Fedbank Financial Services is coming up with IPO which is scheduled to open on 22 November, 2023. Fedbank Financial Services Limited provides Gold Loans, Home Loans, Loan Against Property (LAP) and Business Loan Services. Should you invest in Fedbank Financial Services IPO? This article provides insights into Fedbank Financial IPO date, details, Price Band, GMP, positive aspects, risk factors and provide complete review and analysis.
About Fedbank Financial Services Limited
Company is a retail focused non-banking finance company promoted by The Federal Bank Limited.
As per Crisil, company is the second and third lowest cost of borrowing among the micro, small and medium enterprises, gold loan and MSME & gold loan peer set in India. Company had the third fastest AUM growth among NBFCs in the peer set in India with a three year CAGR of 33% between Fiscals 2020 and 2023, and the fourth fastest year-on-year AUM growth of 42% for three-months period ended June 30, 2023.
They are one among five private bank promoted NBFCs in India and are the fastest growing gold loan NBFC in India among the peer set as of March 31, 2023.
As on June 30, 2023, 86.24% of its total Loan Assets are secured against tangible assets, namely gold or customer’s property.
They are focused on catering to the MSMEs and the emerging self-employed individuals sector.
According to the CRISIL Report, the ESEI and MSME segment is largely unaddressed by lending institutions in India. They believe that this segment provides them with a sizeable opportunity to rapidly grow and expand further. They have a well-tailored suite of products targeted to match its customers’ needs, which includes mortgage loans such as housing loans; small ticket oan against property; and medium ticket LAP, unsecured business loans, and gold loans.
They had the third highest growth in disbursement among the peer set with a three year CAGR of 35% between Fiscals 2020 and 2023.
They have been rated “AA” by CARE for its non-convertible debentures since 2022, and “AA-”– by India Ratings and Research Private Limited for its NCDs and bank loans since 2018. They are promoted by Federal Bank, which, they believe, adds a degree of trust among its stakeholders.
Federal Bank will continue to own more than 51% of its outstanding share capital post the completion of the Offer.
Fedbank Financial Services IPO Dates, Price Band and Size
|IPO Opening Date||22-Nov-23|
|IPO Closing Date||24-Nov-23|
|IPO Listing Date||05-Dec-23|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 10 per equity share|
|IPO Price band||Rs 133 to Rs 140 per equity share|
|Lot Size||107 Shares|
|Listing at||BSE and NSE|
|Total Issue Size||Rs. 1092.26 Crores|
|Fresh issue||Rs. 600 Crores|
|OFS||Rs. 492.26 Crores|
Objects of the IPO
Fedbank Financial Services IPO Size is Rs 1,092.26 Crores which contains both fresh issue and OFS.
#1 – Offer for Sale (OFS) for Rs 492.26 Crores – This goes to the selling shareholders and the company would not get any proceeds.
#2 – Fresh issue of Rs 600 Crores – These funds would be used for the following:
- Augmenting the company’s Tier I capital base to meet the company’s future capital requirements, arising from the growth of the business and assets.
- Meeting offer expenses.
Fedbank Financial Services Limited Financials
Below are the Fedfina’s financials.
|Financial Year ending / Period ending (Amt in Crores)|
|Profit After Tax||61.68||103.46||180.13||53.88|
|Reserves and Surplus||544.45||832.00||1,021.52||1,076.67|
Fedbank Financial Services IPO Price Valuation
- The IPO price band is Rs 133 to 140 per share
- If we consider the last year FY23 EPS of Rs 5.59, the P/E ratio works out to be 25x
- If we consider last 3 years weighted EPS of Rs 4.26, the P/E ratio works out to be 33x
- Comparison with listed peers
- SBFC Finance trading at P/E 48.3x (Highest)
- Manappuram Finance is trading at P/E of 8x (Lowest) and
- Industry average P/E is 25.5x.
- Hence, the IPO Price band at P/E of 25x to 33x of this IPO is fully priced
Positive Factors to invest in Fedbank Financial Services IPO
Positive factors of investing in this company include:
- Low Cost of Borrowing: The company boasts the second and third lowest cost of borrowing among MSMEs, gold loan, and MSME & gold loan peer set in India, providing a competitive advantage in terms of financial efficiency.
- Impressive Asset Growth: With the third fastest AUM growth among NBFCs in India and the fourth fastest year-on-year AUM growth, the company demonstrates a robust financial performance, indicating potential for sustained growth.
- Focus on MSMEs and ESEIs: The company is strategically focused on catering to the largely unaddressed MSME and emerging self-employed individuals (ESEIs) segment, providing a significant opportunity for growth in an underserved market.
- Diverse Product Portfolio: The well-tailored suite of products, including mortgage loans, small and medium ticket loans against property, unsecured business loans, and gold loans, caters to a variety of customer needs, enhancing revenue streams and customer satisfaction.
