Purple Finance Ltd Management Discussions

ANNEXURE – I

MANAGEMENT DISCUSSION AND ANALYSIS REPORT FORWARD LOOKING STATEMENTS:

Statements in this Management Discussion and Analysis of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward – looking statements, on the basis of any subsequent developments, information, or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include determination of tariff and such other charges and levies by the regulatory authority, changes in government regulations, tax laws, economic developments within the country and other factors affecting the operations of the business of the Company.

The Financial Statements are prepared under historical cost convention, on accrual basis of accounting and in accordance with the provisions of the Companies Act, 2013 (the "Act") and comply with the Accounting Standards notified under section 133 of the Act and SEBI guidelines. The Management of Purple Finance Limited ("PFL") has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, to reflect the true and fair view of the state of the affairs of the Company and profit for the year.

Unless otherwise stated or the context otherwise require all reference herein to "we", "us", "our", "your", "the Company", "PFL" or "Purple Finance" are to be taken as "Purple Finance Limited".

Business Overview

Purple Finance Limited was originally incorporated as a Private Limited Company under the name of "Devipura Balaji Securities & Investments Private Limited" under the provisions of the Companies Act, 1956 on November 09, 1993 issued by the Registrar of Companies, Mumbai, Maharashtra. The Company was subsequently converted into Public Limited Company as "Devipura Balaji Securities & Investments Limited" vide fresh Certificate of Incorporation dated July 20, 1998. The Company was registered under section 45-IA of The Reserve Bank of India Act, 1934 and received the certificate of registration from Reserve Bank of India ("RBI") dated July 20, 1999, having Registration no. 13.01268 to commence/ carry on the business of non-banking financial institution without accepting deposits. Our Company is registered with RBI as a Base Layer Non-Systemically Important Non-Deposit taking Non-Banking Finance Company (NBFC-ND-ICC). Devipura Balaji Securities & Investments Limited acquired K K Financial Services Private Limited on September 13, 2013. Pursuant to the aforesaid acquisition, the Company applied for name change to Registrar of Companies, Mumbai and received a Certificate of Registration approving change in name to ‘Purple Finance Limited vide Certificate of Incorporation dated November 26, 2013.

Further, the Honble NCLT, Mumbai Bench on February 15, 2024 has approved the Scheme of Merger by Absorption of Canopy Finance Limited by Purple Finance Limited. Pursuant to the merger of the Company with Canopy Finance Limited, the equity shares of the Company have been listed on BSE w.e.f. June 14, 2024 and on CSE w.e.f. June 18, 2024.

Overview of our Company Operations

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 3 lakh to 30 lakh. 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 37 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, PFLs role as a lending Company has never been more critical. PFL 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.

Significant Factors Affecting our Results of Operations and Financial Conditions

We believe that the following factors may have significant impact on our results of operations and financial condition during the period under review and may continue to affect our results in the future:

1. Credit Risk: Purple Finance Limited faces the risk of loss resulting from borrowers or counterparties failing to meet their financial or contractual obligations. This could be due to various factors such as insolvency, default, inability to repay loans or deterioration of external environment.

2. Operational Risk: The Company is exposed to the risk of loss due to internal factors such as human error, inadequate processes or controls, or system failures. This includes reliance on the accuracy of information provided by customers and third-party service providers, which may affect creditworthiness assessments and the valuation of collateral. Any failure or significant weakness of our internal processes or systems could cause operational errors or incidents of fraud, which would adversely affect our business, profitability and reputation.

3. Asset Quality Risk: Higher levels of Non-Performing Assets (NPAs) can adversely impact the quality of Purple Finances loan portfolio. Inability to effectively manage NPAs could lead to financial losses and negatively affect the companys business operations and profitability.

4. Capital Risk: Purple Finance requires substantial capital to operate its business. Any disruption in its sources of capital could have adverse effects on its business, results of operations, and financial condition. This includes challenges in raising adequate funds for lending activities and meeting regulatory capital requirements.

5. Interest Rate Risk: As an NBFC, Purple Finance is particularly vulnerable to interest rate risk. Volatility in interest rates could impact its net interest income and margin, affecting overall profitability and cash flows. This risk arises from both lending and treasury operations and could have an adverse effect on our net interest income and net interest margin, thereby affecting our results of operations and cash flows.

