Fedbank Financial Services IPO opens on November 22: Should you subscribe to Rs 1,092 crore issue?

The price band for the offer, which will close on November 24, has been fixed at Rs 133-140 per share

Federal Bank promoted Fedbank Financial Services IPO will open for subscription on November 22. The non-banking financial company (NBFC) plans to raise Rs 1,092.26 crore through the public offer. Analysts at Anand Rathi and StoxBox have advised investors to subscribe while Nirmal Bang assigned a ‘Neutral’ rating to the issue.

The price band for the offer, which will close on November 24, has been fixed at Rs 133-140 per share. The public issue comprises a fresh issuance of 4.29 crore shares worth Rs 600.77 crore by the company and an offer-for-sale (OFS) of 3.51 crore equity shares worth Rs 492.26 crore at the upper price band by the selling shareholders.

Also Read: Fedbank Financial Services IPO: 10 things to know before subscribing to Rs 1,092 crore issue

Financials

Fedbank Financial Services’ net interest income grew 34 percent to Rs 638.02 crore in FY23 from Rs 474.24 crore in FY22. Net interest margin (NIM) also rose slightly to 8.99 percent. Profit after tax jumped 74 percent to Rs 180.13 crore from Rs 103.46 crore in the same period. Assets under management (AUM) grew 46.59 percent in FY23 compared to 27.25 percent in FY22. Return on assets (RoA) stood at 2.31 percent and return on equity (RoE) at 14.36 percent in FY23. Risk-weighted asset capital adequacy ratio was 17.94 percent in FY23 compared to 23.04 percent in FY22.

Key Risks

(i) As of June 30, 2023, the NBFC's 93.65 percent of gross AUM was from Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Puducherry and Delhi. Its operations are concentrated in six states and two Union territories and any adverse developments in these regions could have an adverse effect on business and results of operations.

(ii) The company’s inability to maintain a capital adequacy ratio could adversely affect business, results of operations and financial performance.

(iii) The company has a huge concentration of loans to ESEI and MSME, and as of June 30, 2023, ESEI and MSME comprise 45.22 percent and 64.75 percent of total loan profiles, respectively. The risk of non-payment or default by borrowers may adversely affect the business.

Also Read: Fedbank Financial Services IPO: Financials, shareholding, comparison with peers in 5 charts

Should you subscribe to Fedbank Financial Services IPO?

Nirmal Bang: Neutral

Fedbank Financial Services has grown its AUM at a CAGR of 37 percent over FY21-23. “However, upon comparing FFS with companies focused on LAP and gold loans, we observe that FFS derives a higher share of loan book from competitive segments like gold (33 percent mix), medium ticket LAP (25 percent mix) and unsecured business loans (16 percent mix). Further, FFS delivered a lower RoA in FY23 at 2.3 percent compared to the peer average of 3.4 percent and thus deserves to trade at a discount. Therefore we recommend a ‘Neutral’ rating for the issue,” said analysts at Nirmal Bang.

Anand Rathi: Subscribe For Long Term

“At the upper price band company is valued at a P/BV of 2.5X with a market cap of Rs 51,651 million post-issue of equity shares. We believe that the issue is fairly priced and recommend a ‘Subscribe – Long Term’ rating to the IPO,” said analysts at Anand Rathi.

Also Read: Countdown begins for Tata Technologies IPO: Should you subscribe to Rs 3,042-crore issue?

StoxBox: Subscribe For Listing Gains

Fedbank Financial Services has logged the third fastest AUM growth amongst NBFC peer set in India, with a three-year CAGR of 33 percent during the FY20-23 period. “Moreover, the NBFC has an effective underwriting capability due to its experienced underwriting team and established processes which is likely to keep asset quality issues at bay going forward. With most of the positives seemingly priced in, we advise investors to subscribe to the issue for the benefit of listing gains,” said Shreyansh Shah, Research Analyst, StoxBox

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