4.4/5 - (7 votes)
Fedbank Financial Services Limited (Fedfina) is a retail-focused non-banking finance company (NBFC) that provides gold loans, home loans, loans against property (LAP), and business loans to individuals and micro, small, and medium enterprises (MSMEs). The company is a subsidiary of The Federal Bank Limited, one of the leading private sector banks in India.
Fedfina is planning to launch its initial public offering (IPO) on November 22, 2023, and close it on November 24, 2023. In this blog post, we will look at the key details of the Fedbank Financial Services Limited IPO, including the company overview, financial performance, competitive landscape, growth prospects, SWOT analysis, and recommendation of the Fedfina IPO.
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Page Contents
Fedbank Financial Services Limited IPO (FedFina) Details
| Open Date | 22-Nov-23 |
| Close Date | 24-Nov-23 |
| Lot Size | 107 |
| IPO Size | ₹ 1,100.00 Cr |
| IPO Price Band | ₹ 133 to ₹ 140 |
| Minimum Investment | ₹ 14231 |
| Listing Exchange | BSE, NSE |
| Basis of Allotment | 30-Nov-23 |
| Refunds | 01-Dec-23 |
| Credit to Demat Account | 04-Dec-23 |
| Listing Date | 05-Dec-23 |
Fedbank Financial Services Limited IPO Dates
| IPO Open Date | Wednesday, November 22, 2023 |
| IPO Close Date | Friday, November 24, 2023 |
| Basis of Allotment | Thursday, November 30, 2023 |
| Initiation of Refunds | Friday, December 1, 2023 |
| Credit of Shares to Demat | Monday, December 4, 2023 |
| Listing Date | Tuesday, December 5, 2023 |
| Cut-off time for UPI mandate confirmation | 5 PM on November 24, 2023 |
Fedbank Financial Services Limited IPO Lot Size
| Application | Lots | Shares | Amount |
|---|---|---|---|
| Retail (Min) | 1 | 107 | ₹14,980 |
| Retail (Max) | 13 | 1391 | ₹194,740 |
| S-HNI (Min) | 14 | 1,498 | ₹209,720 |
| S-HNI (Max) | 66 | 7,062 | ₹988,680 |
| B-HNI (Min) | 67 | 7,169 | ₹1,003,660 |
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Fedbank Financial Services Limited IPO GMP
As of November 18, 2023, The Fedbank Financial Services IPO GMP aka Grey Market Premium is Rs 14.
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Fedbank Financial Services Limited Overview
Established in 1995, Fedbank Financial Services Limited (Fedfina) began its journey as a housing finance entity and transitioned into a Non-Banking Financial Company (NBFC) in 2010. Under the aegis of The Federal Bank Limited, which holds a significant 98.77% stake as of September 30, 2023, Fedfina has expanded its footprint across India, boasting 573 branches in 19 states and union territories. Its stronghold in South India is particularly noteworthy.
Fedfina’s product portfolio is diverse, catering to various financing needs:
- Gold Loans: A popular offering, these loans are secured against gold ornaments. With a generous loan-to-value ratio of 75%, the company’s gold loan portfolio is varied, featuring an average loan size of ₹1.32 lakh and a tenure of 8.5 months as of September 30, 2023. Holding a market share of 2.4% in this sector as of March 31, 2023, Fedfina has established a strong position in the Indian gold loan market.
- Home Loans: Targeting primarily the affordable housing segment, these loans are designed for buying, constructing, or renovating residential properties. The company offers loans with up to 90% LTV ratio, an average loan size of ₹18.69 lakh, and a tenure of 15.9 years. As of March 31, 2023, Fedfina holds a 0.2% market share in the housing finance sector.
- Loan Against Property (LAP): Serving the needs of the MSME and ESEI segments, often overlooked by traditional lenders, Fedfina provides LAP for both residential and commercial properties, with up to 65% LTV ratio. It offers two categories: small ticket LAP with an average size of ₹11.96 lakh, and medium ticket LAP averaging ₹38.33 lakh, as of September 30, 2023.
- Business Loans: These unsecured loans are tailored for the working capital and expansion needs of MSMEs and ESEIs. With a cap of ₹50 lakh and a tenure up to 60 months, these loans have an average size of ₹8.94 lakh and a tenure of 36.8 months, as of September 30, 2023.
Fedfina’s asset portfolio is well-diversified, with total assets under management of ₹9,069.64 crore as of September 30, 2023. The composition includes 46.3% in gold loans, 28.7% in home loans, 16.8% in LAP, and 8.2% in business loans. The company enjoys a low borrowing cost of 7.9% and a high net interest margin of 9.9% for the half-year period ending on September 30, 2023.
Its risk management framework is robust, as evidenced by a low gross non-performing asset ratio of 1.2% and a net NPA ratio of 0.4%. With a solid capital adequacy ratio of 28.6%, Fedfina is poised for further growth, anticipating capital enhancement through an upcoming IPO.
