating the success of its business model.
• Revenue Diversification: The report highlights a strategic shift towards a multi-product business, reducing reliance on AePS cash-out transactions. Collections, subscription packs, bank account opening, and credit offerings now contribute a significant portion of revenue.

Business Segment Performance #

DTS Segment (Discontinued Operations): The segment was fully discontinued effective July 1, 2024.

Key Performance Indicators: #

• Customer Gross Transaction Value (GTV): Increased by 7% YoY to ₹108,000 crore.
• Adhikari Base: Grew by approximately 12% YoY to 1.4 million.
• Non-AePS Business: Now forms about 50% of GTV, up from 43% last year.
• Revenue Mix: Collections, subscription packs, bank account opening, and credit offerings now constitute about a third of the revenue.

Performance Highlights: #

• Over 100 million customers used Spice Money services in the last year.
• Collections payments business grew over 50% and now contributes over 25% of GTV.
• Bill Payment Services (BBPS) almost doubled, forming about 4% of customer GTV.
• EMI loan payments grew about 2.5 times, contributing almost 3% of total customer GTV.
• Approximately 350,000 new bank accounts were opened through the SMA network.
• Over ₹100 crore of credit was disbursed through the platform to SMAs and their customers.

Major Strategic Initiatives and Progress #

• Focus on Fintech: Complete exit from legacy Telco/Enterprise businesses (DTS segment).
• Diversification of GTV Profile: Reduced dependence on AePS by growing collections payments, bill payment services, and expanding into CASA products and credit offerings.
• CASA Product Launch: Signed up two private banks to open Current and Savings Bank Accounts (CASA) through the SMA network.
• Credit Offering Expansion: Incremental steps in credit offerings by working with third-party lenders. Decision to become a lender and applied for an NBFC license.
• UPI Enabled PPI Wallet Launch: Alpha launch of a Pre-Paid Instrument (PPI) wallet for new-to-tech and new-to-banking consumers.
• NBFC Acquisition.
• Strategic Vision Pillars: Consolidation of assisted payments, lending products, savings and investment products, and development of UPI-based propositions.

Risk Landscape Changes #

• AePS Headwinds: The AePS cash withdrawal business continues to face headwinds, although the company is mitigating this through diversification.
• Regulatory Changes: Mentioned as a potential risk, particularly in the core cash withdrawal business. The company acknowledges facing regulatory changes.
• Cybersecurity: With its high number of transctions, security is crucial.
• Technological: Software or network issues
• Competition: The entry of new, well-capitalized players, is putting pressure on the profit margin.
• Partners: Collaborations with banks as BC partners involve non-real-time settlement processes.

ESG Initiatives and Metrics #

• Financial Inclusion: The core of Spice Money’s business model promotes financial inclusion in rural and semi-urban India.
• Empowering Nanopreneurs (Adhikaris): Creating a network of local entrepreneurs, providing jobs and opportunities in their communities (Ek Soch Foundation).
• CSR Initiatives: Mentioned but without specific quantitative metrics. Focus areas include agriculture, micro-entrepreneurship, sanitation, health, and education.
  • Specific initiatives include “Chaupal” (thought leadership series), “Panchayat” (monthly connect program), “Samachar” (news platform), “Prachar” (creative resource kit), “Adhikari Utsav” (annual celebration), “Satark” (fraud awareness series), “Charcha” (video series highlighting top-performing Adhikaris), “Spice Money Academy” (online certification program), and “Spice Impact” (app for partners).
• Health and safety: It is maintaining safe working conditions.

No quantifiable ESG data were provided. This is an area where the Company can improve transparency.

Management Outlook #

• Positive and Confident: The Chairman expresses confidence in the future and the company’s progress.
• Focus on Long-Term Value Creation: Emphasis on doing good for marginalized people while creating shareholder value.
• Continued Expansion of Product Offerings: Optimizing the network and collaborating with partners to expand product offerings.
• UPI Integration: Significant focus on leveraging the UPI platform through the PPI wallet to bring more people into the formal financial system.
• Mission: “use technology creatively to transform how Bharat Banks.”
• Strategic Building Blocks: Create a network of Assisted Touchpoints; Offer a complete suite of financial products tailored to Bharat; Design and build digital products for the new-to-tech and under-banked consumers.
• Derisking Revenue Stream: Committed to derisking the revenue stream and positioning for faster growth with a diversified revenue mix.
• Commitment: Committed to the vision of integrating a billion people of India into the formal financial system.

Detailed Analysis #

Financial Analysis of DiGiSPICE Technologies Limited #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(₹ in Lakhs)

Significant Changes in Major Line Items (>10% YoY) #

• Property, Plant, and Equipment (PPE): Decreased by 43.4% from FY23 to FY24,and further decreased by 38% from 2022 to 2023 due to the sale of property in Dehradun and reclassification due to exiting the DTS segment.
• Goodwill: Decreased by 17% YoY from FY23 to FY24, due to impairment.
• Other Intangible Assets: Significant decrease (-60%) due to amortization and impairment, as well as the reclassification of DTS segment assets.
• Investments: Investments increased significantly due to the reclassification of assets.
• Trade Receivables: Decreased by 21.8% from FY23 to FY24 due to improved collections.
• Cash and Cash Equivalents: Decreased by 12.15% from FY23 to FY24.
• Bank Balances (Other): Increased in FY24 due to changes in deposit maturity structures.
• Borrowings: Significant decrease (-64.4%) due to repayment of borrowings.
• Trade Payables: Substantial decrease (-42.2%) due to settlements made during the year.
• Other Current Liabilites: Increased, mainly driven by increase in prefunded balance from agents.

