First Fintec Ltd Management Discussions

Corporate Overview

First Fintec Limited (the Company) has been a promising company in the IT/ITES, KPO, ed-Tech and Fintech areas. Your Company now has over 23 years of outstanding journey in the Indian IT industry.

Your Company has adopted Indian Accounting Standard (Ind AS) notified under Companies (Indian Accounting Standard) Rules 2015 and accordingly the Standalone & Consolidated Financial Statements have been prepared in accordance with Ind AS prescribed under Section 133 of the Companies Act, 2013 read with the Rules made there under.

The Financial statements are prepared in accordance with accounting principles generally accepted in India, including the Accounting Standards notified under the Companies Act, 2013 ("the Act") read with Section 133 of the Companies Act, 2013.

At First Fintec, technological and human innovation transform financial lives. Customer needs are at the heart of our business. We want to help customers manage their resources in a more logical, individualized way through fintec. In doing so, we are establishing a culture of reflection at the workplace.

In order to better represent our clients and customer communities, our company aims to be more diverse, inclusive, and accessible. First Fintec has adapted changes to its business verticals with the changing time.

Global Economic Review:

Inflation reached decadal highs at the beginning of FY23 due to geopolitical uncertainties. However, since the second half of the year, inflation has been moderating, indicating a positive outlook. The global economy appears to be on track for a slow yet steady recovery from COVID-induced challenges and the

Russia-Ukraine war. Global economic output is likely to grow gradually, owing to a stabilising inflation trajectory that is reviving consumer sentiment and investor confidence. Emerging market and developing economies (EMDEs) are also witnessing growth across multiple sectors, fuelled by government expenditures in infrastructure and manufacturing sectors.

Central banks monetary policies are expected to bear fruit, leading to a decline in global inflation from *8.7% in CY22 to 7.0% in CY23 to 4.9% in CY24. It is anticipated that the pent- up demand in numerous economies, along with a considerable reduction in inflation, will drive economic growth in CY23 (IMF World Economic Outlook, April 2023).

Outlook

Despite mounting inflationary pressures, the global economy is buoyed by a strong labour market, higher domestic spending, an influx of foreign capital and a prudent response to the energy crisis in Europe. Many EMDEs have already recovered, which has bolstered real incomes. An optimistic global outlook would also be determined by the pace and effectiveness of fiscal and monetary policy actions implemented to boost economic expansion. Going forward, the governments and central banks of the world are expected accelerate economic growth through targeted, need- based measures.

Indian Economy :

Overview:

The Indian economy has remained relatively shielded from the geopolitical and high inflation-induced global economic headwinds in the fiscal year 2023. India has emerged as one of the fastest-growing major economies worldwide and registered a growth rate of 7% in FY23, according to the second advance estimates of the National Statistical Office (NSO).

To foster economic growth, the Indian government has rolled out several initiatives, such as the PM Gati Shakti (National Master Plan), the National Monetisation Plan (NMP) and the Production Linked Incentive (PLI) plan. Moreover, with declining inflation, rising disposable incomes and continued investment in infrastructure development, economic growth is anticipated in the future.

Outlook

Strong credit growth, stable financial markets and the governments greater focus on infrastructure and capex are expected to crowd in substantial investments. Although the global economic outlook is challenging, the fact that the Government of India and the Reserve Bank of India have been able to safeguard the Indian economy from an impending global recession underscores Indias robust economic fundamentals. India is showing signs of recovery, and pent-up demand during the last two years offers hope for new growth opportunities in the domestic market.

Market Size of Fintec

Financial technology is one of the most widespread terms used for research in the finance industry in present time. Financial Technology (FinTec) is the use of modern innovative technology in the field of finance. It is basically used for innovative and disruptive technology for providing financial services. Fintech catered to the need of more security for the investors by providing innovative and secure financial services. The other reason for the emergence of Fintech could be attributed to the need for financial services at a more affordable cost which provides mobility and faster pace. Owing to these factors in acceptance, fintech domain is gaining huge importance on a global market, and the market size stood at USD 112.5 Billion in the year 2021. The Global Fintech Market size is expected to reach USD 332.5 Billion by the year 2028 and is expected to grow exhibiting a Compound Annual Growth Rate (CAGR) of 19.8% during the forecast period.