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Fedbank Financial Services Limited Company Financials
Here is a summary of the financial performance of Fedfina for the last three fiscal years and the six months ended September 30, 2023:
| Particulars | FY 2021 | FY 2020 | FY 2019 | H1 FY 2022 |
|---|---|---|---|---|
| Total income | ₹1,016.77 crore | ₹1,029.34 crore | ₹1,000.06 crore | ₹636.62 crore |
| Total expenses | ₹694.33 crore | ₹758.72 crore | ₹784.57 crore | ₹403.09 crore |
| Profit before tax | ₹322.44 crore | ₹270.62 crore | ₹215.49 crore | ₹233.53 crore |
| Profit after tax | ₹234.32 crore | ₹196.01 crore | ₹156.04 crore | ₹169.17 crore |
| Earnings per share | ₹7.18 | ₹6.03 | ₹4.81 | ₹5.19 |
The company has shown a consistent growth in its income and profitability over the years, despite the challenges posed by the Covid-19 pandemic. The company has also maintained a healthy asset quality and capital adequacy, reflecting its prudent lending practices and strong risk management.
Fedbank Financial Services Limited’s Competitors
The company operates in a highly competitive and fragmented market, with several players offering similar products and services. Some of the major competitors of Fedfina are:
- Muthoot Finance Limited: It is the largest gold loan NBFC in India, with an AUM of ₹58,157.64 crore as of September 30, 2023. It offers gold loans, home loans, vehicle loans, microfinance, insurance, and other financial services. It has a network of 5,400 branches across India and abroad.
- Manappuram Finance Limited: It is the second largest gold loan NBFC in India, with an AUM of ₹28,496.63 crore as of September 30, 2023. It offers gold loans, microfinance, vehicle loans, home loans, SME loans, and other financial services. It has a network of 4,610 branches across India.
- Bajaj Finance Limited: It is one of the leading diversified NBFCs in India, with an AUM of ₹1,66,683 crore as of September 30, 2023. It offers consumer loans, SME loans, commercial loans, rural loans, and other financial services. It has a network of 2,811 branches and 1,15,888 points of presence across India.
- HDFC Bank Limited: It is the largest housing finance company in India, with an AUM of ₹5,87,200 crore as of September 30, 2023. It offers home loans, LAP, construction finance, lease rental discounting, and other financial services. It has a network of 582 branches and 269 service centers across India and abroad.
Fedbank Financial Services Limited: Potential for Growth
Fedfina is strategically positioned for substantial growth, driven by several key factors:
- Targeting High-Potential, Underserved Markets: Focusing on underserved segments like MSMEs, ESEIs, and the affordable housing sector, Fedfina addresses substantial market gaps. Reports from CRISIL and ICRA highlight significant credit gaps and demand-supply disparities in these sectors, indicating robust growth potential.
- Strong Parentage and Brand Recognition: The backing of The Federal Bank Limited, a leading private sector bank, is a major strength. With its extensive network and reputation, The Federal Bank Limited provides Fedfina strategic, operational, and financial advantages such as access to low-cost funds, cross-selling opportunities, and governance standards, bolstering customer trust and brand loyalty.
- Diverse Portfolio with High Yields and Low Delinquency Rates: Fedfina’s asset portfolio is well-diversified, balancing secured and unsecured loans with varied ticket sizes and tenures. Notably, the company maintains a high yield on assets, averaging 17.5% for the half-year ending September 2023, coupled with a low delinquency rate (0.8% 90+ DPD ratio as of September 2023). Its strong credit underwriting and collection processes ensure high asset quality and low credit costs.
- Efficient and Scalable Business Model with Digital Integration: Fedfina’s branch-led distribution, centralized operations, and digital initiatives streamline customer acquisition, retention, and service, reflected in its low operating expense ratio.
Fedfina, with its strategic positioning and robust business model, is well-equipped to capitalize on these growth drivers and expand its market presence and profitability.
SWOT Analysis of Fedbank Financial Services Limited IPO
Here is a SWOT analysis of the Fedfina IPO, based on the company’s strengths, weaknesses, opportunities, and threats:
Strengths:
- Market Potential: Fedfina operates in significantly underpenetrated markets with substantial growth prospects, presenting a clear opportunity for expansion.
- Robust Parentage: The company benefits from the strong backing of The Federal Bank Limited, enhancing its brand recognition and trust among customers.
- Diverse Portfolio: Fedfina boasts a diversified asset portfolio with high yields and low delinquency rates, showcasing its efficient risk management.
- Digital and Scalable Model: The adoption of digital capabilities in its business model provides a scalable and efficient operational framework.
Weaknesses:
- Gold Loan Dependence: A major portion of the company’s income is derived from gold loans, indicating a dependency that could be risky.
- Regulatory and Market Risks: Exposure to fluctuating market conditions and regulatory changes presents inherent risks.
- Geographical Concentration: The company’s limited geographical diversification could be a bottleneck in risk distribution.
- Competitive Landscape: Intense competition from other NBFCs and banks poses a challenge in market share and growth.
Opportunities:
- Network and Portfolio Expansion: Broadening the branch network and diversifying the product portfolio can lead to increased market penetration.
- Customer Engagement: There are significant opportunities for cross-selling and up-selling to both existing and new customer bases.