Working Capital Trends #

• Trend: Working capital has improved significantly in FY24 compared to FY23, primarily due to the reduction in current liabilities (trade payables and borrowings).
• Current Ratio: The current ratio has increased, indicating a slightly better ability to meet short-term obligations.

Asset Quality Metrics #

• Impairment of Goodwill: There’s no impairment of goodwill during FY24, but it was observed in the previous year.
• Provision for Doubtful Debts: Significant decrease in provisions, suggesting improved collections and reduced credit risk.

Debt Structure and Maturity Profile #

• Debt Structure: The Group’s debt consists primarily of short-term borrowings (overdraft facilities) and lease liabilities.
• Maturity Profile: The debt is predominantly short-term, indicating a need for careful liquidity management.

Off-Balance Sheet Items #

• Contingent Liabilities: As per Note 38C, the total contingent liabilities amount to ₹499.39 Lakhs as of March 31, 2024, which is higher than the ₹447.06 Lakhs reported as of March 31, 2023. These mainly relate to demands from tax authorities and other claims/consumer disputes.
• Operating leases: Reported as income

Industry Benchmark Comparisons #

It’s difficult to provide precise industry benchmarks without knowing the specific sub-sector of the Information and Communication Technology and Fintech industries that DiGiSPICE operates in. However, general comparisons can be made:

• Current Ratio: A healthy current ratio is generally considered to be between 1.5 and 2.0 for most industries. DiGiSPICE’s current ratio is improving but still below the average.
• Debt-to-Equity Ratio: A “good” debt-to-equity ratio varies widely by industry. Tech companies often have lower debt ratios. DiGiSPICE, being virtually debt-free (excluding lease liabilities), is in a strong position in this regard.
• Return on Equity: The ROE increase is significant. ROE of Profitable and growing tech companies is above 15%.
• NPA Ratio: is not applicable to the non-financial company.
• Capital Adequacy Ratio: This ratio is not applicable to non-financial companies.
• Revenue from operations: Indicates negative growth in FY24.

Overall Assessment #

DigiSPICE is undergoing a significant strategic shift, focusing on its fintech business (Spice Money) and exiting the Digital Technology Services segment. Key changes include:

• Improved Profitability: The company has turned a profit in FY24 after a loss in FY23.
• Reduced Debt: The Company reduced borrowings.
• Increased working capital: The Company’s working capital has increased significantly.
• Exit from DTS Segment: The exit from the Digital Technology Services segment has a notable impact on many financial metrics.

It’s crucial to monitor the execution of the new strategy and its impact on the Company’s long-term financial health.

Financial Analysis of DiGiSPICE Technologies Limited (FY2023-24) #

Revenue Breakdown #

Segment Revenue #

• Financial Technology Services (Spice Money): ₹459.77 Crores.
• Digital Technology Services (DiGiSPICE): Discontinued segment.
• Growth: The company’s reported revenue growth is from ₹444.04 Crores in FY 2022-2023 to ₹459.78 Crores in FY 2023-2024.

Geographic Revenue #

• India: ₹439.26 Crores.
• Outside India: Insignificant amount.

Growth Rates #

• 95% of pin codes are reached with Spice Money.
• Customer gross transaction value shows a YoY growth of 7%.
• Collections payments business grew over 50% and contributes over 25% of GTV.
• The geographic presence of Adhikaris has 55% CAGR over the last five years.

Cost Structure Analysis #

Major Cost Components #

• Cost of Services Rendered: ₹262.79 Crores (primarily agent and distributor commissions).
• Employee Benefits Expense: ₹93.29 Crores.
• Other Expenses: ₹57.95 Crores (rent, insurance, advertising, travel, communication, legal/professional fees, etc.).
• Discontinued operations: The discontinued operations of digital technology services business shows a total expense of ₹12.70 Lakhs.

Margin Analysis #

• Gross Margin: ₹169.17 crores, a 3% YoY growth. Gross margin as a percentage of service fee revenue has improved from 30% in FY2020 to 40% in FY2024.
• Gross Margin YoY Growth: 10% from FY2023 to FY2024.
• Operating Profit Margin (EBIT Margin from Continuing Operations): 7.58%.
• Net Profit Margin (Continuing Operations, before exceptional items): 4.3%.

Operating Leverage #

• The company is focused on improving operating leverage in its core business, expecting revenue growth to outpace fixed cost growth.

Non-Recurring Items (Exceptional Items) #

• FY2023-24:
  • Net gain of ₹21.99 Crores (primarily from the disposal of investment properties).
  • Write-down of ₹6.54 Lakhs (loss on discard of PPE in discontinued operations).
  • Gain of ₹3779.64 Lakhs recorded in subsidiary.
  • Provision for diminution in value of investments in Digispice Nepal Private Limited amounting to ₹31.30 Lakhs.

