Digispice Technologies Ltd (NSE: DIGISPICE)Q2 FY23 Earnings Concall dated Aug. 30, 2022
Corporate Participants:
Shiv Muttoo — Investor Relations
Mr. Rajneesh Arora — Co-Founder and Chief Product and Strategy Officer
Sanjeev Kumar — Co-Founder and Chief Executive Officer
Mr. Sunil Kapoor — Director and Chief Financial Officer
Presentation:
Good afternoon, everyone. A warm welcome to the Digispice Technologies Q1 FY23 Earnings zoom webinar. We have with us today, Mr. Sandeep Kumar, Co-Founder and CEO of Spice Money; Mr. Rajneesh Arora, Co-Founder and Chief Product and Strategy Officer, Spice Money and Mr. Sunil Kapoor, Director and CFO, Spice Money.
Before we begin, I would like to state that some statements made in today’s discussion maybe forward-looking in nature. The actual results may vary, as they are depending on several external factors. A statement in this regard has been included in the results presentation sent to all of you earlier. We will commence the call with the management taking you through the operational and financial performance for the period under review, following which, we will have an interactive Q&A session.
I would now like to invite Mr. Rajneesh Arora to commence the presentation. Over to you, Rajneesh.
Mr. Rajneesh Arora — Co-Founder and Chief Product and Strategy Officer
Thank you, Shiv. Hi everyone, a very warm welcome to this session. Thank you so much for taking out the time. Let’s begin with the presentation, please. So this presentation is available on the website and also shared with the relevant stock exchanges. What I’ll do is, I mean, I just hope some of you would have gone through the presentation, so what we’ll do is, we’ll touch upon the key messages
Out of these presentations, so we can quickly move on to the Q&A session.
Yeah. Let’s go to the next Slide, please.
So, as you know some of you may be aware, or people who are attending, who are new to Digispice, there are two primary segments within Digispice business, one of them is called FinTech segment, which houses the Spice Money business, Spice Money is a subsidiary of Digispice, and Spice Money is India’s leading rural FinTech platform. This segment today contributes more than 90% of the total consolidated revenues of Digispice. The other segment relates to Digital Technology Services, and this is less than 10% of the total revenues. This segment largely deals with providing digital solutions for enterprises, which include Telcos, BFSI and other enterprises. Since Spice Money contributes significantly to the overall financials of Digispice, we are largely going to focus our discussion on Spice Money today. Next please.
So when we talk about Spice Money, the fundamental problem that we are really solving here is the lack of access for rural citizens in the country. So we are basically making the financial services accessible to India’s rural citizens. And in a way, we are revolutionizing the way banking happens within Bharat. Bharat, we refer to semi-urban and rural. And just to specify what does semi-urban and rural mean here? Semi-urban refers to about 6,000 blocks in the country. So, there are about 712 district headquarters in the country, which house 6,000 blocks and 6 lakh villages, right? So semi-urban and rural refer to the blocks and villages in the country. The current status of where Spice Money as a rural FinTech platform has reached is that, we have in excess of 1 million Spice Money Adhikaris, who operate on Spice Money platform. Spice Money Adhikaris are rural entrepreneurs or small retail merchants within blocks and villages, who also double up providing banking and financial services to the end consumers.
Spice Money today processes transactions worth INR1,70,000 crore on an annualized basis and for one of our key products AePS, which is Aadhaar Enabled Payment System, we have a market share of 17.2% in the off-us AePS value market share. In terms of our penetration, we cover most of the 6,000 plus blocks within the country and we are today present in about two lakh villages out of the total six lakh villages in the country and we also, from a pincode perspective, there is a coverage of about 18,000 plus pincodes within the country. Next slide, please.
So just taking a view on how the whole digital payments ecosystem is evolving in the country, we’ve all seen digital payment significantly growing especially over the last couple of years. Today, there is about a $3 trillion market with respect to digital payments and the country and according to a report by BCG, this is expected to grow to $10 trillion market in the next five years. What is important to note is that the key drivers which has led to the growth of digital payments till now are: one is the core expansion in the digital infrastructure, so basically growth and penetration of smartphones and you know availability of products or new products like UPI, which have significantly led to this growth.
This growth has obviously been accelerated during pandemic, that’s when we’ve seen the maximum growth, and the growth has also been driven by the growing merchant acceptance rates. Today, typically, most of the merchants are able to accept digital payments primarily through a QR, which works on UPI platform, okay?