6. Liquidity Risk: The Company is exposed to liquidity risk principally because of lending and investment for periods which may differ from those of its funding sources. In case of overall economic growth being muted, Purple Finance Limited may face challenge for fresh funding from Banks and Mutual Funds. In such an event, Purple Finance Limited may face refinancing challenges.

7. Fraud Risk: Your Company is exposed to fraud risk because of possible frauds perpetuated by customers, employees, vendors etc. The Company has a detailed fraud check procedure while on boarding employees, vendors and customers etc.

8. Regulatory Risk: As an entity in the financial services sector, the Company is subject to regulations by Indian governmental authorities, including the Reserve Bank of India. Their laws and regulations impose numerous requirements on the Company, including asset classification and prescribed levels of capital adequacy, solvency requirements and liquid assets. There may be future changes in the regulatory system or in the enforcement of the laws and regulations that could adversely affect the Companys performance.

As an NBFC, we are subject to periodic inspections by the RBI. Non- compliance with regulatory compliances and observations made by the RBI during these inspections could expose us to penalties and restrictions.

9. Macro-economic Risk: Any unfavorable economic conditions, unstable political environment and changes in Government policies could impact the growth of the company. Any slowdown in the Indian economy and in particular the financing business could adversely affect the Companys business. Also increase in competition in MSME funding and competitors taking aggressive posture can have impact on the business of the company.

Change in Accounting Policies in Previous 3 Years

The Company has adopted Ind AS notified under section 133 of the Companies Act, 2013 ("the Act") read with the Companies (Indian Accounting Standards) Rules, 2015 from April 01, 2023 and the effective date of such transition is April 01, 2022 due to the approval of the Scheme of Merger by Absorption of Canopy Finance Limited by Purple Finance Limited by Honble National Company Law Tribunal, Mumbai Bench (NCLT) on February 15, 2024. For periods up to and including the year ended March 31, 2023, the Company had prepared and presented its financial statements in accordance with the erstwhile Generally Accepted Accounting Principles in India (Indian GAAP). In order to give effect to the transition to Ind AS these financial statements for the year ended March 31, 2024, together with the comparative financial information for the previous year ended March 31, 2023 and the transition date balance sheet as at April 1, 2022 have been prepared under Ind AS.

The transition to Ind AS, has involved changes in the Companys policies and processes relating to financial reporting. Further, the management has also exercised judgement (wherever applicable) in giving effect to various principles of Ind AS in its first-time adoption.

1. MACRO ECONOMIC OVERVIEW

(a) Global Economy

The global economy is holding steady, although the degree of grip varies widely across countries. Global GDP growth in the third quarter of 2024 was 0.1 percentage point below that predicted in the October 2024 WEO, after disappointing data releases in some Asian and European economies. Growth in China, at 4.7 percent in year-over-year terms, was below expectations. Faster-than-expected net export growth only partly offset a faster-than-expected slowdown in consumption amid delayed stabilization in the property market and persistently low consumer confidence. Growth in India also slowed more than expected, led by a sharper-than-expected deceleration in industrial activity.

Global growth is expected to remain stable, albeit lackluster. At 3.3 percent in both 2025 and 2026, the forecasts for growth are below the historical (2000–19) average of 3.7 percent and broadly unchanged from October. Global headline inflation is expected to decline to 4.2 percent in 2025 and to 3.5 percent in 2026, converging back to target earlier in advanced economies than in emerging market and developing economies.

In emerging market and developing economies, growth performance in 2025 and 2026 is expected to broadly match that in 2024. With respect to the projection in October, growth in 2025 for China is marginally revised upward by 0.1 percentage point to 4.6 percent. This revision reflects carryover from 2024 and the fiscal package announced in November largely offsetting the negative effect on investment from heightened trade policy uncertainty and property market. For other emerging markets in 2026, growth is projected mostly to remain stable at 4.5 percent, as the effects of trade policy uncertainty dissipate and the retirement age increase slows down the decline in the labor supply. In India, growth is projected to be solid at 6.5 percent in 2025 and 2026, as projected in October and in line with potential.

An intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains. Growth could suffer in both the near and medium term, but at varying degrees across economies.

