Fedbank Financial Services IPO open today: Should you subscribe to the issue?

The Rs 1,092 initial public offering (IPO) of Fedbank Financial Services opens for subscription on Wednesday, November 22 as the company is offering its shares in the range of Rs 133-140 apiece with a lot size of 107 equity shares. The three-day bidding for the issue will conclude on Thursday, November 24.

Fedbank Financial Services is a subsidiary of The Federal Bank, which provides gold loans, home Loans, loan against property (LAP) and business loan services. The retail-focused shadow lender has the second lowest cost of borrowing among the MSMEs, gold loan and related peer set in India in financial year 2023.

Of the block, Fedbank Financial Services is looking to raise Rs 600 crore via fresh issue, while its promoter The Federal Bank and other selling shareholders True North Fund will cumulatively offload up 3,51,61,723 equity shares via offer-for-sale (OFS) route. At the upper end of the price band, the company is likely to raise Rs 1,092.26 via IPO route.

The proceeds from the fresh issue shall be utilized towards  augmenting the company's Tier-I capital base to meet the company's future capital requirements, arising from the growth of the business and assets, meeting offer expenses and general corporate purposes.

Ahead of its IPO, Promoter Federal Bank and True North Fund VI LLP raised Rs 330 crore by selling shares in Fedbank Financial Services during November 18-20. They sold a total of 2.35 crore shares of Fedbank to investors namely SBI Life Insurance Company, Star Union Dai-chi, Yasya Investments, Nuvama Crossover III, and Nuvama Crossover IIIA.

Fedbank Financial Services mopped up Rs 324.68 crore through 22 anchor investors by allocating them 2,31,91,374 shares at price of Rs 140 apiece. The anchor book included names like Societe Generale, Integrated Core Strategies, Marshall Wace Investment Strategies, Goldman Sachs, Segantii India Mauritius, Copthall Mauritius Investment, and Citigroup Global Markets.

Fedbank Financial Services' clientele mainly consists of MSME and emerging self-employed individuals. It also has a Phygital doorstep model, a combination of digital and physical initiatives, for providing customized services to customers across all the products.

Fedbank Financial Services has offices in 191 districts in 16 states and union territories in India through 575 branches with a strong presence in Southern and Western regions of India including Andhra Pradesh, Telangana and Rajasthan as of March 31, 2023.

Fedbank Financial Services has reserved shares worth Rs 10 crore for its eligible shareholders, who will get a discount of Rs 10 per share during the IPO. 50 per cent of the net offer shall be reserved for qualified institutional bidders, while non-institutional investors and retail investors will get 15 per cent and 35 per cent, respectively for the allocations in the net offer.

BNP Paribas, ICICI Securities, Equirus Capital and JM Financial are the book running lead managers of the IPO of Fedbank Financial Services IPO, while Link Intime India is the registrar for the issue. Shares of the company will be listed on both BSE and NSE. Here's what a host analysts say about the issue of Fedbank Financial Services:

Arihant Capital Markets
Rating: Subscribe for long term
Fedfina has shown robust growth in their AUM over the last few years of over 35 per cent YoY annual growth of AUM. The NBFCs business is distributed pan India with some concentration in the southern states, allowing space for future expansion to continue in newer geographies.

Compared to its Peers in the similar business, the issue is priced at 21 times P/E ratio, which is fairly priced considering the growth in the number of branches being opened over the last 1 year. The NBFC proposes to utilize the proceeds of the issue towards augmenting the Tier 1 capital to meet its future capital requirements, it added with a 'subscribe for long term' rating.

Nirmal Bang Securities
Rating: Neutral
Fedbank Financial Services has grown its AUM at a CAGR of 37 per cent 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, medium ticket LAP and unsecured business loans, said Nirmal Bang Securities.

Further FFS has delivered lower ROA in FY23 at 2.3 per cent compared to peer average of 3.4 per cent  and thus deserves to trade at a discount. Therefore we recommend 'neutral' rating for the issue," he said.

Anand Rathi Research
Rating: Subscribe for long term
At the upper price band company is valued at P/BV of 2.5 times with a market cap of Rs 5,165.1 crore post issue of equity shares, said Anand Rathi Research. "We believe that the issue is fairly priced and recommend 'subscribe for long term' rating to the IPO," he said.

StoxBox by BP Equities
Rating: Subscribe
Fedbank Financial has also marked steady growth in its top and bottom lines over the last three years. 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, said StoxBox.

"On the valuation front, the issue is valued at a P/BV of 3.3 times on the upper price band based on the FY23 book value. With most of the positives seemingly priced in, we advise investors to 'subscribe' to the issue for the benefit of listing gains," he said.

 

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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