Research on LKP Finance Ltd

• Current Business Overview: Dealing into investment in stocks, mutual funds, debt funds and disbursement of loans.
• Current Management
  • Key Individuals: Mahendra V. Doshi and others
  • Stake: Holding around 45.32% of the company
  • Recent Activity:
    • Reduction in Stake: Sold 18.3% in Jan-Feb 2023 in the open market.
    • Price Range: Sale occurred at approximately INR 200-250 per share, near an all-time high.
    • Timing: Sale happened just before RBI rejected the acquisition proposal by M/s Mufin Green Finance Limited and Mr. Kapil Garg.
• Earlier Failed attempt for take over All shares of promoters:
  • Parties Involved:
    • Sellers: All Promoters of LKP Finance Ltd.
    • Acquirers: Mufin Green Finance Ltd (Listed NBFC) and Mr. Kapil Garg.
  • RBI Rejection on proposed acquisition: The RBI rejected the proposed acquisition by Mufin Green Finance Limited and Mr. Kapil Garg in April 2024, citing the existence of more than one NBFC in the acquirer group as the reason. Consequently, the open offer for acquisition was withdrawn as per in terms of Regulation 23(1)(a) of the SEBI SAST Regulations, 2011.
  • Reaction of stock market post rejection: Stock prices fallen from high of INR 269 in Feb 2024 to INR 132 in May 2024.
• Recent Developments: Re Attempt of Fresh Acquisition of All promoter’s shares and control
  • Parties Involved:
    • Sellers: All Promoters of LKP Finance Ltd.
    • Acquirers: Hindon Mercantile Limited (unlisted NBFC) and Mr. Kapil Garg.
  • Details: 56,96,312 equity shares (45.32%) to be acquired in one or more tranches at INR 250 per share (Investment of around INR 142 Cr…)
  • Planned Transaction post-acquisition of shares and control:
    • Transaction 1: Sale of 9,95,000 equity shares of Bond Street Capital Pvt. Ltd., ceasing its status as a wholly-owned subsidiary. (Financial Impact: Bond Street contributes 2.67% to consolidated income and 10.07% to net worth as of June 30, 2024.)
    • Transaction 2: Divestment of investments in unlisted/listed Equity Shares. (Financial Impact: Contributes 15.26% to net worth as of June 30, 2024.)
    • Transaction 3: Divestment of investments in Mutual Funds, Government Securities, Debentures, Bonds, AIFs, and other Securities. (Financial Impact: Contributes 71.06% to net worth as of June 30, 2024.)
    • Transaction 4: Sale/Transfer of immovable property in Mumbai. (Financial Impact: Not directly contributing to income/net worth as it was used for the corporate office.)
    • Transaction 5: Transfer/sale of Units, Preference Shares. (Financial Impact: Contributes 1.42% to net worth as of June 30, 2024.)
• Connection Between Earlier and Current Acquirer
  • Mufin Green Finance Ltd is subsidiary of Hindon Mercantile Limited with Key person as Mr. Kapil Garg.
  • Other subsidiaries of Hindon Mercantile Ltd:.
    • Bimapay Finsure Pvt. Ltd.: Unlisted private company, incorporated on 08 April 2022 and registered as NBFC.
    • Fintelligence Data Science Pvt. Ltd.: listed private company, incorporated on 24 August 2016 and registered as an NBFC.
• Past Performance of Proposed Promoters in Mufin Green Finance Ltd
  • Acquisition of APM Finvest Ltd: Acquired 67.75% at INR 47.50 per share, rebranded as Mufin Green Finance Ltd in March 2022.
  • Post-Acquisition Focus: Shifted focus entirely to ESG financing, particularly in the electric vehicle (EV) sector.
  • Proven multi bagger stock post change in management: From the acquisition price i.e. INR 47.5 its currently trading at INF 125 which is almost 2.63 times in 2 years of time.
  • Growth: Have present is 112 locations across 7 states. Market Share is 5.2% of operating EV markets. Scale monthly disbursements from INR 16 Cr to INR 50 Cr, targeting 4-5% of India’s EV financing market by 2030.
• Future Prospects for LKP Finance Ltd
  • Pros:
    • Strategic Acquisition: Proven track record of Hindon Mercantile Limited and Kapil Garg suggests strategic expansion in the NBFC sector via this Company.
    • Conviction of Promoters: Purchase price of INR 250 per share (above market price) indicates strong confidence in future plans.
  • Cons:
    • Regulatory Risk: Potential for RBI rejection similar to the previous instance could lead to a drop in share prices.
    • Competitive Market: Entry of Jio Finance adds pressure, making future growth dependent on the success of Hindon’s strategic moves in a highly competitive NBFC ector.
• Conclusion: Potential for Déjà Vu with LKP Finance Ltd
  • Experienced Acquirers: The proposed acquisition of LKP Finance Ltd. by Hindon Mercantile Ltd. and Mr. Kapil Garg is led by a group with a proven track record. Their successful transformation of APM Finvest Ltd. into Mufin Green Finance Ltd. suggests they have the capability to strategically reposition LKP Finance Ltd. for growth in the NBFC sector.
  • Strategic Acquisition: The acquirers are purchasing shares at a premium (INR 250 per share) compared to the current market price, indicating strong confidence in the company’s future potential.
  • Risk Factors: Despite the optimistic outlook, the potential rejection of the acquisition by the RBI, as seen in the previous attempt with Mufin Green Finance Ltd., could result in significant stock price volatility. The competitive landscape in the NBFC sector, especially with new entrants like Jio Finance, adds to the challenges.
  • Déjà Vu Potential: If the acquisition is approved and the new management implements a strategy similar to what was done with Mufin Green Finance Ltd., LKP Finance Ltd. could see a similar transformation. This could turn the stock into a multi-bagger, offering substantial returns to investors.

Final Thought: Investors should closely monitor regulatory developments and the strategic direction post-acquisition. The potential for a repeat of the success story with Mufin Green Finance Ltd. makes LKP Finance Ltd. a high-risk, high-reward investment opportunity.

Disclaimer:

I am not a registered equity research analyst under the Securities and Exchange Board of India (SEBI) regulations. The information provided in this report is based on publicly available data and personal analysis. I hold investments in the stocks mentioned in this report. This report is not intended to be a stock recommendation or investment advice. Investors are advised to conduct their own research and analysis, and consult with a qualified financial advisor before making any investment decisions.