What will lead to the growth going forward? I think these are very important parameters to understand. So what will lead to the growth besides what has already been leading to the growth is building customer trust, addressing concerns around fraud management and simplified digital onboarding, right? So it’s a lot more to do with the relevance of the product which is now needed to bring people into the fold of digital payments who have till date been excluded out of the system. So I think this is the key takeaway from this slide. Next please.
So this slide talks about where Spice Money is operating, so in the rural market and how large and addressable is the rural market for India. So rural today contributes about 46% to the national GDP, and over the last more than five years, it has consistently grown at the rate of about 10% plus year-on-year, right? So really if you look at the India’s GDP, that itself is being driven by rural money. Second, about 2/3rd of the total workforce in the country is employed in rural India, so that’s about 35 crore people employed, and about 34 crore Internet subscribers in rural India, which has now exceeded the urban India, and in fact, it is 20 %, this number in absolute is 20% more than urban India, right? So the point is that the overall economy, you know and banking and financial services in particular, is going to be driven by rural India, that’s what all the reports are saying.
The key infrastructure on the basis of which this entire growth has been happening and will happen within rural India, there are very three core, core infrastructure elements, which become very, very relevant for rural. One of them is — so this is typically known as the JAM Trinity, Jan Dhan Aadhaar Mobile. Jan Dhan refers to the bank accounts which have been opened for people in general. So today, there are about 46 crore Jan Dhan accounts that have been opened, a majority of them, about 31 crore is for rural citizens and also a significant part of them is for women. So in general, the message is that the banking penetration is continuing to increase.
The second key infrastructure foundational block is the Aadhaar. Almost, I mean, our entire population today has a biometric-based Aadhaar available and for a large part of them, their Aadhaar is seated in the bank account. And this enables banking easier.
And the third is of course, the growing penetration of smartphone subscribers, that already is — rural is leading in terms of the growth of smartphone penetration in the country.
So the opportunity is actually — the opportunity is actually enabled by tech inclusive framework, which is a mix of the growing digital infrastructure and what is called as in India stack, right, or the public infrastructure, which has become available for use. Yeah, next please.
So this slide talks about, you know, essentially how rural market is very different from the urban market. The relevant points being, you know, so if you lo ok at an urban market and if you look at the retail merchant, you will largely find that the retail merchant focuses on a particular category of goods, right? So there is a shoe seller, there is a garment seller, there is an FMCG seller. The moment you go down to smaller towns and to villages, there is typically a merchant who’s catering to multiple categories, right? So if I look at, from a merchant’s perspective, a merchant within urban is always looking for deepening within the category to grow his income, a merchant within rural is always looking to expand the number of categories to grow, right, and this becomes very very relevant for you know, the Spice Money’s business model. The relationship between the customer and the merchants in urban is largely transactions driven, right? So you go — its footfall is transactions driven, right? So you like something, you pay and you move on, and next time you’re probably shopping at a different shop, right?
In rural, of course, this entire relationship is driven by community. It is like an intergenerational relationship that a rural merchant holds with the customers within rural. Coming to trust; in urban, the trust is largely driven by marketing, advertising brands, right. So our lens to any product or service is through the brand, right, what we think of the brand. The moment you go to rural, the trust is largely driven by word of mouth and then kind of the brand or the brand or advertising starts to play, right?
Again, a very important point to understand how these nuances become very, very different between urban and rural and therefore, how they decide what business models to chase. We all know, I mean in urban, relatively speaking, the demand is for a larger sized products; in rural, the demand is for a smaller-size products. I mean we’ve seen this in FMCG, where the whole sachet pricing came in and led to a huge growth for underserved markets and this is equally true and largely true even for financial services, right?
So for example, if you pick up an insurance product, right, or if you pick up a loan product, a credit product, the need for the same in rural, the ticket size is so low that it starts to become unviable to meet by traditional business models. And then of course, you know, the awareness of digital and financial platforms or availability of physical and digital marketplace models is growing at a rapid pace in urban, and we are yet to see any of this in the rural markets, right. Some of the urban marketplaces do kind of touch upon rural, but they’re not really built for rural, right?
And the other gap is that there is complete lack of awareness, as well as literacy when it comes to using financial and digital platforms. Urban is served by a formal, organized service infrastructure; and of course. in rural, you know there is a complete absence of the service infrastructure and therefore the whole lack of access that we’re talking about, right.
So what does all this mean, right? Because rural is different, the products that you need in rural have to be made grounds up, meant for rural; and also the business model that you need to enable for accessing the rural opportunity also has to be very relevant to rural, and this is exactly where Spice Money comes into place.