The risk of renewed inflationary pressures could prompt central banks to raise policy rates and intensify monetary policy divergence. Higher-for-even-longer interest rates could worsen fiscal, financial, and external risks. A stronger US dollar, arising from interest rate differentials and tariffs, among other factors, could alter capital flow patterns and global imbalances and complicate macroeconomic trade- offs. In addition to risks from economic policy shifts, geopolitical tensions could intensify, leading to renewed spikes in commodity prices. The conflicts in the Middle East and Ukraine could worsen, directly affecting trade routes as well as food and energy prices. Commodity-importing countries may be particularly affected, with the stagflationary impact of higher commodity prices compounded by an appreciating dollar.

On the upside, global economic activity may enjoy a bounce if incoming governments can renegotiate existing trade agreements and forge new deals. This could relieve uncertainty faster and be much less disruptive to growth and inflation. By boosting confidence, such cooperative outcomes could even support investment and medium-term growth prospects. Momentum on other policy fronts could also lift growth. Many countries may embrace structural reforms to prevent divergence from their better- performing peers from becoming entrenched. Efforts to increase labor supply, reduce misallocation, enhance competition, and support innovation could raise medium-term growth.

Source: World Economy Outlook by International Monetary Fund Forecast published in January 2025

(b) Indian Economy

Domestically, macroeconomic fundamentals remain strong, and economic growth is poised to sustain momentum driven by robust domestic demand, steady investment activity, and ongoing policy-driven infrastructure development along with a pick-up in government spending. Headline inflation has moderated significantly from above 6 per cent in October 2024 to 3.6 per cent in February 2025. Robust kharif production, better rabi sowing coupled with higher reservoir levels and seasonal winter correction in vegetable prices augur well for food inflation, although volatility in commodity prices and weather anomalies remain potential upside risks to the overall inflation outlook. While facing challenges from weakening global trade and tariff uncertainty, Indias external sector continues to find support from resilient services exports, which remain less affected by global disruptions. Going forward, Indias structural strengths—sound fiscal policies, a well-calibrated monetary framework, and digital transformation initiatives—are expected to provide a strong foundation for long-term sustainable economic growth.

The Indian manufacturing sector saw a rise in purchasing activity and employment in February 2025. The services sector recorded a strong expansion in new businesses and employment. Sustained foreign portfolio outflows exerted significant pressures on domestic equity markets in February and engendered currency depreciation. Domestic investors have, however, increased their holdings, acting as a counterbalancing force, leading to a shift in ownership patterns.

Indias financial landscape is also navigating these external risks manifested through various channels while addressing domestic funding needs. The Reserve Bank has remained agile, swiftly tackling liquidity shortages triggered by government tax flow dynamics, currency leakages and foreign portfolio investor (FPI) outflows. The Reserve Bank has deployed a strategic mix of interventions, including open market operations (OMO), daily variable rate repo (VRR) auctions, and dollar/rupee buy-sell swap auctions. These proactive measures have helped stabilise market liquidity conditions, ensuring financial resilience in an unpredictable global environment.

Headline CPI inflation moderated to a seven month low of 3.6 per cent in February 2025 as food prices, especially vegetables, recorded a sharp decline driven by the arrival of winter crops in the market. Core (CPI excluding food and fuel) inflation, however, increased to 4.1 per cent. The decline in overall inflation is expected to further support recovery in consumption and bolster macroeconomic strength, which would act as a bulwark to ward off the myriads of external challenges.

Source: RBI Monetary Policy Statement dated June 21 2024

2. NBFC SECTOR OVERVIEW

As per CRISIL projection NBFC credit to grow at 12%-14% between Fiscal 2023 and Fiscal 2025. The credit growth will be driven by the retail vertical, including housing, auto, MSME and microfinance segments. Rapid revival in the economy is expected to drive consumer demand in Fiscal 2024, leading to healthy growth for NBFCs. Moreover, organic consolidation is underway with larger NBFCs gaining share with some of the merger and acquisition in the NBFC space.