EPS Analysis #

• Basic EPS (Continuing Operations): ₹0.21.
• Diluted EPS (Continuing Operations): ₹0.21.
• Basic EPS (Discontinuing Operations): ₹(0.15).
• Diluted EPS (Discontinuing Operations): ₹(0.15).
• Basic EPS (Total): ₹0.06.
• Diluted EPS (Total): ₹0.06.
• Number of shares: 23,17,58,185.

Quarterly Trends #

• AePS Business: Strategy to create alternate revenue lines is proving beneficial despite headwinds.
• Diversification: Non-AePS businesses contribute 50% of customer GTV. Collections, subscription packs, bank account opening, and credit offerings contribute about a third of revenue.
• New Products: CASA sign-ups and credit offerings are showing progress.
• Spice Money opened 3.75 lakhs accounts with partner banks until March 2024.
• Credit business experienced a 3x increase in FY2023-24 compared to the previous year.

Cash Management Analysis of DiGiSPICE Technologies Limited #

Cash Flow and Liquidity Analysis #

Detailed OCF, ICF, and FCF Components (Consolidated) #

( in Lakhs)

Key Observations:

• OCF: A significant portion of the positive OCF in FY24 is due to a large write-back of unclaimed balances and recovery of bad debts, and reversal of provisions, suggesting a potential one-time boost. Improvement in OCF is also notable due to a significant decrease in trade payables.
• ICF: Positive due to interest income and proceed from sale of assets. The increase is driven by large investments and a shift in strategy.
• FCF: The Group moved funds from operating and investment activities.

Working Capital Management Efficiency (Consolidated) #

Calculations done based on provided data.

• Debtor Turnover Ratio: Has improved slightly in FY24, indicating a slightly better position in collecting receivables, which means improved working capital management.
• Trade Payable Turnover Ratio: Increased significantly. The company made quicker payments to the vendors, which implies efficient and stringent working capital policy.

CAPEX Analysis by Segment #

Key Observations: *There is a reduction in additions of tangible and intangible assets in FY 24.

Dividend and Share Buyback Trends #

• Dividends: The Company has not declared or paid any dividends during FY 2023-24. Spice Money Limited, a material subsidiary, has proposed a final dividend, subject to shareholder approval.
• Share Buyback: The Company has made redemption in preference shares during the current year.

Debt Service Coverage (Consolidated) #

Key Observations:

• Interest Coverage Ratio: The Group has significantly improved its ability to cover its finance cost obligation with its operating profit.
• Debt Equity Ratio: The Group is not highly leveraged.

Liquidity Position and Cash Conversion Cycle (Consolidated) #

• Current Ratio: The Current Ratio has improved, indicating a good short-term liquidity position.
• Cash Conversion Cycle: A precise calculation is not possible without data on inventory days, receivable days, and payable days, which are not directly available in the segmented format for the continuing operations. However, as a service providing company, it will not be significant.

Financial Analysis of DiGiSPICE Technologies Limited #

Profitability Ratios (3-Year Trends) #

*The company had been involved in different business prior to FY 22.

Key Observations: #

• Improving Profitability: DiGiSPICE shows a significant improvement in profitability in FY24, moving from losses to a positive net profit. ROE, ROA and all margins have also seen improvements.
• ROIC: A positive ROIC in FY24, alongwith improved operating leverage, indicates efficient capital utilization in core business operations.
• Margins: The Gross Margin has improved, demonstrating better cost control relative to revenue, and has been consistent. The increase in EBITDA and Net Profit margins signifies operational efficiency.

Liquidity Metrics #

Key Observations: #

• Strong Liquidity: The Current and Quick Ratios are well above 1, indicating a strong ability to meet short-term obligations.
• Cash Ratio: A Cash Ratio of 0.70 indicates that the company has a significant position in cash and cash equivalent, although there has been a slight decrease from previous year.

Efficiency Ratios #

Key Observations: #

• Improved Asset Utilization: The increased Asset Turnover indicates that the company is generating more revenue per unit of assets.
• Receivables Management: The increasing Receivables Turnover, alongwith increase in debtor days from FY23 to FY24, suggest improved collection efficiency.

Leverage Metrics #

Key Observations: #

• Low Leverage: The Debt/Equity ratio is very low, indicating minimal reliance on debt financing.
• Improved Interest Coverage: The substantial jump in Interest Coverage from a negative value to 44.91 shows a remarkable improvement in the company’s ability to cover interest expenses from its earnings.

Segment-wise Performance of Spice Money #

The Report provides the following metrics for Spice Money:

• Revenue of ’ 45,977.51 Lakhs in FY24 (FY23: ’ 44,404.22 Lakhs).
• Net profit of ’ 1,306.19 Lakhs in FY24 (FY23: Loss of ’ 617.65 Lakhs).

Working Capital Ratios #

Key Observations: #

• The company has improved its working capital position from the previous year, owing to greater revenue growth and better management of receivables and payables.