- Secured Loan Assets: A substantial portion (86.24%) of the company’s total loan assets are secured against tangible assets such as gold or customer’s property, reducing the risk associated with unsecured lending.
- Strong Financial Ratings: The company has been rated “AA” by CARE for its non-convertible debentures since 2022 and “AA-” by India Ratings and Research Private Limited for its NCDs and bank loans since 2018, indicating a high level of creditworthiness.
- Promotion by Federal Bank: Being one of five private bank-promoted NBFCs in India and with Federal Bank continuing to own more than 51% of the outstanding share capital, the company benefits from a degree of trust among stakeholders.
- Geographical Presence: With a strong presence in 17 states and union territories, particularly in states contributing to over 75% of India’s GDP, the company is strategically positioned in economically significant regions.
- Innovative “Phygital” Model: The company employs a “Phygital” doorstep model, combining digital and physical initiatives for customer engagement, providing customized services, and maintaining constant contact with customers.
- Technology-Driven Underwriting: The core underwriting model leverages technology by combining electronic data and physical information, enhancing efficiency and allowing for effective validation of customer creditworthiness.
- Low Non-Performing Assets (NPAs): The company’s effective underwriting process has resulted in relatively low Gross NPAs and Net NPAs across all products, indicating a sound risk management strategy.
- Recognition as a Great Place to Work: Being certified as a “Great Place to Work” from Fiscals 2021 to 2023 reflects a positive work culture, which can contribute to employee satisfaction and productivity.
- Strong track record of growth in revenue and margin in the past.
Negative or risk factors of invest In this IPO
- The IPO objects contain both OFS and fresh issue. OFS portion goes to selling share holders and company would not benefit.
- Company may face asset-liability mismatches, which could affect its liquidity and consequently may adversely affect its operations and profitability.
- They had negative cash flows in the past and may continue to have negative cash flows in the future.
- As on June 30, 2023, 93.65% of its gross AUM was located in Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Puducherry and Delhi. Accordingly, its operations are concentrated in six states and two union territories and any adverse developments in these regions could have an adverse effect on its business.
- Because they handle high volumes of cash and gold jewelry in a dispersed network of branches, they are exposed to operational risks, including employee negligence, fraud, petty theft, burglary and embezzlement, which could harm its results of operations and financial position
- Its inability to maintain its capital adequacy ratio could adversely affect its business, results of operations and its financial performance.
- Its business depends on a well-regarded and widely known brand, as theyll as the brand and reputation of its Promoter, Federal Bank, and the Federal Bank group entities, and any failure to maintain, protect and enhance its brand would harm its business.
- Any deterioration in the performance of any pool of receivables securitized and assigned to banks and other institutions may adversely impact its financial performance.
- There are pending litigations against its Company and its Promoter. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect its business, cash flows and reputation.
- They have entered into, and will continue to enter into, related party transactions which may potentially involve conflicts of interest.
- Conflicts of interest may arise out of certain common business objectives shared by its Promoter and company.
- Investors should go through all risk factors indicated in FedBank Financial Services IPO RHP.
Fedbank Financial Services IPO GMP
The shares of Fedbank Financial Services Ltd traded in the grey market at a premium of 8 to Rs 12 as on 19 November, 2023.
Fedbank Financial Services IPO Schedule (opening, closing and listing dates)
|IPO Opens on||22-Nov-23|
|IPO Closes on||24-Nov-23|
|Basis of Allotment||30-Nov-23|
|Initiation of Refunds||01-Dec-23|
|Credit of Shares to Demat||04-Dec-23|
|Cut-off time for UPI mandate confirmation||24-Nov-23 – 5 pm|
Fedbank Financial Services IPO – Should you buy or not?
Investors should consider all pros and cons before assessing whether this IPO is good or bad for investment.
- This IPO has several positive factors. The company enjoys a competitive advantage with the second and third lowest cost of borrowing among peers, showcasing financial efficiency. It demonstrates robust financial performance, ranking third in AUM growth among NBFCs in India. Focusing on the underserved MSME and ESEI segment, the company has a diverse product portfolio, including secured loans against tangible assets. With strong financial ratings, promotion by Federal Bank, a broad geographical presence, and innovative “Phygital” customer engagement, the company is strategically positioned for sustained growth. Additionally, a technology-driven underwriting process, low NPAs, and recognition as a “Great Place to Work” contribute to its appeal.
- While considering the investment in this IPO, potential risks should also be considered. The IPO comprises an Offer for Sale (OFS) portion, benefitting selling shareholders without direct benefit to the company. The company faces the risk of asset-liability mismatches affecting liquidity, potentially impacting operations and profitability. Historical negative cash flows and concentration of operations in specific regions pose challenges. The IPO is also fully priced.
Investors can invest in this IPO after considering all positive and risk factors.
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