The retail credit market in India stood at Rs 60 trillion as of fiscal 2023 and is rapidly growing at a CAGR of 14.3% during Fiscals 2018 and 2023. Retail credit growth in Fiscal 2020 was around approximately 16.3% which came down to approximately 9.5% in Fiscal 2021. However, post- pandemic, retail credit growth revived back to reach approximately 11.3% in Fiscal 2022. In Fiscal 2023, retail credit has grown at approximately 19-20% year on year basis. The Indian retail credit market is expected to further grow at a CAGR of 13-15% between fiscal 2023 to fiscal 2025 and reach a size of Rs 77 trillion by FY 2025. Moreover, the increasing demand and positive sentiments in the Indian retail credit market, presents an opportunity for both banks and NBFCs to broaden their investor base. Share of NBFC credit in the overall systemic credit remained @ 18% in Fiscal 2023.

In terms of the credit to GDP ratio, India has a low credit penetration compared with other developing countries, such as, China, indicating a significant untapped potential. Similarly, in terms of credit to households as a proportion of GDP as well, India lags other markets.

Rural India accounts for about half of GDP, but only about 8% of total credit and 9% of total deposits. Rural India under penetration and untapped market presents a huge opportunity for growth. Credit to metropolitan areas has decreased over the past few years with its share decreasing from 66% as at March 31, 2018 to 62% as at June 30, 2023. Between the same period, credit share has witnessed a marginal rise in rural and urban areas.

Asset quality for NBFCs is influenced by various factors such as economic cycle, target customer segment, geographical exposure, and local events. Within the NBFC universe itself, it is observed that various asset classes tend to exhibit heterogeneous behaviour. For example, the asset quality in small business loans and personal loans tends to be highly correlated with the macroeconomic environment. On the other hand, microfinance loans have shown lower historic correlation with macroeconomic cycles. This is because asset quality is more influenced by local factors, events that have wide ranging repercussions such as demonetisation and COVID-19 and relative leverage levels amongst borrowers.

It is estimated that the GNPAs for NBFCs to have reduced significantly at the end of Fiscal 2023. The gross NPAs for NBFCs have reduced to 5.8% in FY 22 and expected to be around 4.8% in FY 23. It is expected the same will further reduce by at least 50 bps in FY 24.

The share of disbursements for NBFCs in unsecured loans and MSME finance, the non-traditional segments, has increased over the past 1.5 years. In the first half of this fiscal, ~35% of incremental disbursements were for unsecured loans. Small business loans grew at a fast pace, registering a CAGR of 15% over Fiscal 2018 and 2023. It is estimated that outstanding small business loans given out by banks and NBFCs to be around Rs 11.7 trillion as of March 2023.

The LAP portfolio NPAs have reduced from 4.7% in March 21 to 4.3% in March 22. With increasing branch network, customer acquisition and credit penetration, share of MSME loans is also expected to increase. Number of branches have grown at 16% CAGR over Fiscals 2017 and 2023 and is around 6638 branches.

Source: 1) CII-KPMG Report for NBFC: February 2024;

2) NBFC Report by CRISIL & ASSOCHAM; 3) Market Intelligence and Analytics for NBFCs by CRISIL and Northern Arc: December 2023

3. FINANCIAL PERFORMANCE AND BUSINESS OVERVIEW

The following table presents the financial results of the Companys operations for the year ended March 31, 2025 and year ended March 31, 2024:

(Rs. in Lakhs)

Particulars	FY 2024-25	FY 2023-2024
Gross income	1,485.00	444.22
NPA & other provisions (ECL Provisions)	20.66	4.81
Other expenses	610.18	378.12
Profit / (loss) before tax	(2,052.30)	(1325.82)
Current Tax	-	-
Deferred Tax	(497.48)	(564.55)
Provision for tax	-	-
Net Profit / (loss) after tax	(1,554.82)	(761.27)

* Previous year figures have been regrouped / rearranged wherever necessary.

The Company incurred a loss before tax of INR 2,052.30 lakhs during the year ended March 31, 2025 as compared to loss before tax of INR 1325.82 lakhs for the FY 2023-24. The loss is primarily on account of Company foraying into retail lending business in October 2022. The Company is in the build- up phase, and now has the Senior Management team in place. The Company has opened 32 branches till March 31, 2025 marking its presence in 5 different states across India. This has led to investments in human resources and technology which will start giving results going forward. This involved substantial investment in building branch network, implementing IT systems, hiring manpower and other operational expenses with a view to increase disbursements and become an institution of size in the future engaged in MSME secured lending. Your Company will continue to expand in this segment with new branches, investment in technology and hiring additional manpower to increase distribution foot print. The management has a view to build a large institution in retail lending in coming years backed by strong governance, compliance, risk metrics and would do substantial investment in technology to improve operational efficiency and reduce cost.