DiGiSPICE Technologies Limited Financial Analysis #

Revenue and Profitability Metrics #

• Total Revenue (FY24): ₹439 crore (Consolidated, Continuing Operations).
• YoY Revenue Growth (FY24 vs. FY23): 1.8%
• 5-year Revenue CAGR (FY20-FY24, continuing): 40%
• Gross Margin (FY24): ₹169 crore.
• YoY Gross Margin Growth: 3%.
• 5-year Gross Margin CAGR: 40%
• EBITDA (FY24): ₹21.7 crore.
• YoY EBITDA Growth: 113%.
• 5-year EBITDA CAGR: 25%
• Net Profit (FY24): ₹12.1 crore (Consolidated, Continuing Operations).
• YoY Net Profit Growth: Improvement from a loss of ₹5.1 crore in FY23.
• Spice Money service fee revenue growth YoY 4%
• Spice Money service fee 5 Year CAGR: 44%

Market Share and Competitive Position #

• AePS Market Share: Approximately 18% of the “Off-Us” industry, indicating a strong position in the Aadhaar-enabled Payment System segment, especially in rural areas.
• Competitive Landscape: The fintech sector is facing increased competition from new, well-capitalized players, leading to higher acquisition costs and pressure on profit margins.

Key Products/Services Performance #

• AePS (Aadhaar Enabled Payment Services): Remains the core business, though its contribution to Gross Transaction Value (GTV) is decreasing (from 77% in FY23 to 68% in FY24).
• Collections: This segment showed significant growth, with over 50% growth YoY, now contributing over 25% of GTV.
• Bill Payment Services (BBPS): Almost doubled, forming about 4% of customer GTV. EMI loan payments within BBPS grew 2.5 times, contributing almost 3% of total customer GTV.
• CASA (Current Account and Savings Account): Approximately 350,000 new accounts opened for partner banks, carrying an aggregate balance close to ₹125 crore.
• Credit: Over ₹100 crore of credit disbursed, a 2.4x increase from FY23.
• UPI Enabled PPI Wallet: Launched in alpha, with a broader launch aimed for later that year.

Geographic Distribution and Market Penetration #

• Adhikari Network: Reaching 95% of pin codes across the country.
• Rural Focus: More than 75% of Spice Money Adhikaris (SMAs) operate in rural India.
• Merchant growth: Merchant base expansion from 240,000 to nearly 1.4M in the last 5 years.

Operational Efficiency Metrics #

• Adhikari Base Growth: Increased by approximately 12% in FY24, from 1.2 million to 1.4 million.
• Customer Payments GTV Growth: Grew by 7% from ₹101,000 crore to ₹108,000 crore.
• Indirect Cost: 5% YoY decrease.
• Customer Reach: Over 100 Million rural consumers used Spice Money services.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Diversification of revenue mix beyond AePS, focusing on collections, subscription packs, bank account opening, and credit offerings.
  • Expansion of CASA offerings through partnerships with private banks.
  • Strategic move into lending through potential NBFC acquisition.
  • Development of UPI-based propositions using a PPI license.
• Challenges:
  • Continued headwinds in the AePS cash withdrawal business.
  • Intense competition in the fintech space.
  • Regulatory changes impacting the core cash withdrawal business.
• Strategic Priorities: Consolidating the assisted payments sector, lending products, savings and investment products, and development of UPI based solutions.
• Divestment: The company made the strategic decision to exit the digital technology services segment to focus on financial technology.

DiGiSPICE Technologies Limited: Risk Analysis Report - FY2023-24 #

This report analyzes the key risks facing DiGiSPICE Technologies Limited, categorized as strategic, operational, financial, compliance/regulatory, and emerging risks. Each risk is assessed based on severity, likelihood, trend, mitigation, control effectiveness, and potential financial impact.

Strategic Risks #

Market Consolidation and Competition #

• Severity: High
• Likelihood: High
• Trend: Increasing
  • YoY Change: The report highlights a shift from AePS dominance (from 77% of the portfolio in FY23 to 68% in FY24) and stresses the entry of new, well-capitalized players, increasing competition.
• Mitigation:
  • Diversifying product portfolio (Collections, subscription packs, bank account opening, credit offerings).
  • Strategic partnerships with banks for CASA products.
  • Planned acquisition of an NBFC to offer credit services.
  • Launch of UPI-enabled PPI wallet.
• Control Effectiveness: Moderate. Diversification is in progress, but the success of new product lines is yet to be fully proven.
• Potential Financial Impact: Significant. Loss of market share in core AePS business (currently ~66% of Gross Margin) could severely impact revenue and profitability. The Chairman’s letter indicated that AePS continue to face headwinds.
  • Quantifiable Metric: 7% GTV growth in FY24, but non-AePS GTV now constitutes 50%, up from 43%. A 50% growth in collections payments, forming over 25% of GTV.

Business Model Shift #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
  • YoY Change: Complete exit from legacy Telco/Enterprise businesses.
• Mitigation:
  • Closure of non-core businesses.
  • Doubling down on operating leverage in core business.
• Control Effectiveness: Moderate.
• Potential Financial Impact: High, the company made a net profit of 12.1 Crores as compared to a loss of 5.1 Crore last year.

Operational Risks #

Technology Platform Dependence and Security #

• Severity: High
• Likelihood: Medium
• Trend: Stable
  • YoY Change: Not explicitly quantified, but technology remains central.
• Mitigation:
  • Investments in enhancing digital infrastructure and security.
  • “Satark” awareness program for fraud prevention.
  • CRM system for customer service and real-time monitoring.
• Control Effectiveness: Moderate to High. The company acknowledges IT and financial risks, but specific details on cybersecurity investments and incident response are limited. the company is investing in technologies.
• Potential Financial Impact: High. A major system outage or data breach could disrupt services, damage reputation, and lead to financial losses.
  • Quantifiable Metric: None provided in the report, beyond general statements about technology investment.