The Indian fintech sector is projected to touch $150-160 billion market size by 2025 according to a report by MAAS, an Affle Company

Market Size of Edtec

The edtech and smart classroom market size was pegged at USD 88.82 billion in 2021. The market is estimated to rise from USD 101.64 billion in 2022 to USD 319.65 billion by 2029 at a 17.8% CAGR during the forecast period.

Business Verticals as Opportunities at First Fintec

Fintec: Fintec is the new marriage of financial services and information technology. However, this inter linkage is evolving through Investec, and SPAC at First Fintec.

Analytics: Analyzing data, using statistical models, and other quantitative methods is the essence of business analytics (BA). A structured, iterative analysis of data from an organization, with an emphasis on statistical analysis, is necessary to inform decision-making. At First Fin Research Analytics, we do business analytics for decision making of businesses and institutional segments.

Edtec: Our Edtech has impressive digital or e-learning product suits for the K-10 segment for CBSE (English Medium) and Maharashtra, Telangana, & Andhra Pradesh State Board education curriculums in English and Vernacular Mediums. Learning is made easy for students through digital offerings.

First Fintec has the following array of business portfolio

Invest Tec

Invest Tec is an independent investment division focused on Venture Capital and Private Equity Advisory. The firms team has over 20 years of experience in mergers, acquisitions, fundraising transactions, and investing and managing companies.

The Company founded it invest tec division in 2021 with a focus on M&A, strategic investment advisory, and capitalization transactions for Indian companies. Its main goal is to create unique solutions that generate value for all stakeholders of the advised companies.

Invest Tecs work is based on the deep understanding of the companies and create invest platform in and the support for the development of the companies with active participation in the creation of the growth strategy, evaluation of opportunities, and support to financial planning, combining such actions with fundraising or merger and acquisition transactions.

We pride ourselves on our client companies close work and relationship and the long-term approach to our strategic advisory process. We also actively participate and devise treasury investment strategies.

Fin Research Analytics

We are an independent research provider offering extensive industrial and financial research covering various sectors, businesses, and companies.

Our team is known for its unbiased and authentic research. Our team consists of highly qualified, well-experienced, and efficient research analysts who have been associated with us for a long time and tracking the equity markets in a very efficient and unbiased manner. Based on their research, most of our research analysts who have shown outstanding performance either as stock pickers and/or earnings estimators based on their research have recognition in the Thomson Reuters StarMine Analyst Awards for India for 2013, 2014, and 2015.

It is a matter of pride to mention here that many of the leading content aggregators like Thomson Reuters, Bloomberg, Sifyfinance, Capital IQ, Markets.com, ISI Emerging Markets – Euro money Group, Value Notes, Money Control, Research Bytes, and myiris.com are our valued content users. Our customers are all top-notch institutions that are leaders in their respective industries.

Fintec SPAC

Special purpose acquisition company (SPAC) transactions may be considered as a capital-raising alternative to initial public offerings (IPO). SPAC transactions result in the private operating Company (Target) becoming a public company. As a result, SPAC transactions require Target to devote substantial time and resources to technical accounting and reporting matters and other De-SPAC considerations.

Although SPACs have been used for decades as alternative investment vehicles, they have recently come into vogue as seasoned investors and management teams have turned to SPACs to mitigate the increased market volatility risk of traditional IPOs. As a result, 2020-21 has been a record-breaking year for SPAC IPOs. This surge has been driven by the influx of high-profile investors and management teams entering the SPAC space, coupled with an abundance of uninvested capital that had been mainly sitting out the first half of 2020.

SPAC risks

SPAC transactions come with their unique challenges. As a result, entities need to have (1) an understanding of the risks associated with these investment vehicles and (2) a comprehensive project management plan to meet the demands of an accelerated merger timeline.

Recent market volatility, combined with the arrival of seasoned sponsors and management teams, has created a modern-day SPAC revolution. In addition, the abundance of funds held in trusts and the increased appetite for private investment in public equity (PIPE) transactions have thrust SPACs beyond the fringe of capital markets and into the mainstream as significant players for potential sponsors, investors, and target operating companies.

We also undertake projects in IT/ITES applications relating to Fintec as an offering.