SHAREHOLDERS FUNDS

As of March 31, 2025, the Shareholders funds of the Company amounted to Rs. 77,12,92,052/- as compared to Rs. 48,32,95,657.46/-as on March 31, 2024.

4. OUTLOOK AND OPPORTUNITIES

Purple Finance Limited is into MSME lending which is very large and untapped market to tap into. Micro, Small and Medium Enterprise sector has been recognized as the backbone of the Indian economy for the past several decades expected to drive the countrys growth and employment generation. The government envisages MSMEs to contribute USD 2 trillion to the target of becoming USD 5 trillion economy by 2026. In August 2021, MSME Ministry announced a target to boost MSME contribution to the GDP to 50% by 2025. India has approximately 6.3 crore MSMEs and the number of registered MSMEs stood at 80.16 lakh units as on March 31, 2022, indicating that 88% of enterprises still exist in the informal sector. Micro sector accounts for more than 99% of total estimated number of MSMEs and around 97% of total employment in the sector. Out of the estimated 633.88 million MSMEs, 324.88 lakh (51.25%) are in rural areas, while 309 lakh (48.75%) are in urban areas. The credit gap to MSMEs is estimated around INR 20-25 trillion as per Government estimate.

Hence this is a huge opportunity for Purple Finance Limited to address this untapped MSME lending market through secured product offering.

5. CHALLENGES

NBFCs also have their share of challenges. One of the biggest challenges facing NBFCs in India is access to funding. Unlike banks, which have access to low-cost deposits, NBFCs must rely on borrowing from banks or issuing bonds to raise funds. This can make it difficult for NBFCs to compete with banks on interest rates. The dependence on banks have increased cost of funds for NBFCs. In Fiscal 2023, NBFCs borrowings from banks witnessed high growth resulting in an increase in share to 36% of total funding up from 29% at the end of Fiscal 2022. Share of banks lending to NBFCs have almost doubled during last 10 years. As per a CRISIL report there is a need of around Rs 10 trillion funding by NBFCs to cater to their growth in Fiscal 2024 to 2026. There must be alternate avenues like NCDs, Bonds, Securitisation etc. which will augment this funding requirement of NBFCs apart from bank funding. New NBFCs especially unrated one will continue facing challenge in raising funding.

The second challenge is competition from banks. Looking at the attractive segment of MSME lending many banks, Fintech companies and several large and small NBFCs have become active lately in MSME segment. Purple Finance Limited must stay competitive through superior customer service, quick disbursal, and technology enhancement to stay relevant. Also as mentioned above this challenge is partially mitigated because of large untapped MSME market.

6. INTERNAL CONTROL SYSTEMS

The Company has adequate systems of internal control in place which are commensurate with its size and the nature of operations. The Company maintains a system of internal controls designed to provide a high degree of assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls and compliance with applicable laws and regulations. The company also monitors various activities through defined policies, process, and SOPs. The company has strong corporate governance framework and the same continuously reviewed through various committees like Board of Directors, Management Committee, Risk Management Committee, IT Committee, HR committee etc.

7. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The Company disbursed loans amounting to 78.66 crore in FY 2024 25, a significant increase of 156% compared to 30.68 crore in FY 2023 24. This growth in disbursements contributed to a rise in gross income, which jumped by 234% from 4.44 crore to 14.85 crore over the same period. Operational expansion played a key role in this growth. The number of branches increased from 19 to 32, and the workforce grew to 335 employees as of March 31, 2025. Consequently, operating expenses rose, with staff costs contributing to an increase in total expenses from 3.78 crore to 6.1 crore. While the Company reported a higher year-on-year loss due to ongoing investments in infrastructure and talent acquisition, the loss narrowed in the last quarter of the financial year—indicating a positive trend. These strategic investments are expected to drive continued growth in business volumes and pave the way toward profitability. As of March 31, 2025, the Companys

Assets under Management (AUM) stood at 103.05 crore.