Adhikari Network Management #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
  • YoY Change: Adhikari base grew by 12% in FY24.
• Mitigation:
  • Various programs: “Chaupal,” “Panchayat,” “Samachar,” “Prachar,” “Adhikari Utsav,” “Spice Money Academy,” etc.
  • “Mission Red Blue” for Smart Banking Point identity.
• Control Effectiveness: Moderate to High. Multiple programs exist, but their direct impact on reducing Adhikari churn or fraud is not quantified.
• Potential Financial Impact: Medium. Inability to retain or effectively manage Adhikaris could limit reach and service quality.
  • Quantifiable Metric: 12% growth in Adhikari base, reaching 1.4 million. 75% of SMAs operate in rural India.

Financial Risks #

Credit Risk (Lending Business) #

• Severity: High
• Likelihood: Medium
• Trend: Increasing (as the company expands into lending)
  • YoY Change: Disbursed over ’ 100 crore of credit in FY24 (2.4x the previous year).
• Mitigation:
  • Working with third-party lenders initially.
  • Planned NBFC acquisition for better control.
  • Developing credit scorecards and local intelligence.
• Control Effectiveness: Low to Moderate (early stages of development).
• Potential Financial Impact: High. Defaults on loans could significantly impact profitability.
  • Quantifiable Metric: ’ 100 crore disbursed, but no data on Non-Performing Assets (NPAs) or default rates.

Liquidity Risk #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation:
  • Maintaining sufficient cash reserves.
• Control Effectiveness: High
• Potential Financial Impact: Low, the company is debt free.

Investment Risk #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation:
  • Doubling down on operating leverage
  • Utilizing extensive network to introduce savings and investments products.
• Control Effectiveness: Moderate
• Potential Financial Impact: High, during the year the company had to make provisions for diminution in its investments.

Compliance/Regulatory Risks #

Regulatory Changes #

• Severity: High
• Likelihood: Medium
• Trend: Increasing (Fintech regulations are evolving)
  • YoY Change: Acknowledged in Chairman’s letter, specifically mentioning impact on the AePS business.
• Mitigation:
  • Compliance with all applicable laws and regulations.
  • Monitoring regulatory changes.
• Control Effectiveness: Moderate. Compliance is stated, but the dynamic nature of regulations presents a constant challenge.
• Potential Financial Impact: High. Changes in regulations (e.g., KYC norms, interchange fees) could impact business model and profitability.
  • Quantifiable Metric: None directly provided, but the impact on AePS business is a clear indicator.

Audit Trail Deficiencies #

• Severity: High
• Likelihood: High
• Trend: Stable
• Mitigation: The company is working on the recommendations.
• Control Effectiveness: Moderate
• Potential Financial Impact: High, failure to comply with regulatory requirements.

Emerging Risks #

UPI Growth in Rural Areas #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
  • YoY Change: Not quantified, but UPI adoption is generally growing nationwide.
• Mitigation:
  • Launch of PPI-UPI product, integrating UPI with the existing Adhikari network.
• Control Effectiveness: Uncertain (product is in alpha launch).
• Potential Financial Impact: Medium to High. If UPI gains significant traction in rural areas without Spice Money’s involvement, it could erode their market share.
  • Quantifiable Metric: None provided, as the product is in early stages.

Financial Disruption #

• Severity: Medium
• Likelihood: High
• Trend: Increasing.
• Mitigation:
  • Diversifying product portfolio.
• Control Effectiveness: Moderate.
• Potential Financial impact: Medium.

Strategic Analysis of DiGiSPICE Technologies Limited (DTL) 2023-24 #

Long-Term Strategic Goals and Progress #

• Goal: DTL aims to become the largest digital financial services platform for 1 billion Bharat (rural India) consumers. The mission is to transform how Bharat banks by leveraging technology.

• Strategic Building Blocks:

  • Create a network of Assisted Touchpoints (Spice Money Adhikaris or SMAs).
  • Offer a full suite of tailored financial products through the SMA network.
  • Design and build digital products for new-to-tech and under-banked consumers.

• Strategic Priorities:

  • Strengthen leadership in assisted payments.
  • Strategic acquisition on NBFC and use PPI license for UPI solution.

• Progress:

  • SMA base grew 12% to 1.4 million, reaching 95% of Indian pin codes.
  • Over 100 million rural consumers used Spice Money services.
  • Customer Payments GTV grew by 7% to ₹ 108,000 crore.
  • Diversified GTV profile with non-AePS business now forming 50% of GTV.
  • Signed up two private banks to open CASA accounts through SMA network (350,000 new accounts opened).
  • Disbursed over ₹ 100 crore of credit, with plans to acquire an NBFC to control lending directly.
  • Alpha launch of a PPI wallet for digital payments.