As Spice Money has a unique business model, where it utilizes the availability of existing infrastructure in the form of existing retail infrastructure and the trust that that merchant or the retail person carries — a retail merchant carries within the rural, right? To be able to deliver services to the rural in a viable manner, right. So ultimately, it is about economics because it is a shared infrastructure, an already existing infrastructure, the ability to provide a smaller ticket size product becomes — product or service becomes far more viable, and the fact that there is a local person who is able to establish a relationship of trust it starts to become possible to transact financial services. I mean, financial services, once it’s service, where you essentially need trust to be able to serve the customer, so that’s where the Spice Money’s unique business model comes in, which utilizes the core of digital infrastructure and technology, and in an already existing infrastructure of a network of the Adhikaris to be able to do this.
Yeah, next please. May I now request, Sanjeev, who is the Co-Founder and CEO to take it forward from here?
Sanjeev Kumar — Co-Founder and Chief Executive Officer
Thanks, Rajneesh. Good afternoon, everyone and thank you so much for joining in. Over the next few slides, and maybe 15 to 20 minutes, what I want to do is, I’m going to cover on our operating model, the business model, and especially, what are we trying to do and the way forward, and how we’re trying to win rural India in few of the services.
So carrying forward from what Rajneesh was speaking about on — talking about the difference between the urban India and rural India, and fundamentally, solving the problem of lack of access. What are we trying to do? We’re trying to build a super app for rural consumers. Now what does this mean? In very simple words, what do we do? As we said, we said let’s put a consumer in the center, rural consumer, and let’s put down all his needs, and we put down all his needs and said, if I can put all these services on — using technology, can I put them on a platform and I build a network — when we build a network of entrepreneurs, who we call Spice Money Adhikaris, at every village and block of this country, then essentially, why does the rural consumer have to step out of the village?
So fundamentally, trying to solve the problem of access of all the basic services that a rural consumer needs. So what we did is, we bucketed those services into these nine big ones. On the left, are services which we are live with. This is basic banking. Cash deposit, withdrawal, even account opening now, money transfer, payments, travel services, cash collection both from enterprises and consumers. We’ll talk about these, all — for all these services in detail in a few slides. There are lot of other service, other use cases that we’re trying to solve, financial services, the whole savings, insurance, e-commerce services-assisted shopping, healthcare, government services. lot of government-to-consumer services and entrepreneurs solutions, primarily for the merchants in rural India. We’re trying to build all these services onto the Spice Money platform and build this network of entrepreneurs who can be the community influencer in offering these services to the consumers at every village. Next slide please.
If I extend this, if I extend the last slide of building that rural Super app, looking at it from a consumer lens, if I were to then talk about the business model, what are we doing? We’re trying to build a — in our parlance, we call it a very available ecosystem. And what does it mean? So if you look at the left, you have all service partners, which is the — which can also be called as product manufacturers, in our parlance, we call them service partners, banks and NBFCs.
Shiv Muttoo — Investor Relations
Okay, Sanjeev, sorry to interrupt, I think your voice is low. I think maybe if you can increase the volume of the speaker?
Sanjeev Kumar — Co-Founder and Chief Executive Officer
Sorry, is it better now?
Shiv Muttoo — Investor Relations
Yes, better, carry on.
Sanjeev Kumar — Co-Founder and Chief Executive Officer
So on the left, our service partners, who wants to provide services, want to access the rural consumer but have not being able to do it. On the right side are rural consumers who have these needs, in between is where we come. These are our Spice Money entrepreneurs, whom, like we said in the last slide, have been given an app, who’s used this app, we’ve integrated the services, the products and services from these partners onto the app and these entrepreneurs serve the rural consumers. So it’s a win-win for all. Service partners earlier couldn’t access this rural consumer because of unit economics, now we are solving for them, but we are saying, you know what, come onto our platform, we are there in rural India,
For the entrepreneurs, since they’re able to serve, offer more and more services, it’s become a source of livelihood for them, it’s increasing additional income and hence, a lot of entrepreneurship has been created in rural India.
And on the right, is consumers who didn’t have access to all these services all this while, hence today, they don’t have to walk miles, they get all these services at their doorstep in the village. Next slide please.
