A company is said to be ‘fundamentally strong’ when it portrays a specific set of characteristics, viz, strong and consistent financial performance, lower leverage ratios, and many more.
Listed below is one such fundamentally strong stock associated with the ‘NBFC’ sector that one could add to their watchlist for a potential upside of 50 percent:
Fedbank Financial Services Limited
With a market capitalization of Rs 4,597.02 crores, the stocks of Fedbank Financial Services Limited, a subsidiary of Federal Bank Limited providing gold loans, home loans, etc, started their trading session on Wednesday at Rs 127.45 and currently trade at Rs 124.60, slipping around 0.50 percent compared to the previous close of Rs 125.20 apiece.
ICICI Securities, one of the well-known Domestic Brokerages, gave a ‘Buy’ recommendation on the stocks of Fedbank Financial Services Limited and gave a target price of Rs 184 exhibiting a potential upside of approximately 50 percent.
The investment rationale for providing such a recommendation pertains to the company’s strong Q4FY24 financial performance, decent AUM growth, moderation of credit costs, scaling its small-ticket loans against property (LAP) numbers, and increasing cost-income ratio.
Having a glance at the recent financials, the company’s prime business indicators, viz, its operating revenues as well as after-tax profits, reported positive movements with the former staying at levels of approximately Rs 410 crores, and the latter, keeping the timeframe the same, rising marginally from Rs 65 crores during Q3FY24 to Rs 68 crores during Q4FY24.
In addition to the above, the company’s ratio analysis portrays a growth in its return ratios with the return on equity (RoE) increasing from 8.96 percent during FY22 to 13.40 percent during FY23 and the return on capital employed, during the same period, rising from 41.10 percent to 51.46 percent.
As per the latest presentations, the company expects a 25 percent credit growth along with the potential for higher growth based on market conditions. In addition, the company also plans to cross-sell its insurance products after obtaining the ‘corporate agency’ license.
As far as the distribution network is concerned, the company plans to add around 12 branches in the latest quarter touching the total branch count to 621. For the future period, the company plans to open around 50 gold loan branches and around 30 small mortgage locations.
Incorporated in 1995, Fedbank Financial Services Limited is a retail-focused NBFC catering to MSMEs and the Emerging Self-Employed Individuals (ESEIs) sector. The company’s products include small ticket loans against property (LAP), unsecured business loans, gold loans, and many more.
Written by Amit Madnani
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