Competitive Advantages and Market Positioning #

• Competitive Advantages:
  • Extensive Rural Network: 1.4 million Adhikaris, reaching 95% of pin codes.
  • Assisted Model: Personalized guidance and support in areas with low financial and digital literacy.
  • Trusted Brand: Adhikaris are trusted members of their communities.
  • Technology Platform: Robust and user-friendly digital platform (Spice Money Adhikari app).
  • Multi-Product Offering: Diversified beyond AePS to include collections, banking, credit, and digital services.
  • Proximity to borrowers.
• Market Positioning:
  • Leader in rural fintech, particularly in the AePS segment (approximately 18% market share in the Off-Us industry).
  • Transitioning from a payments-focused business to a broader banking and credit enterprise.

Innovation Initiatives and R&D Effectiveness #

• Focus: Technological innovation to address the needs of rural and semi-urban consumers and businesses.

• Key Initiatives:

  • UPI Enabled PPI Wallet: Alpha launch of a Pre-Paid Instrument (PPI) wallet to facilitate digital payments for new-to-tech consumers, supported by the SMA network.
  • Credit Offerings: Expanding credit offerings through partnerships and plans to acquire an NBFC to develop tailored credit products.
  • Technology Enhancement: Continuous investment in enhancing the digital infrastructure, user interface, and security of the platform.
  • Digital Platform for Adhikaris.
  • New Growth engine through strategic partnerships, enhanced risk management.

• R&D Effectiveness: Shift from a cash-out focused business to a multi-product enterprise demonstrates adaptation to market trends.

M&A Strategy and Execution #

• Strategy: Focus on strategic acquisitions to expand capabilities and market reach.

• Key Actions:

  • Planned NBFC Acquisition: Applied to acquire an NBFC to gain better control over lending products and reduce dependence on third-party lenders.
  • Scheme of Amalgamation: Approved a scheme for amalgamation by way of merger between DiGiSPICE Technologies Limited, Spice Money Limited, E-Arth Travel Solutions Private Limited, and Vikasni Fintech Private Limited.

Management’s Track Record in Execution #

• Positive Indicators:
  • Successful exit from legacy Telco/Enterprise businesses.
  • Net profit of ₹ 12.1 crore in FY 2023-24 from continuing business.
  • Consistent growth in SMA network and customer GTV.
  • Successful diversification of revenue mix.
  • Strategic partnerships with banks for CASA.
  • Progress in credit offerings.
• Challenges:
  • Continued headwinds in the AePS cash withdrawal business.

Capital Allocation Strategy #

• Focus: Investments in growth, primarily in the Spice Money fintech business.

• Key Allocations:

  • Network expansion and optimization.
  • Technology development and infrastructure.
  • New product development (CASA, credit, UPI-based propositions).
  • Potential acquisition of an NBFC.
  • Divestment and Closure of Non-core businesses.

Organizational Changes and Their Impact #

• Key Changes:
  • Shift to Fintech Focus: Complete exit from the legacy Telco/Enterprise businesses, repositioning Digispice as a focused fintech company.
  • Leadership Changes: Appointment of Mr. Venkatramu Jayanthi as Whole-time Director and Mr. Ram Nirankar Rastogi as an Independent Director. Appointment of Mr. Vineet Mahajan as CFO.
• Impact:
  • Clearer focus on the high-growth potential of Spice Money.
  • Improved financial performance due to divestment of non-core businesses.
  • Strengthened leadership team with expertise in fintech and banking.
  • Focus on MSME Market, AePS segment.
  • Enhancing Customer reach through strong Adhikari network.

ESG Analysis #

Social Responsibility Programs #

Ek Soch Foundation #

Established in 2011, the Ek Soch Foundation focuses on community development in areas like agriculture, micro-entrepreneurship, sanitation, health, and education. The current focus is on Mathura-Vrindavan in Uttar Pradesh.

Nanopreneurship (Adhikaris) #

DiGiSPICE, through Spice Money, empowers local entrepreneurs (Adhikaris) by providing them with digital platforms and training. This creates jobs, fosters financial inclusion, and leverages local expertise.

• The Adhikari network has seen exponential growth, with a 55% CAGR over the last five years.
• Highlights the second consecutive year of crossing 1 Lakh Crore GTV milestone, along with 49% GTV CAGR since FY2020.

Women Empowerment #

The program focuses on empowering women entrepreneurs in provincial areas, enabling financial independence.

Financial Inclusion #

The company is working towards providing financial services to the underserved population, especially the 63% of the Indian population that resides in rural and semi-urban regions.

Assisted Model #

Spice Money uses an assisted model, with local Adhikaris, to help bridge the gap for individuals unfamiliar with digital platforms, promoting financial literacy.

Spice Money Academy #

This training program equips Adhikaris with skills and knowledge.

Governance Structure and Effectiveness #

Board of Directors #

The document lists the Board members, including their backgrounds, qualifications, and experience. The board composition is diverse, including expertise in technology, finance, law, and other key areas. There is an emphasis on independent directors (four out of eight).

Board Committees #

Several board committees are mentioned:

• Audit Committee
• Nomination and Remuneration Committee
• Stakeholders Relationship Committee
• Risk Management Committee
• Corporate Social Responsibility Committee
• Investment and Finance Committee
• Committee (Growth)
• Committee (Structure)

The document provides details on each Committee.

Corporate Governance Report #

A separate report on Corporate Governance is included.