So if I were to look at the roadmap of Spice Money, where are we headed? So if I — we continue with the fundamental problem statement of solving the access challenge in rural India. and then I continue to Digital India for us is the 6,006 lakh villages and this doesn’t 6000 blocks. We have now at this stage is built the largest network, which is primarily for cash deposits, cash withdrawals, right. There’s also payments that has been built over that, so we’ve built that that kind of network, on that, now, we’re building the cash collection network, cash collection is for let’s say more enterprises, we have got a lot of MFIs, NBFCs given loans to consumers in rural India and today, the want, they have to collect cash from them and we’ll talk about it the later slide, how can I use this network for enabling consumers to you now what, come and deposit their cash at my outlet. that’s the second part. Third is, hence this network now becomes expense to building the largest banking and services platform, banking and financial services platform for rural India. Post which, like banking and financial services, we add all other digital services like we spoke about in the super app story, travel, commerce, healthcare, G2C. And fifth is a direct-to-consumer, because at some point of time, rural India, there is a section of consumers who will go digital, the youth primarily, we want to be, we want to be in the ecosystem, we want to be the first, we want to participate in that digital movement. Hence, we’re also building the direct to consumer platform, which is going to be enabled by this Adhikari platform. Next slide.
So let me take one example of — over the next three, four slides, I’m going to talk about how are we solving this problem? First problem, like I said, the basic banking of cash withdrawal. What is the problem statement? So what happened is, given that Jhan Dhan accounts for 43 crore accounts
Today got open and hence, what happened is, lot of money in rural started to move into these bank accounts. But the question remains, where is the infrastructure for these consumers withdraw this money? The promise statement is that a rural Indian consumer would have to walk 20, 25 kilometers to access the bank branch to withdraw money, this is where we come in, using technology, obviously stack AePS solved by NPCI. What is it that happens, we’ve been able to now on our network, a Spice Money Adhikari, the consumer walks up to our Adhikari network, he uses the Adhikari through biometric, is able to withdraw money, the consumer is able to withdraw money from any of his bank accounts. So today, the consumer does not have to walk 20-25 kilometers to just avail basic banking of cash deposit, cash withdrawal. Next slide.
How does this work in the next slide, I just talked about, the consumer walks to a Spice Money merchant, whom we call Spice Money Adhikari. A Spice Money Adhikari is equipped, he has a smartphone, the Spice Money app installed on it. He has a Biometric machine. The Adhikari enters the Aadhaar and bank details, the consumer checks his bank account balance, withdraws money, the money gets — the cash goes to the consumer. The money gets instant credit, goes, happens to the Adhikari, including the commission for that transaction. This entire transaction happens in about less than minute. Next, please.
The second part of the overall cash withdrawal problem statement is the mobile ATM solutions. For example, there are many instances in rural India where the Aadhaar doesn’t work, because of the fingerprints and other technical reasons. We’ve also solved it through let’s say, 1/10th of our network today has these micro ATM devices, wherein today, lot of these consumers come with debit card and they withdraw money from our outlet using debit card. Another business line which has been growing significantly for us. Next, please.
So, in the last two slides, I was talking about solving for rural for the ATM banking because using APS Aadhaar Enabled or either debit, both solutions we have, we’ve been solving and we are the largest network there. In the next few slides, I’ll talk about what is the market we’ve covered. That is what we’ve solved.
The second piece again, which is very interesting, which the cash collection which has gained some significant traction in the last 12 to 15 months and we see, we see a lot of opportunities here. Government statement is, there is a enterprise lets say a microfinance NBFC logistics company, they want to collect cash from rural consumers, what do you have to do? They have, they have to send their cash collection agent to go to these villages, blocks, collect cash, come back to the district headquarters where the branches are, just deposit money there. This is now — there’s obviously, a logistics challenge, there is fraud, there is cost challenges here. What have we done? We have tied up with these enterprises and we’ve said — 47 of these enterprises are already on board till date, and we’ve said, you know what, what do you have to tell your agent to go back your branch, why doesn’t he deposit that cash in our outlet? And that is something which is going to be scaled up. If you look at this matrix graph here, on the right bottom, about 400 and — we made nothing on this business in FY ’20, INR9 crore, nearly INR420 crore in FY ’21, which became INR10,800 crore, and we’re seeing this business is increasing nearly from nearly INR4000 crore in Q1.
The same space, we are now also expanding this footprint for consumers to come and deposit money at our outlet. So that’s how — at village level. So this is another business line which we’re solving for, which has got some increasing potential and you’ll see this over the next few quarters. Next slide please.