8. RISKS & CONCERNS

In todays challenging and competitive environment, strategies for mitigating inherent risks in accomplishing the growth plans of the Company are imperative. The Company recognizes that risk is an integral part of business and is committed to managing the risk in proactive and efficient manner. The Company had adopted risk management system through framework of different policies and creating a robust internal monitoring process to ensure sustainable business growth with stability and to promote a proactive approach in reporting, evaluating and resolving risks associated with the business. In order to achieve the key objective, the system establishes a structured and disciplined approach to Risk Management.

The Company is exposed to specific risks that are particular to its business and the environment within which it operates. This includes market risk, credit risk, liquidity and interest rate risk, regulatory risk, macro-economic risk, etc.

• Market Risk: The Company does not invest in market instruments therefore has limited exposure to market risk.

• Credit Risk: Credit risk is the risk arising out of default or failure on the part of borrowers in meeting their financial obligations towards repayment of loans. Thus, credit risk is a loss as a result of non-recovery of funds lent both on principal and interest counts. There is robust credit process with the risk oversight. The client selection is clearly defined, capability of repayment is rigorously assessed to reduce the defaults and since most of the loans are secured against assets which are valued by independent agencies and the loan to value ratio is restricted, chances of non-recoverability in case of default are minimized. The Company proposes to use various tools like portfolio analytics, bounce analysis, month on board analysis, early vintage analysis and net flow forward analysis to monitor early stress in the portfolio. These will be reported to senior management through Risk Management Committee periodically and if required course correction is undertaken.

• Liquidity and Interest Rate Risk: The Company is exposed to liquidity risk principally, as a result of lending and investment for maturity period which may differ from those of its funding sources. The Company will manage this risk by prudent management of resources including long term loans.

• Regulatory Risk: As an entity in the financial services sector, the Company is subject to regulations by Indian governmental authorities, including the Reserve Bank of India. Their laws and regulations impose numerous requirements on the Company, including asset classification and prescribed levels of capital adequacy, solvency requirements and liquid assets. There may be future changes in the regulatory system or in the enforcement of the laws and regulations that could adversely affect the Companys performance. All the players are sensitive to this risk and any adverse effect is not isolated to the Company.

• Macro-economic Risk: Any unfavourable economic conditions, unstable political environment and changes in Government policies could impact the growth of the Company. Any slowdown in the Indian economy and in particular the financing business could adversely affect the Companys business. The rural economy is resilient and market is also very large, therefore any slowdown will have only temporary effect.

• Operational Risk: The Company is exposed towards various operational risks in the course of its business relating to people, internal controls, processes, technology, infrastructure and other external factors. Towards minimizing operational risks, the Company has created ‘maker-checker rule in all processes. The Risk Management Committee monitors the operation processes. The Company believes its efforts to continuously strengthen its risk framework and portfolio quality will help it build a stable business franchise.

Access to capital and funds, both short term and long term, managing asset-liability mismatches and managing growth without compromising asset quality are some of the challenges faced by all the players, big and small, in the NBFC sector. Your Company is no exception to this. However, we constantly invest in people, processes, technology and systems to manage and mitigate these challenges. Strong credit underwriting processes, early warning checks, strong portfolio analytics to minimise portfolio delinquency are on-going efforts.

9. GEO-POLITICAL RISK

India is currently emerging as a powerful economic entity on the global stage. However, it is particularly vulnerable to the effects of political tensions within its borders and with neighbouring countries. The tensions, which arise from enduring territorial disputes, political turmoil, or economic clashes with neighbouring countries, pose a direct threat to Indias financial systems and economic stability. The geopolitical events mentioned have a profound impact on more than just diplomatic relations. They have far-reaching effects on trade policies, foreign investments, interest rates, inflation and the overall confidence in the market. As India solidifies its prominent position on the global stage, it is crucial to comprehend and address the effects of these specific geopolitical dynamics in order to maintain its growth trajectory and ensure its economic future. Additionally, the trade tariffs imposed by USA on other countries also have effect on overall economy and consumption.

The growing base of consumer markets, the expansion of the industrial base, and increased integration with the global supply chain has made India vulnerable to the above geo political uncertainty. Also, as a key economic player, it commands a sizeable economic and geopolitical importance in South Asia which provided India with greater diplomatic and political engagement with other economies.