Compliance #

The company affirms compliance with Listing Regulations and other relevant laws.

Vigil Mechanism/Whistle Blower Policy #

The company has a policy to address concerns, including unethical behavior, fraud, or violations of the Code of Conduct.

Code of Conduct #

There is a Code of Conduct for Board Members and Senior Management Personnel, with affirmations of compliance.

Code of Conduct for Prevention of Insider Trading #

A code is in place to regulate trading by designated persons and prevent insider trading.

Policy on Prevention of Sexual Harassment #

The document emphasizes creating a safe environment, complying with the Sexual Harassment of Women at Workplace Act, 2013.

Independent Director Evaluation #

The board has established a process to evaluate every director’s performance including the Executive Director.

Regulatory Compliance and Future Preparations #

Compliance #

The Company affirm that compliance with Listing Regulations, the Companies Act, 2013, and other regulations and guidelines has been met.

Future Preparations #

• The Strategic Priorities mentions NBFC acquisition.
• The Strategic Priorities mentions “Enhanced risk management.”

Future Projections and Guidance #

Management Guidance and Assumptions #

• Strategic Focus: Pivoting to FinTech via Spice Money, exiting legacy Telco/Enterprise businesses.
• Growth Driver: Expanding the “Spice Money Adhikaris” (SMA) network.
• Revenue Diversification: Moving beyond AePS to collections, subscriptions, CASA, and credit.
• Credit Expansion: Entering lending via NBFC acquisition, targeting SMAs and their customers.
• UPI-Based PPI Wallet: Targeting rural consumers with a UPI-linked wallet.
• AePS share: Consolidating on AePS share, doubling down on core operating model.
• Strategic Partnerships: Forming partnerships for savings and investment products.
• Risk Management: Enhancing risk management and internal control systems.
• Operational excellence: Assuming operational excellence.

Scenario Analysis/Sensitivity #

• AePS Headwinds: Mitigating persistent AePS decline through revenue diversification.
• Credit Risk: Mitigating credit risk through product innovation, local knowledge, and risk management.
• Regulatory risk: Managing changes in the requirements by RBI, UIDAI and IRCTC.

Market Growth Forecasts #

• Rural and Semi-Urban Growth: Significant GDP contribution expected from rural areas, with per capita income projected to grow 3.5x by 2030.
• MSME Sector: MSMEs contributing 30.9% to national gross value added in 2023-24.
• Digital Payments Growth: Growth in AePS driven by increased digital adoption.
• Rural Internet Users: 442 million rural internet subscribers.
• Kirana stores: Opportunity with India’s 13 million kirana stores.
• CASA accounts: Steady growth of CASA accounts in rural and semi-urban regions.

Planned Strategic Initiatives #

• NBFC Acquisition: Acquiring an NBFC for direct lending.
• Assisted Payments Leadership: Consolidating AePS market share and operating leverage.
• Strategic Alliances: Introducing savings and investment products through partnerships.
• UPI-Based Propositions: Developing UPI solutions using PPI license.
• Portfolio diversification: Moving from cash-out focused business to a multiproduct business.

Efficiency Improvement Targets #

• Operating Leverage: Achieving greater operating leverage through efficiencies.
• Cost Control: Implementing cost control measures.
• Digitalization: Improving user interfaces, security, and customer experience.

Potential Challenges and Opportunities #

Opportunities #

• MSME Lending Market: Large underserved market for MSME credit.
• BBPS Growth: Increasing traction in Bharat Bill Payment System.
• AePS Consolidation: Consolidating market share in AePS.
• Service Diversification: Expanding into insurance, investments, and other services.
• Technological Innovation: Enhancing customer experience through technology.
• Customer Reach Expansion: Expanding the Adhikari network.
• UPI on PPI: Offering UPI payment to a large number of inoperative bank account holders using PPI license.

Challenges #

• Regulatory Changes: Impacts from changes to regulations, KYC norms, or interchange fees.
• Technological Risks: Risks related to data security, unauthorized access, and system vulnerabilities.
• Competition: Increasing competition in the fintech sector.
• Partner Sustainability: Risks associated with bank BC partner sustainability.
• Credit risk: Any change in risk parameters can cause a risk on lending books.

Scenario Analysis/Sensitivity #

• Regulatory Risk Scenario: Negative impact on revenue from changes to AePS interchange fees.
• Credit Risk Scenario: Higher-than-expected default rates on loans impacting profitability.
• Competition Scenario: Pressure on margins and slower customer acquisition from increased competition.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Opinion: The auditors, S.R. Batliboi & Co. LLP, have issued an unmodified opinion on both the standalone and consolidated financial statements of DiGiSPICE Technologies Limited. This means they believe the financial statements present a true and fair view of the Company’s financial position, performance, and cash flows in accordance with Indian Accounting Standards (Ind AS).
• Qualifications:
  • Standalone Financial Statements:
    • The back-up of certain books of account and other books and papers maintained in electronic mode has not been maintained on servers physically located in India on a daily basis.
    • The audit trail feature was not enabled for direct changes to the database when using certain access rights, and the auditors could not comment on the operation of the audit trail feature throughout the year or instances of tampering.
  • Consolidated Financial Statement:
    • Same qualifications as Standalone and an additional observation that one subsidiary, jointly audited, had additional remuneration payable to an Executive Director and CEO of the subsidiary company.
  • Four subsidiaries, including three foreign subsidiaries, have been audited by the firm of the chartered accountant.
• Emphasis of Matter: The auditors highlighted that the standalone financial statements for the year ended March 31, 2023, were audited by a predecessor auditor who issued an unmodified opinion.

