Purple Finance RI review (Avoid)

• The company is engaged in financial services with a major focus on MSME.
• It has posted losses for the reported financial periods.
• The RI is exorbitantly priced and is at a negative P/E, even with a discount of around 43% to its last traded price, it's a risky offer.
• Higher Promoter holding of 72+% is the only attraction.
• There is no harm in skipping this pricey bet.

ABOUT COMPANY:
Purple Finance Ltd. (PFL) ventured into retail MSME secured lending in October 2022 and operates in tier II, III & tier IV cities, offering loans to micro and small entrepreneurs in a ticket size between Rs. 3 lakhs to Rs. 30 lakhs. PFL leverages technology to make its processes more efficient. It has built a robust tech platform for underwriting that enables seamless and paperless loan approvals.

PFL has opened 25 branches, has empowered more than 2000 lives through best of technology adoption and giving them access to affordable, adequate and timely credit. In an era where MSMEs are the backbone of Indian economy, PFL's role as a lending Company has never been more critical. The company has not only provided financial support but also served as a guiding force for several small entrepreneurs, helping them turn their dreams into thriving businesses.

PFL intends to become a new age digital NBFC inter-alia currently engaged in the business of offering small size secured business loans across India predominantly in tier II, III & tier IV cities. PFL with its superior technology platform aspires to simplify the existing processes in the mortgages segment and is confident of making a difference to the MSME borrowers with simplified funding options and timely loan disbursements.

From inception, PFL has disbursed to around 800 customers amounting to Rs. 45cr. All loans are secured by either Self Occupied Residential or Commercial property. PFL uses advanced technology to lend to customers. PFL has a unique approach for deciding a "Go and No Go" status of a proposal entirely through digital process without collecting any documents. The same is decided based on trilogy of credit bureau score, KYC sufficiency and collateral search. PFL has adopted a process of online collateral search which is quite robust. The offer document is silent on its employees' strength.

ISSUE DETAILS:
The company is coming out with its Rights Issue (RI) of 11204985 equity shares of Rs. 10 each at a fixed price of Rs. 40.00 per share to mobilize Rs. 44.82 cr. The RI opens for subscription on October 04, 2024, and will close on October 11, 2024. The company is offering RI in the ratio of 1 for 3 to its eligible stakeholders as of the record date of September 26, 2024.The full amount is to be paid on application for number of shares applied. Post allotment, shares will be listed on BSE. The company is spending Rs. 3.08 cr. for this RI process, and from the net proceeds, it will utilize Rs. 31.30 cr. for augmenting capital base, and Rs. 10.44 cr. for general corporate purposes.

The issue is solely lead managed by Mark Corporate Advisors Pvt. Ltd., and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue.

Post-RI, company's current paid-up equity capital of Rs. 33.62 cr. will stand enhanced to Rs. 44.82 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 179.28 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, the company has surprising set of financial performance. For the last three fiscals, it has posted a total income/net profit/ - (loss) of Rs. - (3.11) cr. / Rs. - (7.37) cr. (FY22), Rs. 2.56 cr. / Rs. - (6.33) cr. (FY23), and Rs. 4.44 cr. / Rs. - (7.61) cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it posted a net loss of Rs. - (4.23) cr. on a total income of Rs. 2.13 cr. Thus the company has been incurring losses for the reported periods. Based on such negative earnings, the RI is priced at a negative P/E and can be termed exorbitantly priced issue.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listings of RI shares based on its financial performance and future prospects.

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 544191 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 88.20 on September 25, 2024, and opened on an ex-right basis at Rs. 74.60 on September 26, 2024. Since then, it has marked high/low of Rs. 74.60 / Rs. 70.22. The scrip last closed at Rs. 70.22 as of October 01, 2024. For the last 52 weeks' it has posted a high/low of Rs. 113.52/ Rs. 53.55. The counter is currently under ESM: Stage 2.

The promoters' holding has been constant at 72.11% for the last two quarter ended on June 30, 2024. The counter is well managed and quoting above the RI price, to tempt investors.

Conclusion / Investment Strategy

The company is engaged in financial services with a major focus on MSME. It marked losses for the reported periods and thus the RI is at a negative P/E and exorbitantly priced. The only attraction is 72+% promoters holding. There is no harm in skipping this pricey bet even though it is at an attractive discount of around 43%.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on October 2, 2024

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: dilip_davda@rediffmail.com ).

The Purple Finance Rights Issue 2024 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Purple Finance Rights Issue 2024 worth investing. The Purple Finance Rights Issue 2024 Note sets the Rights Issue expectations in systematic way which tells you if Purple Finance Rights Issue 2024 good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Purple Finance Rights Issue 2024 by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.

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