Purple Finance Ltd Management Discussions

7. Non-Banking Financial Companies (NBFCs): Sectoral Outlook

8. MSME Landscape

9. Strategic Outlook, Challenges & Risk Governance

Outlook and Opportunities</b>

Purple Finance Ltd operates in the MSME lending segment, which continues to represent one of the largest underpenetratedopportunitieswithintheIndianfinancialservices sector. The MSME sector remains a key contributor to Indias economic growth, accounting for nearly 30% of GDP, around 45% of exports, and generating employment for more than 11 crore people. India currently has over 6.3 crore MSMEs, while a significant proportion of continue to operate within the informal or semi-formal economy, resulting in low penetration of formal institutional credit. Industry estimates suggest that the MSME credit gap in India continues to remain substantial at approximately INR 20 25 trillion, thereby creating significant long-term growth opportunities for specialized NBFCs.

Government initiatives focused on infrastructure development, digitalization, financial inclusion, GST integration, UPI adoption, and Account Aggregator frameworks continue to improve formalization and financial visibility across MSMEs. These structural developments are enabling lenders to increasingly adopt cash-flow-based underwriting models and expand credit accessibility across underserved borrower segments. Purple Finance Limiteds focus on secured MSME lending, particularly Loan Against Property (LAP), positions the Company favorably within this evolving ecosystem. The Companys localized underwriting approach, customer engagement capabilities, and focus on self-employed borrowers across Tier II, Tier III, and Tier IV markets continue to support sustainable growth opportunities.

Further, the evolving regulatory and risk environment within unsecured retail lending has resulted in several financial institutions adopting a more calibrated lending approach, thereby creating incremental opportunities for disciplined NBFCs with prudent underwriting standards and strong risk management practices.

Challenges LimitedFundingDiversification

As an NBFC, Purple Finance does not have access to low-cost retail deposits and therefore remains dependent on borrowings from banks, financial institutions, and capital markets. This structural constraint limits funding diversification, increases dependence on wholesale credit markets, and exposes the Company to the risk of elevated borrowing costs during periods of tight liquidity or adverse credit market conditions.

Margin Sensitivity in a Competitive Lending Environment

Rising customer acquisition costs, technology investments, and funding cost sensitivities continue to exert pressure on net interest margins and operating profitability. As a growth-stage NBFC competing against larger, better-capitalized institutions, maintaining spread discipline while investing in branch expansion, talent, and digital infrastructure presents an ongoing operational challenge. Prolonged periods of elevated interest rates could further compress margins and impact near-term profitability.

Stage of Business Maturity and Scale

The Company is at a relatively early stage of its retail MSME lending journey, having commenced operations in October 2022. While the business has grown rapidly, it operates with a branch network of 46 locations and an employee base of approximately 462 personnel, which is comparatively smaller than established peers. Building scale maintaining underwriting discipline and operational controls, remains an ongoing priority.

Intensifying Competition

The MSME lending sector continues to witness intensifying competition from banks, fintech platforms, digital lending companies, and large diversified NBFCs. Aggressive pricing strategies, rising customer acquisition costs, and competitive intensity may exert ongoing pressureonyields,spreads,andoperatingprofitabilityacross lending categories. Institutions with deeper balance sheets and lower funding costs may be able to sustain more competitive pricing, creating structural challenges for growth-stage NBFCs.

Evolving Credit Quality Pressures in Select Retail Segments

The broader retail lending ecosystem has recently witnessed signs of stress across select unsecured lending categories, particularly microfinance and small-ticket personal loans. Elevated borrower leverage, rising household indebtedness in certain pockets, and localized operational disruptions have resulted in increased delinquencies and higher credit costs across parts of the sector. While the Company maintains a relatively secured portfolio orientation, broader stress within the financial ecosystem could indirectly impact borrower sentiment, liquidity conditions, and overall credit demand dynamics. Sustained monitoring of borrower cash flows, portfolio concentration risks, and regional exposures therefore remains critical.

Regulatory and Compliance Intensification

The regulatory landscape governing NBFCs continues to evolve toward enhanced governance standards, tighter compliance frameworks, and increased supervisory oversight. While these measures strengthen long-term systemic stability, they may also increase operational and compliance-related costs for industry participants. Evolving norms around digital lending, provisioning, fair practices, and data protection continue to require ongoing investment in compliance infrastructure and governance frameworks.