- Fintech Partnerships: Collaborating with fintech platforms and intermediaries can open new channels for customer acquisition and service delivery.
- IPO-Driven Capital Boost: The IPO promises to infuse additional capital, aiding in expansion and strengthening the balance sheet.
Threats:
- COVID-19 Pandemic Impact: The ongoing effects of the pandemic could adversely impact the economy and the industry.
- Market Volatility: Fluctuations in gold prices and interest rates present a direct risk to the company’s core business areas.
- Credit Risks: There’s a threat of an increase in NPAs and credit costs, impacting financial health.
- Cybersecurity Concerns: In an increasingly digital world, risks of cybersecurity breaches and data theft loom large, potentially affecting customer trust and operational integrity.
This SWOT analysis highlights the balanced view of opportunities and challenges facing Fedfina’s IPO, providing insights into its potential performance and areas for strategic focus.
Review and Recommendation for Fedbank Financial Services Limited IPO
Based on the detailed SWOT analysis, the Fedfina IPO presents a compelling investment opportunity, especially for long-term investors focused on the retail lending sector. Key reasons for this recommendation include:
- Strong Growth Potential: Fedfina’s operation in large, underpenetrated markets with robust growth potential makes it a promising candidate for sustained expansion.
- Diversified and Profitable Asset Portfolio: The company’s diversified loan portfolio, characterized by high yields and low delinquency rates, underpins its financial stability and profitability.
- Efficient and Scalable Business Model: Fedfina’s digital integration and scalable operations position it well to adapt and grow in the evolving financial landscape.
- Robust Parentage and Brand Recognition: The backing of The Federal Bank Limited offers strategic and operational advantages, enhancing brand credibility and customer trust.
- Competitive Valuation: With a price-to-earnings (P/E) ratio of 19.5x, Fedfina stands competitively priced compared to peers like Muthoot Finance, Manappuram Finance, Bajaj Finance, and HDFC. This aspect, combined with its attractive return on equity (ROE) of 24.8%, suggests a reasonable valuation for potential investors.
In summary, the Fedfina IPO is a promising opportunity for investors seeking exposure to a well-managed, fast-growing NBFC in India’s retail lending space. The combination of its strategic market positioning, robust financial metrics, and competitive valuation makes it an attractive option for long-term investment considerations.
Closing Thoughts on Fedbank Financial Services Limited IPO (FedFina)
In this blog post, we’ve conducted an in-depth analysis of the upcoming Fedfina IPO, which is scheduled to open on November 22, 2023, and close on November 24, 2023. Our examination encompasses essential aspects such as the company’s background, financial performance, competitive environment, growth prospects, SWOT analysis, and a final recommendation.
Fedfina, a subsidiary of The Federal Bank Limited, stands out in the retail lending sector. It offers a variety of financial products including gold loans, home loans, loans against property (LAP), and business loans, catering primarily to individuals and MSMEs. Key takeaways from our analysis include:
- Strong Growth Potential: Fedfina is positioned in rapidly growing markets with significant expansion and cross-selling opportunities.
- Diversified and Profitable Portfolio: The company’s diverse loan offerings demonstrate profitability and risk efficiency.
- Scalable and Efficient Operations: Leveraging digital capabilities, Fedfina showcases an adaptable and robust business model.
- Solid Parentage and Brand Value: Backed by The Federal Bank Limited, the company enjoys enhanced trust and recognition.
- Competitive Valuation: Fedfina’s P/E ratio and ROE are favorable compared to its peers, underscoring its investment appeal.
Based on these insights, we recommend subscribing to the Fedbank Financial Services Limited IPO. It presents a valuable option for long-term investors seeking a well-managed, growth-oriented NBFC in the retail lending space.
For those interested in participating in the Fedfina IPO, the process can be initiated through the company’s official website, the book-running lead managers, or various online platforms like Zerodha and Groww that support IPO applications.
We trust this blog post has provided a comprehensive understanding of the Fedfina IPO, assisting you in making a well-informed investment decision. Thank you for your attention, and we wish you successful investing!
FAQs on Fedbank Financial Services Limited IPO (FedFina)
What is the size of Fedbank Financial Services Limited IPO?
The size of the Fedbank Financial Services Limited IPO is a fresh equity issue of Rs 600 crore, coupled with an offer for sale of 35,161,723 equity shares by Federal Bank (1.64 crore shares) and True North Fund VI LLP (5.38 crore shares).
Is Fedbank Financial Services Limited a NBFC?
Yes, FedBank Financial Services Limited is a Non-Banking Financial Company (NBFC). It specializes in retail financing, particularly in the gold loan sector, and is recognized for its rapid growth among peers as of March 31, 2021. The company is backed by The Federal Bank Limited.
What is the price band for the Fedbank Financial Services Limited IPO?
The price band for Fedbank Financial Services Limited IPO is ₹133 to ₹140.
What is the Fedbank Financial Services Limited IPO GMP?
As of November 18, 2023, the initial public offering (IPO) for Fedbank Financial Services is trading at a grey market premium (GMP) of Rs 14.