Our Future Offerings

Our future offerings include Fintec relating to regtech, realtec, cloud platform, p to P Platform technologies, etc.

SWOT Analysis:

The term Fintech probably has not escaped you. It has emerged as the new ‘disruptive market force and is challenging the traditional means of providing financial services.

National and International conferences everywhere are buzzing with Fintech related events and global Fintech investments have increased from $2.5 billion in 2012 to over $31 billion in 2017.

But what exactly is Fintech? Simply put, Fintech stands for Financial Technologies. It refers to technological innovation in the financial sector, including anything and everything in financial services in terms of value addition and ease of use.

A short SWOT Analysis below highlights the many advantages and challenges of these new and emerging technologies (Fintech, Commonwealth, 2018).

Strengths

The advantages of Fintech are manifold. By making the interaction between consumers and financial services as well as between financial service providers easier and simpler, Fintech offers significant potential to enhance efficiencies, reduce costs, modernise financial infrastructure, enable more effective risk management and expand access to financial services across a range of different areas including lending, payments, personal finance, money transfer, and insurance (Fintech, Commonwealth, 2018).

Weaknesses

The privacy of personal information provided by consumers online is under the spotlight these days. The recent data breach at Facebook is a case in point. This issue is particularly relevant for the Fintech sector as is the risk of fraud or financial risks associated with consumers not fully understanding the new financial products (Fintech, Commonwealth, 2018).

Opportunities

The ‘de-risking phenomenon has become an existential threat to many small states in the Commonwealth, especially in the Caribbean and the Pacific. Fintech could potentially offer solutions to some of the key drivers of de-risking such as ‘Know Your Customer policy or eliminate the need for corresponding banking relationships altogether.

The declining cost of internet services and growing mobile and smartphone penetration in small and developing countries also provide an excellent opportunity to leverage Fintech to promote financial inclusion amongst the estimated two billion people who remain without access to formal financial services. Kenyas M-Pesa is one commonly cited example.

While many Central Banks are actively promoting Fintech through ‘sandbox approaches, the existing regulatory barriers are helping banks to maintain the status quo. The Fintech and the traditional banking sector, however, need not always compete but can also complement and learn from each other, forging new partnerships for the efficient delivery of financial services (Fintech, Commonwealth, 2018).

Threats

Cybercrime can potentially undermine the integrity of the entire financial system. This is perhaps the main reason why some Central Banks are reluctant to embrace Fintech more broadly. In the Commonwealth, many small and developing countries lack the capacity and infrastructure to safeguard cybersecurity. There are also concerns that many Fintech start-ups are too focussed on launching their product quickly, without paying due attention to security measures.

Then, there is a potential abuse of Fintech. Without proper regulation, easy access to finance can encourage risky behaviours like excessive borrowing and high personal debt accumulation. There is also some legitimate concern about market competition. A few early entrants in the market can get too large too soon and can wield considerable monopolistic power. On the other hand, too many entrants providing similar services can also crowd the market and make supervision more difficult. This is especially true for many small and developing countries where the rise of the sector can stretch already limited regulatory and supervisory capacity.

We do not think that Fintech is just a buzzword, rather it is here to stay. The wide range of technologies and their possible use under the Fintech umbrella means that all countries can benefit from the technological innovations in financial services in a way that suits their needs. This can lead to more sustainable growth by enhancing productivity and creating new markets and jobs. The main challenge is striking the right balance between regulation and promotion of this rising sector (Fintech, Commonwealth, 2018).

First Fintecs Key Strengths are

Strong local and international presence • Uniquely qualified and complementary team • Focus and experience in the industry sectors • Entrepreneurial experience • Financial and M&A capabilities • Strong and active investor base

THREATS & RISKS

Part i: External Risks relating to the Business of the Company:

1. Changes in Government policies could adversely affect the Companys business, results of operations and financial condition.

2. A decline in Indias foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could have an adverse impact on the Company. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth.

3. If inflation were to rise in India, the Company might not be able to increase the prices of its services and products in order to pass costs on to its customers and the Companys profits might decline.

4. A significant change in the Central and State Governments economic liberalization and deregulation policies could disrupt the Companys business.