Global Macroeconomic and Geopolitical Uncertainties

The global geopolitical landscape has entered a period of heightened and multi-dimensional instability, characterized by the simultaneous occurrence of multiple interconnected conflicts, structural trade realignments, and the gradual erosion of multilateral frameworks that have historically underpinned global economic cooperation. The ongoing conflict in West Asia continues to pose a significant threat to global energy supply chains, keeping crude oil prices elevated and volatile. For India, which imports over 85% of its crude oil requirements, sustained energy price volatility translates directly into higher import bills, inflationary pressures on fuel and transportation costs, and potential upward pressure on domestic interest rates all of which can adversely impact the business environment and repayment capacity of MSME borrowers.

Attacks on commercial shipping in the Red Sea and Gulf of Aden have significantly disrupted one of the worlds most critical maritime trade corridors, forcing vessels to divert around the Cape of Good Hope. This has materially increased transit times and elevated freight and insurance costs, causing renewed supply chain bottlenecks and fresh inflationary pressures in global goods markets. Simultaneously, the intensifying strategic and economic rivalry between the United States and China manifesting through sweeping reciprocal tariffs, export controls on advanced technologies, and broad-based investment restrictions has accelerated the fragmentation of global trade and supply chains. While India the China+1 manufacturing diversificationtrend over the medium term, the immediate impact standstobenefit includes disruptions to export markets, commodity and currency volatility, and a more cautious global investment climate.

The protracted Russia-Ukraine conflict continues to exert structural pressure on global commodity markets, particularly wheat, edible oils, fertilizers, and natural gas. Sanctions-driven fragmentation of commodity trading networks has created persistent pricing distortions across several markets. For India, disruptions in global food and fertilizer supply chains can translate into food inflation, which disproportionately affects lower-income and rural households segments that closely overlap with the borrower profiles of MSME-focused lenders. Compounding these pressures, geopolitical uncertainty has forced major central banks globally to maintain elevated policy rates for longer than anticipated, sustaining a high global interest rate environment that risks triggering capital outflows from emerging markets, currency depreciation, and tightening of external financing conditions for domestic financial institutions.

For Purple Finance Limited, these geopolitical and macroeconomic dynamics may impact the cost and availability of borrowings, the debt servicing capacity of MSME borrowers facing higher input costs, disbursement momentum in export-linked borrower segments, and the broader macroeconomic environment in which its customers operate. In response, the Company maintains a proactive risk management posture encompassing prudent liquidity management, diversified lender relationships, disciplined underwriting with enhanced stress-testing for macro-sensitive segments, portfolio diversification across geographies and sectors, and robust early warning systems for credit deterioration. The Companys secured lending orientation, localized market understanding, and strong risk governance framework position it to navigate geopolitical headwinds effectively while sustaining long-term growth momentum.

Strengthening Risk Architecture through Technology and Governance

The Company continues to maintain a comprehensive internal control and risk management framework designed to ensure operational efficiency, regulatory compliance, financial integrity, and disciplined portfolio management. Internal controls are regularly reviewed and strengthened in line with evolving business requirements, regulatory developments, and industry best practices. The risk management architecture focuses on prudent underwriting standards, portfolio monitoring, asset-liability management (ALM), fraud prevention mechanisms, and early warning diversification, systems for stress identification.

Risk Governance and Monitoring

The company has established a Risk Management Committee (RMC) which oversees all areas of risk in the company. It establishes the policies for risk management be it, Credit Risk, Operational Risk, Liquidity Risk, Interest Rate risk, Cybersecurity risk etc.

The company has established a structured Risk Management Framework to identify, monitor and measure risk across its lending portfolio. Periodic reviews, portfolio analytics, are conducted to monitor built up of risk across geographies, industries, in various LTV buckets etc. and necessary action is taken. The company also has established loan review mechanisms to assess underwriting quality, monitor special mention accounts and NPA accounts.

Key Risk Indicators (KRIs) and incidence management reporting supports timely implementation of preventive corrective action in operational as well as cybersecurity risk management. The Company continues to invest in scalable technology infrastructure aimed at improving operational transparency, cybersecurity preparedness, data integrity, and process automation across business functions. This will go a long way in implementing system based risk control and hence reducing operational risk and increasing productivity.

The company also reviews the liquidity and interest rate risk through regular Asset Liability Management (ALM) committee. The committee oversees the overall liquidity scenarios, assesses impact of interest rate changes and directs necessary action to be taken to manage liquidity in various buckets and the strategy of fund raising at an optimum cost.