Key Accounting Policies and Changes #

• Revenue Recognition: Revenue from time-and-material contracts is recognized as services are performed. Revenue from fixed-price, fixed-time frame contracts is recognized using the percentage-of-completion method, with efforts or costs expended used to measure progress.
• Leases: The Group assesses whether a contract is or contains a lease at inception. For lessees, a right-of-use asset and a corresponding lease liability are recognized for all leases except short-term leases and leases of low-value assets.
• Impairment of Non-Financial Assets: Impairment loss is provided when the carrying amount of assets exceeds their recoverable amount. The recoverable amount is the higher of an asset’s net selling price and its value in use.
• Changes in Accounting Policies: There is note of change of accounting standard during the year.
• Changes in Accounting Estimates:
  • Definition of Accounting Estimates - Amendments to Ind AS 8
    • The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. It has also been clarified how entities use measurement techniques and inputs to develop accounting estimates.
    • Impact: The amendments have no impact on the Company’s standalone financial statements.
• New standards adopted:
  • Disclosure of Accounting Policies - Amendments to Ind AS 1
    • The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
    • Impact:The amendments have an impact on the Company’s disclosures of accounting policies, but not on the measurement, recognition or presentation of any items in the Company’s financial statements.
  • Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to Ind AS 12
    • The amendments narrow the scope of the initial recognition exception under Ind AS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences such as leases.

Internal Control Effectiveness #

• Auditor’s Report: The auditors’ report on internal financial controls (Annexure 2 to the standalone auditor’s report) states that, in their opinion, the Company has, in all material respects, adequate internal financial controls with reference to the financial statements, and such controls were operating effectively as of March 31, 2024.
• Exceptions: Audit trail feature was not enabled for direct changes to database when using certain access rights, and backup of certain books of account and other books and papers were not maintained on servers physically located in India on a daily basis.

Regulatory Compliance Status #

• Companies Act, 2013: The auditors report that, to the best of their knowledge and belief, the Company has complied with the provisions of the Act, except for the issues noted related to server location and audit trail features.
• Listing Regulations: The Corporate Governance Report states that the Company has complied with all applicable mandatory requirements of the Listing Regulations.
• Secretarial Standards: The Company has complied with Secretarial Standards 1 and 2.
• Foreign Exchange Management Act, 1999: The Secretarial Audit Report notes that there was a delay in the submission of Annual Performance Reports for certain foreign subsidiaries.
• Other Laws: The reports provided indicate compliance with relevant laws and regulations applicable to the Company and its material subsidiary, Spice Money Limited.

Legal Proceedings and Their Potential Impact #

• Pending Litigations: The Company has disclosed the impact of pending litigations on its financial position in Note 31B of the standalone financial statements and Note 38C of the consolidated financial statements. These include demands from excise/service tax authorities and other claims.
• Contingent Liabilities: As of March 31, 2024, contingent liabilities include demands from tax authorities and other claims against the Group.

Related Party Transactions #

• Disclosure: Related party transactions are disclosed in Note 33 of the standalone financial statements and Note 41 of the consolidated financial statements. The transactions are stated to be at arm’s length and in the ordinary course of business.
• All the related party transactions were approved by the Audit Committee.
• Key Transactions: Transactions include revenue from services, remuneration to key managerial personnel, loans, and reimbursement of expenses.

Subsequent Events #

• Scheme of Amalgamation: Subsequent to the financial year-end, the Board of Directors approved a scheme of amalgamation by way of merger between the Company, Spice Money Limited, E-Arth Travel Solutions Private Limited, and Vikasni Fintech Private Limited. This is subject to shareholder and regulatory approvals.
• Share Capital: The Company allotted additional equity shares under the DTL Employees Stock Option Plan-2018, increasing the paid-up equity share capital.
• Change in CFO: There is Change in CFO after the end of reporting period.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:
  • Positive Aspects:
    • Unmodified audit opinion indicates overall good accounting quality.
    • Compliance with Ind AS and detailed disclosures enhance transparency.
    • Use of recognized valuation models (Black-Scholes) for share-based payments.
  • Areas for Improvement:
    • The qualification regarding server location for backups and audit trail feature weakness are important to address.
    • Consistent monitoring and evaluation of internal control is vital.
• Regulatory Risk Assessment:
  • Moderate Risk: While the Company generally demonstrates compliance, the identified issues (server location, audit trail, delayed FEMA reporting) increase regulatory risk.
  • Key Areas of Focus:
    • Addressing the server location and audit trail issues is crucial to mitigate compliance risk under the Companies Act.
    • Timely filing of reports under FEMA to avoid penalties.
    • Continuous monitoring of regulatory changes and ensuring prompt compliance.
    • Strengthening internal controls over financial reporting.
• Regulatory Headwinds: There is noticeable slowdown in AePS cash withdrawal business, Company primary revenue source.