Any escalation in geo political issues which includes escalation of hostilities with neighbouring countries or additional protectionism trade tariffs can have profound impact on Indian economy. This can lead to private equity investors being more risk averse on the country, banks and other lenders becoming risk averse and increasing risk premium and hence increase in rate of interest, increasing inflation because of higher spending in defence and money supply being constrained and resultant increase in interest rate and effectively increasing cost of borrowing, volatility in equity market resulting in difficulty in raising capital and erosion of valuation, lower demand for loans because of uncertainty, increasing delinquency because of lower disposable income etc.

PFL being a listed entity and into the space of lending can have adverse impact because of above events. However, to partially mitigate these risks the company will adjust portfolio strategy, pace of lending, tighten credit parameters and increase the efforts on collection as and when the situation demands. PFL also has adequate BCP for IT systems which can enable critical employees to work from alternate location in case of severe hostilities arising because of cross border tensions.

10. HUMAN CAPITAL

Your company recognizes that Human capital is one of the most critical assets of any business enterprise. Guided by this very philosophy the Company ensures recruitment of the most suitable manpower, trains them to handle their respective roles, empowers them to discharge their duties well and provide an enabling environment for their professional growth. The company has a well-defined on-boarding process and well-structured post joining induction process. The company also has deployed a digitally advanced Human Resource Management System (HRMS) to automate most of the HR processes and controls. Currently the company employs around 335 people.

11. DETAILS OF PERFORMANCE AND SIGNIFICANT CHANGES

Particulars	2024-25	2023-24	% Movement	Remarks
Debtors Turnover	NA	NA		Note 1
Inventory Turnover	NA	NA		Note 1
Interest Coverage Ratio	NA	NA		Note 2
Current Ratio	NA	NA		Note 3
Debt Equity Ratio	0.93	0.46	103.84	Note 4
Operating Profit Margin (%)	-99.61	-275.02	-63.78	Note 5
Net Profit Margin (%) or sector-specific equivalent ratios, as applicable.	-104.70	-171.37	-38.90	Note 5
Return on Networth %	- 20.16	- 15.75	27.98	Note 6

Note 1 – Debtors Turnover Ratio = Net Credit Sales / Average Accounts Receivable and Inventory Turnover = Cost of goods sold / Average inventory

Since company is in the business of SME lending, debtor turnover ratio and Inventory Turnover ratio is not applicable.

Note 2 – Interest Coverage Ratio= Earnings Before Interest and Taxes (EBIT) / Interest expense

Since EBIT of the company is negative (Loss), Interest coverage ratio cannot be calculated.

Note 3 – Current Ratio = Current Assets/ Current Liabilities

NBFCs emphasize Asset-Liability Management (ALM) to ensure that their assets and liabilities are appropriately matched in terms of maturity profiles. This approach is more relevant for assessing liquidity and solvency than the Current Ratio thus it is not applicable.

Note 4 – Debt Equity Ratio = Debt / Equity

In the fiscal year under review, the Company experienced a significant increase in its Debt-to-Equity (D/E) ratio, rising from 0.46 in the previous year to 0.93. This change reflects a significant contribution of debt portion in our capital structure to support our AUM growth

Note 5 – Operating Profit Margin = EBIT / Total Income and Net Profit Margin = Net Profit / Total Income

Since Company has not yet achieved positive EBIT, the operating profit margin is compared as % of loss to Total Income of the company. Reduction in ratio from -275% in the previous year to -99% signifies improvement in the ratio. Also, net profit margin improved from -171% in the previous year to -105%.

This positive shift reflects the effectiveness of our strategic initiatives aimed at enhancing operational efficiency and cost management. The Company experienced an increase in revenue, driven by higher sales volumes and successful market expansion efforts. This growth provided a stronger base to absorb fixed costs, thereby improving the operating margin.

Note 6 – Return on Networth = Profit after tax / Networth

Company is still not in profits so return on Networth is still negative which has increased from -15.75% to -20.16% due to increase in the volume and operations of the company.

12. CAUTIONARY STATEMENT

The statements made in Management Discussion and Analysis describing the Companys expectations and estimations may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectation of future events. The actual results may differ from those expressed or implied in this report due to the influence of factors beyond the control of the Company. The Company assumes no responsibility in respect of forward-looking statements herein which may undergo changes in future on the basis of subsequent developments, information or events. Readers are cautioned not to place undue reliance on the forward-looking statements.