Governance, Audit and Compliance Oversight

NBFCs are very tightly regulated by the RBI. In addition as a listed company, PFL is also under the direct supervision of SEBI and the relevant stock exchanges. As the company enjoys the access to public funds both in the debt and capital markets, it is of utmost importance to have a governing structure which not only protects the public interest but also keeps their trust. The Companys internal audit systems, compliance monitoring mechanisms, and governance structures are designed to ensure adherence to regulatory guidelines and internal operating policies. The intent of the governing structure is to remain adequately compliant while keeping cost in control and growing at the requisite pace.

Independent audit reviews the processes, validates them and carries out periodic control assessments to ensure that they are effective and able to stone wall oversights, fraudulent intent by employees or customers or any other third party. This ensures that the processes and policies are followed and strengthened.

The company also has introduced a compliance management software which ensures all regulatory guidelines are tracked, implemented timely and complied periodically. Any periodic non-compliance is escalated and reported to the management. The overall compliance status is reported to the Board.

Furthermore, the company has multiple committees at executive level. These committees are formed either as a board mandate or voluntarily. The intent of these committees is to take decisions which impact the stake holders in a transparent and democratic way rather than driven by individual decisions. The company has a Finance Committee to take decision on financial matters like fund raising, co-lending, DA transactions. There is a management committee which takes decision related to business, products and other general matters while committees for HR, IT, Ops etc. oversee the activities of the respective departments and take necessary actions wherever required. Minutes of the Meetings of these committees are placed before the Board of Directors.

As we get closer to becoming a middle layer NBFC, the company intends to further strengthen the internal audit, risk, compliance mechanism to meet the regulatory guidelines applicable there. The intent is to create a road map for the same in the next two financial years.

Discussion on Financial Performance with respect to Operational Performance

The Company significantly accelerated its operational momentum in FY 2025-26, registering strong growth across all key financial and business metrics. Gross income rose by approximately 222% from 14.85 crore in FY 2024-25 to 47.84 crore in FY 2025-26, driven by robust growth in interest income (from 11.37 crore to 28.34 crore), fee and commission income (from 1.56 crore to 3.56 crore), and income from net gains on fair value changes (from 1.70 crore to 14.29 crore). This broad-based revenue growth reflects the Companys expanding loan book, increasing customer base, and deepening presence across Tier II, Tier III, and Tier IV markets.

Operational expansion remained a key driver of business growth during the year. The branch network was scaled up from 32 branches as of March 31, 2025 to 46 branches as of March 31, 2026, extending the Companys geographic reach into new semi-urban and underpenetrated markets. Correspondingly, the workforce grew from 335 employees to 462 employees, strengthening the Companys on-ground credit origination, underwriting, and collection capabilities. As of March 31, 2026, the Companys total Assets under Management (AUM) stood at 249.01 crore, representing a significant 103.05 crore as of March 31, 2025, underpinned by sustained disbursement activity and the Companys expanding distribution footprint.

Reflecting this scale-up, total operating expenses increased from 35.37 crore in FY 2024-25 to 56.96 crore in FY 2025-26. Employee benefit expenses rose from 21.56 crore to 32.58 crore, in line with the growth in headcount and branch infrastructure. Finance costs increased from 5.73 crore to 12.17 crore, commensurate with higher borrowings to fund AUM growth. While operating expenses continued to reflect planned investments in human capital, branch infrastructure, and technology capabilities, revenues scaled at a materially faster rate, resulting in a significant improvement in operating leverage during the year.

Notwithstanding the continued investments in expansion, the Company reported a sharply improved financial performance with the net loss reducing by approximately 59% from 15.55 crore in FY 2024-25 to 6.44 crore in FY 2025-26. The Company achieved a positive EBIT of approximately 3.04 crore in FY 2025-26, compared to a negative in its journey toward operational profitability. Asset quality EBIT in the prior year, marking a significant remained healthy, with Gross Stage III and Loss Assets at 1.48% of AUM and Net Stage III at 1.13% as of March 31, 2026, reflecting the strength of the Companys secured lending model and disciplined underwriting practices. These strategic investments in distribution, talent, and technology are expected to continue supporting strong growth in business volumes and pave the way toward sustained profitability in the coming periods.

Human Capital

The Company believes that human capital is a key driver of sustainable growth and operational excellence. Purple Finance Limited ("PFL") remains focused on attracting, developing, and retaining skilled talent across its business functions while fostering a performance-driven and technology-enabled work culture.

The Company has established structured recruitment, onboarding, and induction processes to ensure seamless integration of employees into the organization. Regular training and capability enhancement initiatives are undertaken to strengthen operational efficiency, customer servicing, compliance awareness, and professional development across functions.

PFL has also implemented a digitally integrated Human Resource Management System (HRMS) to automate and streamline key HR processes and controls.

