Fedfina shares: Brokerages develop fresh interest in this recent debutant, see up to 53% potential upside

Shares of Fedbank Financial Services Ltd (Fedfina) are struggling to regain its issue price but a host of brokerage firms are positive on the stock and have initiated coverage on the stock. The analysts, which have developed a fresh interest in the stock, see up to 53 per cent upside in the stock.

Brokerage firms are positive on the shadow lender on the back of its strong parentage, robust growth prospects, diversified portfolio, healthy and sustained growth in the asset under management (AUM), lower cost of funds and tailor-made solutions for a host of customers.

During FY18-9MFY24, Fedfina clocked an impressive 42 per cent AUM CAGR to Rs 10,7100 crore with gold, mortgage and business loans forming 31.8 per cent, 51.1 per cent and 15.5 per cent of AUM as of 9MFY24, said Equirus Securities in its IC report. "Fedfina is a retail focused NBFC, targeting the MSME sector and its secured book constitutes 85 per cent of its portfolio."

Equirus believes a bank backing as a promoter offers a sharp competitive edge to the company. Also, with a diversified/secured asset portfolio, Fedfina is well placed to benefit from MSME credit tailwinds. The brokerage has initiated coverage on the stock with a 'long' rating, pegging its value at Rs 160 as of March 2025, based on 2 times on FY26 BVPS.

Incorporated in 1995, Fedbank Financial (Fedfina) was incepted to originate loans for Federal Bank. It transformed into a retail lending platform in 2018, post onboarding of the new management and investment by True North. Federal Bank and True North owned about 61.7 per cent and 8.8 per cent in the company as of December 2023, respectively.

Fedbank Financial Services delivered 40 per cent AUM CAGR with average GNPL at 1.8 per cent during FY 19-23. Over the years, Fedfina has successfully evolved as a strong independent NBFC, from being just a sourcing partner to its parent during its initial days. Fedfina has laid a strong foundation during its decade-long lending journey, said ICICI Securities with a 'buy' rating and target price of Rs 184.

"It among the handful NBFCs that offer a wide range of products to the MSME segment – small–medium LAP, housing loan, business loans, gold loans and unsecured business loan – along with ensuring timely and bespoke financial solutions to the informal self-employed segment; sport one of the lowest cost of borrowing; a diversified geographical presence and best-in-class asset quality," it said.

Shares of Fedbank Financial Services were listed at the bourses on November 30, 2023, when the company raised a total of Rs 1,092.26 crore via IPO, selling its shares at Rs 140 apiece. However, the stock hovered around Rs 120 on Monday, more than 14 per cent below its issue price. The stock tested heights of Rs 153.50 on December 15, but it down 21 per cent from these levels.

JM Financial believes Fedfina is a compelling play on the MSME financing segment through secured asset classes. The company is well placed to ride the MSME lending opportunity through its flagship small ticket LAP product which has relatively less competition and offers strong risk-adjusted yields.

"Fedfina is uniquely positioned which aids in strong brand recall and relatively better borrowing costs which will be further aided by the recent credit ratings upgrades. Its asset quality also remains quite healthy given its focus on secured business and strong underwriting methods. Experience management, strong risk and technology focus should see Fedfina deliver profitable growth with relatively less volatility," with a buy rating and a target price of Rs 160.

 

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