Franklin Leasing and Finance IPO – What are the positive factors?

Franklin Leasing and Finance IPO ReviewFranklin Leasing and Finance IPO – What are the positive factors?


Delhi based, Franklin Leasing and Finance IPO would open for subscription on 30th March, 2016.  Franklin Leasing and Finance Ltd is engaged primarily in the business of advancing loans and investing/trading in securities. The company revenues grown over 34 times in last 4 years. What are the positive factors in Franklin Leasing and Finance IPO? What are the hidden factors about this IPO? Should you invest in this IPO or not?

About Franklin Leasing and Finance Limited


Company is a Non Deposit taking Non-systemically Important Non Banking Finance Company (NBFC-ND-NSI) engaged primarily in the business of advancing loans and investing/trading in securities.

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Issue details of Franklin Leasing and Finance IPO


  • IPO opens: 30-March-2016
  • IPO closes: 5-April-2016
  • Face Value: Rs 10 per share
  • Issue price: Rs 15 per share
  • Issue size: Rs 6.33 Crores
  • Market lot: 8,000 shares and in multiples of 8,000 shares therein
  • Minimum investment: Rs 120,000
  • Lead Managers: Aryaman Financial Services Ltd
  • Listing: BSE SME
  • Download Franklin Leasing and Finance IPO Prospectus from SEBI Website at this link.

Purpose of the IPO


  • To augment capital base and provide for fund requirements for increasing our operational scale with respect to our NBFC activities and
  • To meet Issue related Expenses.
  • To receive the benefits of listing.

Company Financials (reinstated)


  • Company generated revenue of Rs 0.18 Lakhs for the year ended Mar-11 and Rs 184.74 Lakhs for the year ended Mar-15. For 6 months ended Sep-15, it generated revenue of Rs 103.81 Lakhs.
  • Company posted a profit of Rs 0.02 Lakhs for the year ended Mar-11 and profit of Rs 34.98 Lakhs for the year ended Mar-2015. For 6 months ended Sep-15, it generated a profit of Rs 32.14 Lakhs.
  • Its restated EPS for FY 2015 is Rs 0.30 and last 3 years average EPS Rs 0.19.

Franklin Leasing and Finance IPO - Financials

Reasons to invest Franklin Leasing and Finance IPO


  • Revenues have grown from Rs 5.37 Lakhs FY12 to Rs 184.74 Lakhs in FY15 indicating a revenue growth of over 34 times.
  • Good improvement in margins in last 2.5 years . It posted 18.9% margins for FY15 and 31% for 6 months ended Sep-16.

Reasons not to invest in a Franklin Leasing and Finance IPO


  • As an NBFC, it can face the risk of default and non-payment by borrowers and other counter parties. Any such defaults and non-payments would result in write-offs and/or provisions in our financial statements which may materially and adversely affect profitability and asset quality.
  • All the loans granted are short term in nature.
  • Investments and Trading Business has reported gross losses in the past.
  • Sustained losses in the future from this vertical would lead to weaker financial performance and affect sustainability
  • Certain of its Group Companies has incurred losses in the past.
  • Minimum investment of Rs 1.2 Lakhs in this IPO makes it unattractive.
  • SME IPO’s are trading in low quantity and quick liquidity could be an issue.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 11 onwards.

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Recommendation / Investment strategy:


  • On the issue price of Rs 15 and on FY15 EPS of Rs 0.3, P/E ratio works out to be 50. Similarly, on last 3 years EPS of 0.19, P/E Ratio works out to be 79. Means company is asking issue price for
  • P/E ratio between 50 and 79. Its competitors, Bajaj Financial Services P/E ratio is 212 (Highest) and IDFC is 3.14 (Lowest) and the industry average is 18.7. Hence, I feel the issue price of Rs 15 per share is reasonably priced.
  • Company shown good revenue growth in last 5 years. It is generating good margins in the last 2.5 years. Issue price also looks reasonable. Considering all these points, I would recommend investors to invest in this IPO. Once should consider the risk factors indicated above before investing in these SME IPO’s. One should also consider market volatality which we are seeing in recent IPO listings where the IPO’s are listed below issue price.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh
Franklin Leasing and Finance IPO Review

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