Third adjacent to financial services, like we said, digital services, travel is another one that we’ve picked up early in the stages, but we’ve been able to pick this up because of again an adjacent problem statement we saw in our business. Again, access was — if a rural consumer has to travel, he would have to walk to a block, there are no the travel agents in a village, he wants to book tickets there and even the agents would book tickets for these consumers didn’t have a product. So lot of them would use direct — you know– that would either book a ticket from RCTC for these consumers, or they would use different apps, but a product solution was not there, which could offer all products in one window. What we did is, we launched Travel Union, which is a, which is an aggregator of all products of train, bus, travel, hotel on one app, which means that today, including Spice Money Adhikaris and other travel agents in rural India, they can use the Travel Union app to solve for, to do travel bookings for rural consumer right at the village and a block level.
This business again, has gained significant traction in the last year. This was launched last year in August. Early days for us still, as we’re trying to build this business, but another business opportunity, like we said, access problem, another business in which we see tremendous potential. Next slide please.
This is my last slide. So if I were to talk about some key operating metrics, there are few that I want to highlight. This entire business of ours would continue to remain focused on transaction business, transaction GTV, the customer GTV has grown by the Adhikari network, which if you looked at the last few quarters, we are about nearly 1,80,000– sorry, 10,80,000 Adhikaris today, which was about 6.8 lakhs last quarter, quarter of last year. The entire customer transaction GTV, Gross Transaction Value that has grown has basically been on the back of this. Like I said, the basic products that have enabled this has been the cash out, the AePS, mobile ATM services, the cash transfer — sorry, money remittances and cash management. These have been primarily, the services that have enabled this growth. We now, obviously are expanding this to diversify with financial services, like I said, cash management is increasing, is going to scale up further. There’s going to be, we’re going to get into more of financial services and even basic services as we move forward.
The last one, on the right bottom, this graph is particularly important for us and this is what is the outcome of the growth that we’ve seen, is in the last two years, what we’ve definitely demonstrated is we’ve been able to build this largest network and we are a number one player here, and AePS off-us market share have roughly grown — we closed last year at 16.4%, we’ve closed the first quarter at 17.2%, and we’ll continue to increase this as we build the network.
That’s all from my side. I’m going to invite Sunil to take us through the financial metrics. Sunil, over to you, please.
Mr. Sunil Kapoor — Director and Chief Financial Officer
Thanks, Sanjeev. Financial slide, please? Yeah, this slide represents the Space Money, [Technical issues] that’s our Fintech business, our last three years numbers and the CAGR growth with respect to financial numbers and on the right hand side, we are, we have put up the quarters results year-on-year and the last quarter. So if we see that our customer GTV from quarter-on-quarter in comparison to the last year has grown from INR18,000 crore to INR26,000 crore, almost 45%. So, in line, the revenue has grown from 49%. This is on the back of Ahikari — number of Adhikaris growth and the enhancement in the products and new products launches. And on the gross margin side, if we see that gross margin has improved in terms of percentage more than what the service revenue and customer GTV, that’s due to product mix and this is of the, what’s the scale we are achieving. And EBITDA for the — this quarter is almost 35%, 35% up from the previous quarter last year, and PBT — PBIT is almost flat, and if we see that service fees GM, on service fee revenue, that has also got improved, what I have explained, due to the product mix and enhancement of the products. So EBITDA growth is almost 35% year-on-year. We can move to the next slide, please.
This slide represents the consolidated financial summary, which is, which covers Spice Money and the digital — Digispice Technology Platform. As for this quarter performance is concerned, with respect to the year-on-year, we have, we have a growth, but on all the other numbers, kind of, we are having on the consolidated numbers, we are kind of flat growth in comparison to the previous quarter, but on year-on-year, we have grown. So EBITDA, if we see that EBITDA is also kind of flat with respect to the previous year same quarter and we have a little bit negative with respect to PBIT in this quarter, that’s going to be improved in the coming quarters. So — and if we see the Spice Money to the total revenue, that is almost 95% and GM contribution is also coming 87%. That’s this slides, kind of, represents that we are kind of on the growth on the Spice Money and we are building on the Digispice Technologies business. Thanks, over to you, Shiv.
Shiv Muttoo — Investor Relations
Thanks, Sunil. We will now start with the question-and-answer session. Please note that Mr. Dilip Modi, Chairman, DigiSpice Technologies and Mr. Dilip Kishore, CFO, DigiSpice Technologies will also participate in the Q&A session. Request the participants to raise their virtual hand to ask a question. Please state your full name and the name of the organization that you represent before asking your question.
Anybody who would like to — who wishes to ask a question can raise their hands, please. Any questions from participants? If there are no questions from any participants, we can conclude this discussion. And thank you for joining the Q1 earnings call of Digispice Technologies, and with this, we close this session and thank you for your participation.