5. If regional hostilities, terrorist attacks or social unrest in India increase, the Companys business could be adversely affected, and the price of the Shares could decrease.

6. A slowdown in economic growth in India could cause the Companys business to suffer

7. Natural calamities could have a negative impact on the Indian economy and could cause the Companys business to suffer and the price of the Shares to decrease.

8. Covid -19 leading to continuous lock down and non- committal of clients due to schools being shut.

Part ii : Risks Associated with the Expansion of the Companys Business

1. The Company faces risks and uncertainties associated with the implementation of its expansion projects.

The Company plans to expand its brand and product portfolios and its service and distribution networks in India and abroad in the near future, both organically and inorganically via strategic acquisitions. In taking these and any other such expansion initiatives, the Company faces risks and uncertainties, including funding anticipated to be deployed towards the cost of the project will not become available in a timely manner or at all.

2. The company has various education modules, to sell them the company requires specialized marketing force which also needs huge expenditure, paucity of funds may delay aggressive marketing of its e-learning products.

3. IT/ITES, Education and Healthcare services have become very competitive, and margins are under pressure due to varied kinds of assignments.

4. E-learning offerings are subject to syllabus changes from time to time.

Risks and Risk Mitigation

The IT Industry thrives under a dynamically changing and highly competitive business environment. The Company too faces several business risks, of which some prominent ones are discussed hereunder alongside the risk mitigation approach followed by the Company:

Concentration risks

The Company has taken significant steps to ensure that it does not become too dependent on a few clients or any particular geography.

Considerable efforts are being made to generate business from new geographies.

Investment portfolio related risks

In order to deal with surplus cash, the Company, as a policy, does not prefer to invest in high-risk assets such as equities and low liquidity assets like real estate etc. The primary area of risk for the Companys market exposure is related to its investment in securities. To mitigate risk, surplus funds, if any, are invested in appropriate avenues upon a review by the investment committee. All investment decisions are driven by certain guiding principles like safety of investments, liquidity and returns.

Employee-related risks

Attrition: Human Resource functions and initiatives of the Company are driven by a strong set of values and policies. The Company has maintained a competitive, healthy, and harmonious work environment at all levels. The Company has taken new initiatives to strengthen its recruitment processes, values and vision programs, leadership, and performance management programmes to retain the best talent.

Constraints in availability of skilled resources

The Company offers a competitive salary constantly benchmarked by the market, world class infrastructure, excellent work culture, high class training and career development and long-term growth prospects, to remain an employer of choice. The Companys development centers are in cities which have good availability of skilled manpower.

Competition-related risk

Indian IT services market remains a very competitive space. The Company is facing competition from large Indian IT vendors and global vendors which are increasing their India presence by setting up offshore delivery centers.

The Company is managed by locally recruited professionals and talents across all geographies. They have established strong interaction with various analyst firms worldwide through participation in IT conferences and industry specific events attended by ClOs and executives of major corporations. The sales & marketing and delivery infrastructure of the Company is world class. This helps the Company to maintain its competitive edge over other players.

Exchange rate risk: Hedge Accounting

The company has policies and measures in place to mitigate Exchange rate risk.

Geo-political risks

The ability of Indian IT services companies to secure offshore projects from client organisations abroad is often subject ‘to threat perceptions as regards the Indian subcontinent. Current civil situations in neighboring countries of India may have negative implications for the operations of the Company. To mitigate these risks and to ensure continued delivery of services to clients irrespective of any geo-political disturbances, the Company has been taking appropriate measures in respect of disaster recovery and business continuity, at different locations.

Internal Control Systems And Their Adequacy

The Company has a well-defined and documented internal audit & control system, which is adequately monitored. Checks & balances and control systems have been established to ensure that assets are safe guarded, utilized with proper authorization and recorded in the books of account. The Internal control systems are improved and modified continuously to meet the changes in business conditions, statutory and accounting requirements. Your Company has an Audit Committee consisting of three Directors of whom all are Non-Executive and two are independent Directors. The Audit Committee of the Board of Directors and Statutory Auditors are periodically apprised of the internal audit findings and corrective actions taken. The Audit Committee of the Board of Directors reviews the adequacy and effectiveness of internal control system and suggests improvements if any for strengthening them.