| Digispice Technologies Limited | ||||||
| Long-term rating upgraded to 'CRISIL BB+/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of Digispice Technologies Limited (DTL; part of the Spice group) to 'CRISIL BB+/Stable' from 'CRISIL BB/Stable' and has reaffirmed its 'CRISIL A4+' rating on the short-term bank facility.
The upgrade reflects improvement in revenue and profitability of the Spice group driven by significant growth in Spice Money Ltd (Spice Money; wholly owned subsidiary of DTL). Revenue of Spice Money was Rs 419 crore in the nine months ended December 31, 2020, with earnings before interest and tax (EBIT) of Rs 14 crore, compared with Rs 178 crore and Rs 1.5 crore, respectively, in the corresponding period of the previous fiscal. The growth was driven by initiatives undertaken by the company and increased adoption of digital payments given reverse migration to rural areas amid the Covid-19 pandemic. Sustenance of growth in operating performance of Spice Money amid intense competition will be a key monitorable.
Revenue of the digital services segment declined to Rs 107 crore with EBIT at Rs 1 crore for the nine months through December 2020 from Rs 126 crore and Rs 9.5 crore, respectively, in the corresponding period of the previous fiscal, because of de-growth in value-added services to telecom operators. Consolidated revenue for the nine months through December 2020 was Rs 526 crore with EBITDA of Rs 16 crore, as against Rs 303 crore with EBITDA of Rs 9 crore for the corresponding period of fiscal 2020. This led to improvement in debt protection metrics with interest coverage ratio expected to sustain over 20 times going forward compared with 13 times in fiscal 2020. The healthy financial risk profile should sustain going forward, given better cash accrual and low capital expenditure (capex) requirement. Unencumbered liquidity stood at an estimated Rs 167 crore as on March 31, 2021, compared with Rs 53 crore as on March 31, 2020.
The ratings reflect the Spice group's healthy financial risk profile, significant growth in Spice Money and extensive experience of the promoters in the digital technology services sector. These strengths are partially offset by declining operating performance in Digital technology services segment and modest profitability. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of DTL and its direct subsidiaries and step-down subsidiaries, collectively referred to as the Spice group, because the entities have common management and strong cash flow fungibility.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: * Significant growth in Spice Money: The group has strong focus on the entity, Spice Money, which entails providing banking and transactional services to remote locations in India. Revenue was Rs 419 crore in the nine months through December 2020 with EBIT of Rs 14 crore, compared with Rs 178 crore and Rs 1.5 crore, respectively, in the corresponding period of the previous fiscal. The growth in revenue was aided by initiatives such as providing free hardware to retail agents as well as increased adoption of digital payments given the migration of people back to hometowns amidst the lockdown . However, this industry has low barriers to entry leading to high competition. The scaling up of the business and sustenance of revenue growth will be key monitorables.
* Healthy financial risk profile: Debt protection metrics were comfortable, reflected in interest coverage ratio estimated above 20 times in fiscal 2021. Gearing was low, estimated at 0.2 time as on March 31, 2021. Also, networth was modest at Rs 164 crore due to losses incurred in the past. The group has nil term debt obligation and maintains high cash and bank balance. The group had cash and bank balance of Rs 120 crore on March 31, 2021. Capex and investment plans will remain moderate and therefore the financial risk profile should sustain going forward.
* Experience of the promoters and management team: The promoters have extensive experience in providing software/platform driven services, such as value-added services and SMS services, in the telecom domain. Apart from India, the group operates in Bangladesh, Singapore, Africa and South America. The company strengthened its management bandwidth by inducting a new chief executive officer to enter the software solutions space as part of its strategy to expand its digital technology services.
Weaknesses* Decline in operating performance of the digital technology services segment: The share of digital technology services reduced to 38% of the overall revenue in fiscal 2020 from 63% in fiscal 2019. Revenue for the digital segment declined to Rs 107 crore with an EBIT of Rs 1 crore in the nine months ended December 31, 2020, from Rs 126 crore and Rs 9.5 crore, respectively, in the corresponding period of the previous fiscal owing to weak environment, with de-growth of voice-based services by telecom operators, as well as intense competition. The company has been taking corrective action by adding consulting solutions as well as revamping its service offerings. However, the overall contribution of this segment to the group’s overall profitability is expected to remain low.
* Modest profitability: Though Spice Money has scaled up considerably, the overall profitability remained subdued because of decline in the digital technology services segment. The EBITDA margin stood at 3% for the nine months ended December 31, 2020, compared with 2.9% in the corresponding period of the previous fiscal. The group’s ability to improve operating profitability going forward will remain a key monitorable. |
Liquidity: Adequate Unencumbered cash and bank balance was estimated at Rs 167 crore as on March 31, 2021. Fund-based bank lines of Rs 15 crore were utilised 73% on average during the 12 months through March 2021. Expected cash accrual of Rs 18-25 crore per annum in fiscals 2022 and 2023 will sufficiently cover capex or incremental working capital requirement in the absence of debt obligation. |
Outlook: Stable CRISIL Ratings believes the group’s business risk profile will continue to be supported by the management’s experience and revenue growth in Spice Money. The financial risk profile will remain adequate over the medium term in the absence of any significant debt-funded capex. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Group The Spice group was founded by Mr B K Modi and is presently managed by his son, Mr Dilip Modi. The group operates in the value-added services segment through DTL. It has tie-ups with various telecom operators, and also operates in Bangladesh, Singapore, Africa and South America. It has started providing communication experience services, through analytical and campaign management tools, and consulting solutions to the telecom sector, insurance sector and governments.
Recently, the group has entered the fintech space through Spice Money. Using its robust technology infrastructure, it provides financial services, enabling people to remit money to bank accounts in quick, convenient, and cost-effective manner, and value-added services such as air and railway tickets, hotel booking, mobile top-ups and bill payments from more than 500,000 touch points in India. The company has the necessary permissions and licences such as PPI (pre-paid payment instruments), AEPS (Aadhaar-enabled payment system), BBPS (Bharat Bill Payment System), E-KYC (electronic know your customer) integration and UPI (united payment interface) to enable it to leverage upcoming fintech opportunities.
In the nine months ended December 31, 2020, the Spice group (on consolidated basis) had operating income of Rs 526 crore and net profit of Rs 10.3 crore, against Rs 303 crore and net loss of Rs 3.3 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators (Consolidated)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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