Prachay Capital NCD Feb. 25 issue review - (May apply)

•    The company is a RBI registered NBFC engaged in investment related financial services and lending.
•    It marked slow growth in its top and bottom lines for the reported periods.
•    This maiden debt offer is rated BBB -/Stable by CRISIL and offers 13% coupon rates for 5 years.
•    The coupon rates are very lucrative, but the rating is poor.
•    Well-informed investors may park moderate funds for regular interest income.

ABOUT COMPANY:
Prachay Capital Ltd. (PCL) is a RBI registered non-deposit taking Non-Banking Financial Company - Investment and Credit Company falling under the Base Layer category, bearing registration No. N-13.02198 dated August 11, 2017 subsequently, upon the change of name from Pracaya Financial Services Private Limited to Prachay Capital Private Limited, a new certificate of registration was issued on May 7, 2019 in lieu of original certificate. Following the conversion to a Public Limited Company, it received a fresh certificate of registration on October 7, 2024 under Section 45-IA of the RBI Act. PCL caters to the finance needs of medium and large business through corporate credit and corporate bonds.

For Corporate Credit product, the focus is on identifying the special financial needs and the business objective to be achieved by the borrowings and structure a financial arrangement such that the infusion of debt funds would result in achieving business objective of clients and will result in cash flows which will ultimately be the source of repayment for the borrowing.

In Corporate Bonds, it lends in the form of investments in unlisted, privately placed non-convertible debentures (corporate bonds) of local corporates. To increase structured investor participation in these bonds, the Company has obtained a license to operate a Category II Alternative Investment Fund (AIF) from SEBI, wherein its wholly owned subsidiary– Prachay Investment Managers Private Limited is the Investment Manager to the AIF. It has launched first scheme under the name ‘Prachay AIF Scheme I’ which invests into unlisted corporate bonds of multiple local reputed companies.

The company also plans to invest in corporate bonds of listed companies for which it has obtained an Online Bond Platform license from SEBI through wholly-owned subsidiary, Prachay Securities Private Limited. 

Corporate Credit and Corporate Bonds contribute 83.10% and 16.90% of its AUM, as at March 31, 2024, respectively and 83.40% and 16.60% of our AUM, as at September 30, 2024, respectively. As on September 30, 2024, the Corporate Credit and Corporate Bonds have an average loan-to-value of 42.97% and 24.40%, respectively, at the time of sanctioning of the loans. The average ticket size of Corporate Credit and Corporate Bonds was Rs.  687.55 lakhs and Rs. 2,432.92 lakhs, respectively, as at September 30, 2024.

ISSUE DETAILS:
The company is coming out with its maiden debt offer of 1000000 listed, rated, secured, redeemable, non-convertible debentures of face value of Rs. 1000 each, to mobilize over all Rs. 100 cr. The issue consists of Rs. 50 cr. for base size and a green shoe option of retaining oversubscription of Rs. 50 cr. The issue opens for subscription on February 28, 2025, and will close on or before March 13, 2025. The minimum application to be made is for 10 NCDs (Rs. 10000) and in multiple of 1 NCD (Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE. 

The company has allocated 10% for Institutional investors, 20% for non-institutional investors, 40% for HNIs and 30% for Retail investors. 

This debt offer is solely lead managed by Galactico Corporate Services Ltd., and KFin Technologies Ltd. is the registrar to the issue. Catalyst Trusteeship Ltd. is the debenture trustee.

This debt offer has only one tenor i.e. 5 years and carries a coupon rate of 13% with a monthly interest payment mode. 

The company is spending Rs. 3.42 cr. for this debt issue and from the net proceeds, it will utilize at least 75% for the purpose of onward lending, investment in its various schemes, repayment/prepayment of certain borrowings, and maximum up to 25% for general corporate purposes.

ISSUE RATING:
This debt offer is rated CRISIL BBB -/Stable outlook by CRISIL Ltd. Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations and such securities carry moderate credit risk. The rating issued by CRISIL is live until withdrawn or changed and as available on CRISIL’s website. 

The rating provided by the Credit Rating Agency may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These ratings are not a recommendation to buy, sell or hold securities and investors should take their own decisions. In case of any change in credit ratings till the listing of NCDs, the Company will inform the investors through public notices/ advertisements in all those newspapers or electronic modes such as online newspapers or website of the Issuer or the stock exchanges in which pre-issue advertisement has been given.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 36.74 cr. / Rs. 10.32 cr. (FY23), Rs. 42.54 cr. / Rs. 11.02 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 7.12 cr. on a total income of Rs. 27.74 cr. The company has posted some growth in its top and bottom lines for the reported periods.

Its debt equity ratio of 2.66 as of September 30, 2024, will stand enhanced to 3.94 post this issue.