Hold Fedbank Financial Services: target of Rs 90: ICICI Securities

ICICI Securities research report on Fedbank Financial Services

Fedbank Financial Services’ (Fedfina) Q4FY25 financial performance exhibited a return to business normalcy, as is evident in its RoA retracing to 2.2% vs. 0.6% QoQ, largely driven by credit cost normalising to 1% vs. 4% QoQ. Q3FY24 was a quarter of business restructuring – most crucial one being a regime change (new top management) in Nov’24. In line with its revised business strategy, disbursement in unsecured business loans (13% of loans) remains nil and consequently AUM dipped 14% QoQ, strategy of revamping the small-ticket mortgage vertical on all fronts (sales/risk/collections) continued and strategic priority to improve cost-ratios is still in play.

Outlook

While the revised strategy should enhance profitability on a steady state basis, it does carry near-term risk for profitability, in terms of growth moderating and elevated cost in the interim. Retain HOLD; TP revised to INR 90 (vs. INR100), as we trim our FY26E/FY27E earnings by 8%/12% and lower the multiple to 1x (vs. 1.25x) PBV on Sep’26E BVPS.