Fedbank Financial Services IPO Review – GMP, Details & More

Fedbank Financial Services IPO Review: Fedbank Financial Services Limited promoted by The Federal Bank Limited, is coming up with its Initial Public Offering. The IPO will open for subscription on November 22, 2023, and close on November 24, 2023. In this article, we will look at the Fedbank Financial Services Limited IPO Review 2023 and analyze its strengths and weaknesses. Keep reading to find out!

Fedbank Financial Services IPO – About The Company

Fedbank is a non-banking finance company (NBFC) that focuses on retail services and is promoted by The Federal Bank Limited. As of FY23, the company has the second lowest cost of borrowing among its peers in micro, small, and medium enterprises (MSMEs), as well as gold loan and MSME & gold loan sectors in India.

The majority of Fedbank’s clients come from the emerging self-employed individuals (ESEI) and MSME sectors.

The range of products offered by the company includes mortgage loans such as housing loans, small and medium ticket loans against property (LAP), unsecured business loans, and gold loans.

In addition, the company also employs a Phygital doorstep model that combines digital and physical initiatives to provide tailored services to its customers across all product lines.

Fedbank Financial Services currently operates through 575 branches across 191 districts in 16 states and union territories in India, with a particularly strong presence in the Southern and Western regions. These regions include Andhra Pradesh (including Telangana) as well as Rajasthan. 

Fedbank Financial Services IPO Review – About The Industry

Banks and NBFCs are the two key components of the Indian financial system. While banks hold a major share of the financial services market, NBFCs have emerged as an important player by serving customers in regions where traditional financial institutions have limited reach or those who do not have sufficient credit history or collateral records.

In the fiscal year 2023, the housing finance and gold loans sectors make up 46% and 12%, respectively, of India’s retail loans industry.

According to CRISIL MI&A’s estimates as of March 2023, the total value of loans provided by organized financiers such as banks and NBFCs is around ₹6.1 trillion, with NBFCs holding a 25% share of the market.

According to CRISIL MI&A, the credit growth of Non-Banking Financial Companies (NBFCs) is expected to be higher at 13-14% in Fiscal 2024, as compared to 12-14% expected for banking credit.

The projection for NBFC credit growth between Fiscal 2023 and Fiscal 2025 is 12%-14%. The growth is anticipated to be driven by the retail vertical, which includes housing, auto, and microfinance sectors.

Fedbank Financial Services IPO Review – Financials

If we look at the financials of Fedbank Financial Services we notice that their AUM’s have also increased from Rs.4,862.43 Crores in FY21 to Rs.9,069.60 Crores in FY23. This indicates that the company’s business has increased significantly.

Along with the increase in the AUMs, the revenue of the company has also increased from Rs.697.56 Crores in FY21 to Rs.1214.68 Crores in FY23. This is followed by an increase in the PAT from Rs. 61.68 Crores in FY21 to 180.13 Crores in FY23.

The return ratios of the company show an increasing trend. During FY23, the company reported an ROE and ROA of 14.36% and 2.31%

On the other hand, the company’s GNPA has increased to 2.03% over the past three years. This is followed by a decrease in the provision coverage ratio from 29.88% to 22.19% from FY21 to FY23. 

This indicates an increase in default by the company’s borrowers and also a decrease in the provisions for the defaults.

Key Players in the Market

The following table shows the comparison of Fedbank Financial Services Limited with some of the listed players in the industry:

Strengths of the Company

• The company’s large presence across contiguous states allows it to diversify its exposure across local micro markets. This allows them to increase their presence in the underpenetrated markets.
• The company meets its target customers’ specific requirements with quick turnaround times and customized services. Its ability to understand local market requirements and underwrite products based on customer creditworthiness makes the company’s offerings hard to replicate.
• The company’s knowledge of their customer’s environment and their respective finances and unique facts assists them in their credit decision-making process. This allows them to have strong underwriting and risk management capabilities.
• The company’s diversified portfolio has been the main driver of its growth. To further strengthen its financial position, the company plans to explore new sources and pools of capital, diversify its funding sources, and implement effective asset liability management policies. 
• The company uses systems with digital infrastructure to manage a scalable and sustainable operating model. This enables them to expand and scale their businesses and drive growth in revenue at lower incremental costs.

Weaknesses of the Company

• The operations of the company are dependent on its ability to procure funds in a timely and cost-effective manner. Any disruption in the source of funding can adversely affect the business.
• The company’s inability to adequately assess and recover the assessed or full value of collateral or money outstanding under defaulted loans in a timely manner could adversely affect the business.
• A huge concentration of loans by the company is towards emerging self-employed individuals (“ESEI”) and micro, small and medium enterprises (“MSME”). Any defaults from these borrowers could adversely affect the business.
• The company’s operations are mainly dependent on its interest income. Any volatility in interest rates will affect both the company’s lending and treasury operations, which could affect the operations of the business.
• Any downgrade in the company’s credit rating could increase its borrowing costs which could affect the operations of the business.

Fedbank Financial Services IPO Review – GMP

The shares of Fedbank Financial Services Limited traded at a premium of 9.29% in the grey market on November 17th, 2023. The shares tarded at Rs 153. This gives it a premium of Rs 13 per share over the cap price of Rs 140.

Key IPO Information

Promoters: The Federal Bank Limited

Book Running Lead Manager: ICICI Securities Limited, BNP Paribas, Equirus Capital Private Limited and JM Financial Limited

Registrar to the Offer: Link Intime India Private Limited 

The Objective of the Issue

The following are the objectives of the issue:

• Augmenting the company’s Tier-I capital base to meet its future capital requirements, arising from the growth of the business and assets.
• Meeting offer expenses.

In Closing

In this article, we looked at the details of Fedbank Financial Services IPO Review 2023.  Given the NBFC’s projected credit growth coupled with the company’s strong strong financials, the company’s outlook appears favourable for the future. 

It should also be noted that the company is effectively controlling its GNPA with increasing AUMs. Additionally, the company has sufficient funds to cover major defaults.

What do you think the future holds for the company? Are you applying for the IPO? Let us know in the comments below.

Written By Aaron Vas

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment.