Rating Rationale
June 23, 2022 | Mumbai
Digispice Technologies Limited
Ratings reaffirmed and Withdrawn
 
Rating Action
Total Bank Loan Facilities RatedRs.45 Crore
Long Term RatingCRISIL BB+/Stable (Rating reaffirmed and Withdrawn)
Short Term RatingCRISIL A4+ (Rating reaffirmed and Withdrawn)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the bank facilities of Digispice Technologies Limited (DTL; part of the Spice group) at 'CRISIL BB+/Stable/CRISIL A4+' and simultaneously withdrawn the ratings at the request of the company and on receipt of a ‘no-objection certificate’ from the bankers. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.

 

The reaffirmation reflects the continued revenue growth of the Spice group driven by significant growth in Spice Money Ltd (Spice Money; wholly owned subsidiary of DTL). Revenue of Spice Money grew 49% yoy to Rs 858 crore in fiscal 2022 compared with Rs 578 crore in fiscal 2021 driven by initiatives undertaken by the company like increase in Adhikari base. However, reported EBITDA remained flattish at Rs 22 crore for fiscal 2022 compared to Rs 21 crore for fiscal 2021 due to focus on transactions growth which is expected to continue going forward. Sustenance of growth in operating performance of Spice Money amid intense competition will be a key monitorable.

 

Revenue of the digital services segment declined marginally to Rs 133 crore with reported EBITDA loss of Rs 8 crore for fiscal 2022 compared to Rs 134 crore and Rs 8 crore respectively in previous fiscal. Financial risk profile is marked by healthy unencumbered liquidity estimated at ~Rs 150 crore as on March 31, 2022.

 

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 grew to Rs 858 crore in fiscal 2022 with reported EBITDA of Rs 22 crore, compared with Rs 578 crore and Rs 21 crore, respectively, in the the previous fiscal. The growth in revenue was aided by initiatives such as providing free hardware to retail agents, boosting Adhikari base to over 1 million touchpoints as well as increased adoption of digital payments. However, this industry has low barriers to entry leading to high competition. Further 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 healthy interest coverage ratio estimated above 25 times in fiscal 2022. Gearing was low, estimated at 0.22 times as on March 31, 2022 while networth was adequate at Rs 247 crore. The group has nil term debt obligation and maintains high cash and bank balance. The group had cash and bank balance of over Rs 150 crore on March 31, 2022. 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 ~13% of the overall revenue in fiscal 2022 from 38% in fiscal 2021. Revenue of the digital services segment declined marginally to Rs 133 crore with reported EBITDA loss of Rs 8 crore for fiscal 2022 compared to Rs 134 crore and Rs 8 crore respectively in 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 ~1.5% for the fiscal 2022 compared with ~1.8% in 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, 2022. Fund-based bank lines of Rs 15 crore were utilised moderately during the 12 months through March 2022. Expected cash accrual of Rs 25-35 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

  • Increase in operating profitability, with the EBITDA margin sustaining above 6%
  • Better revenue diversity while maintaining strong financial risk profile

 

Downward factors

  • Decline in revenue and low operating profitability below 2%
  • Large, debt-funded capex or investment, weakening the capital structure

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 licenses 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 fiscal 2022, the Spice group (on consolidated basis) had operating income of Rs 990 crore and net profit of Rs 6.7 crore, against Rs 712 crore and net profit of Rs 5.6 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators (consolidated)

Particulars

Unit

2022

2021

Revenue

Rs crore

990

712

Profit after tax (PAT)

Rs crore

6.7

5.6

PAT margin

%

0.7

0.8

Adjusted debt / adjusted networth

Times

0.22

0.19

Interest coverage

Times

29.9

19.95

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

ISIN

Name of instrument

Date of allotment

Coupon

rate (%)

Maturity date

Issue size

(Rs crore)

Complexity level

Rating assigned

with outlook

NA

Cash Credit

NA

NA

NA

10

NA

CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)

NA

Bill Discounting

NA

NA

NA

15

NA

CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)

NA

Bank Guarantee

NA

NA

NA

2.5

NA

CRISIL A4+ (Rating reaffirmed and Withdrawn)

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

17.5

NA

CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Spice Money Ltd

Full

Strong financial and business linkages

Kimaan Exports Private Ltd

Full

Strong financial and business linkages

Hindustan Retail Pvt Ltd

Full

Strong financial and business linkages

New Spice Sales and Solutions Ltd

Full

Strong financial and business linkages

Cellucom Retail India Pvt Ltd

Full

Strong financial and business linkages

S Mobility (HK) Ltd

Full

Strong financial and business linkages

Spice Digital Bangladesh Ltd

Full

Strong financial and business linkages

S Global Services Pte Ltd (formerly, S GIC Pte Ltd)

Full

Strong financial and business linkages

Beoworld SDN BHD

Full

Strong financial and business linkages

Fast Track IT Solutions Ltd

Full

Strong financial and business linkages

Spice Digital FZCO

Full

Strong financial and business linkages

Spice VAS (Africa) Pte Ltd

Full

Strong financial and business linkages

S Mobility Pte Ltd

Full

Strong financial and business linkages

Omnia Pte Ltd

Full

Strong financial and business linkages

Digispice Nigeria Ltd

Full

Strong financial and business linkages

Spice VAS Ghana Ltd

Full

Strong financial and business linkages

Spice VAS Zambia Ltd

Full

Strong financial and business linkages

Spice VAS Tanzania Ltd

Full

Strong financial and business linkages

Ziiki Media SA (Pty) Ltd

Full

Strong financial and business linkages

SVA (Mauritius) Pvt Ltd

Full

Strong financial and business linkages

Spice VAS Kenya Ltd

Full

Strong financial and business linkages

Spice VAS Uganda Ltd

Full

Strong financial and business linkages

Digispice VAS RDC

Full

Strong financial and business linkages

PT Spice Digital Indonesia

Full

Strong financial and business linkages

Digispice Nepal Pvt Ltd

Full

Strong financial and business linkages
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 42.5 CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)   -- 30-04-21 CRISIL BB+/Stable 31-01-20 CRISIL BB/Stable   -- --
Non-Fund Based Facilities ST 2.5 CRISIL A4+ (Rating reaffirmed and Withdrawn)   -- 30-04-21 CRISIL A4+ 31-01-20 CRISIL A4+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Bank Guarantee 2.5 CRISIL A4+ (Rating reaffirmed and Withdrawn)
Bill Discounting 15 CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)
Cash Credit 10 CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)
Proposed Long Term Bank Loan Facility 17.5 CRISIL BB+/Stable (Rating reaffirmed and Withdrawn)
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating Criteria for Mobile Telephony Services
CRISILs Criteria for Consolidation

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