As on date, the Company has an employee base of approximately 462 personnel across its branch network and corporate offices.

Key Financial Ratios

The following table presents key financial ratios for Purple Finance Limited for the year ended March 31, 2026, as compared to the previous financialyear ended March 31, 2025. All financial figures are based on the Audited Standalone Financial Results approved by the Board of Directors at their meeting held on April 21, 2026. Figures are in Lakhs unless stated otherwise.

Key Financial Highlights FY 2025-26

During FY 2025-26, Purple Finance Limited delivered strong operational progress marked by significant revenue growth, meaningful reduction in net losses, and robust expansion of the loan book. Total income grew by approximately 222% from 1,485.00 lakhs in FY 2024-25 to 4,783.50 lakhs in FY 2025-26, driven by growth in interest income, fee income, and net gains on fair value changes. The gross loan book on the balance sheet expanded by approximately 87% from 8,998.21 lakhs to 16,770.95 lakhs, reflecting strong disbursement momentum across Tier II, Tier III, and Tier IV markets. Net loss for the year reduced significantlyfrom 1,554.82 lakhs to 644.10 lakhs, reflecting leverage as the business scales. Total assets of the Company grew from 15,439.76 lakhs to 24,474.55 lakhs as at March 31, 2026. The Companys net worth strengthened from 7,712.92 lakhs to 13,156.34 lakhs, supported by equity capital raises and share warrant conversions during the year. Gross Stage III and Loss Assets as a percentage of AUM stood at 1.48%, with net Stage III at 1.13%, reflecting disciplined underwriting and portfolio quality standards.

Note 1 Debtors Turnover Ratio = Net Credit Sales / Average Accounts Receivable; Inventory Turnover = Cost of goods sold / Average inventory. Since the Company is engaged in the business of MSME lending, Debtors Turnover Ratio and Inventory Turnover Ratio are not applicable.

Note 2 Interest Coverage Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense. Since the Company has not yet fully covered all operating costs through revenues at the net level, the Interest Coverage Ratio computation in its traditional form is not considered meaningful for disclosure purposes. The Company monitors its debt service capabilities through asset-liability management and liquidity coverage metrics.

Note 3 Current Ratio = Current Assets / Current Liabilities. NBFCs emphasize Asset-Liability Management (ALM) to ensure that 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 and hence it is not considered applicable for disclosure.

Note 4 Debt Equity Ratio = Total Debt (Debt Securities + Borrowings) / Total Equity. The Debt-to-Equity ratio improved from 0.93x in FY 2024-25 to 0.81x in FY 2025-26. This improvement reflects the significant strengthening of the Companys equity base through equity capital raises, share warrant conversions, and proceeds from NCD issuances, which collectively increased net worth from 7,712.92 lakhs to 13,156.34 lakhs. The improved ratio reflects a healthier balance sheet structure and enhanced capacity to support further AUM growth while maintaining prudent leverage levels.

Note 5 Operating Profit Margin = EBIT / Total Income; Net Profit Margin = Net Profit / Total Income. In FY 2025-26, the Company achieved a positive EBIT of approximately 304.33 lakhs, resulting in an Operating Profit Margin of 6.36% a This reflectsthe substantial improvement in operating leverage as significant total income grew 222% year-on-year from 1,485.00 lakhs to 4,783.50 lakhs, while incremental operating expenses from (104.70)% to (13.46)%, driven by both the revenue scale-up and a grewatalowerrate.NetProfit 58.6% reduction in net loss, from

Note 6 Return on Networth = Net Profit after Tax / Networth. Return on Networth improved significantly from (20.16)% in FY 2024-25 to (4.90)% in FY 2025-26. While the Company continues to report a net loss, the improvement is attributable to a combination of substantially reduced net losses and a considerably stronger equity base. As the Company progresses toward profitability on the back of growing AUM, improving operating margins, and disciplined cost management, Return on Networth is expected to trend positively in subsequent periods.

Cautionary Statement

The statements contained in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, or outlook may constitute "forward-looking statements" within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions, expectations, and projections regarding future events, industry trends, economic conditions, and the Companys business performance.

While the management believes that the assumptions underlying such statements are reasonable and prudent, actual results may differ materially from those expressed or implied due to various risks, uncertainties, and other factors, including but not limited to changes in economic conditions, government regulations, taxation policies, interest rates, market dynamics, competitive intensity, geopolitical developments, and other incidental factors beyond the Companys control.

The Company undertakes no obligation to publicly update, amend, or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are therefore cautioned not to place undue reliance on these forward-looking statements while evaluating the Companys business prospects and financial performance.