Everything You Need To Know About Federal Bank and its IPO
We’re sure you’ve heard of Federal Bank. Well, one of its subsidiaries, Fedfina a.k.a Fedbank Financial Services Ltd. is all set to raise ₹1,092.26 cr via the public issue on 22nd November 2023.
So, should you consider subscribing? Here’s all you need to know before investing.
🏦 What do they do?
Fedfina offers business loans, home loans, mortgages, and gold loans. It has the second lowest cost of borrowing among the micro, small and medium enterprises (MSMEs). Also, it focuses on the emerging self-employed individuals (ESEIs) sector. It operates through digital and physical initiatives to provide customised services to its customers across all its products.
💰 How are their Financials?
- Fedbank Financial Services’ net interest income grew 34% to ₹638.02 crore in FY23 from ₹474.24 crore the previous year.
- Net interest margin (NIM) also rose slightly to 8.99%.
- Profit after tax jumped 74% to ₹180.13 crore from ₹103.46 crore in the same period.
- As of March 2023, Fedfina had the fourth fastest YoY AUM growth of 42% for Q1FY24.
- Return on assets (RoA) stood at 2.31% and return on equity (RoE) at 14.36% in FY23. Risk-weighted asset capital adequacy ratio was 17.94% in FY23 compared to 23.04% in FY22.
⚠️ What are the details of the Fedfina IPO?
| IPO Dates | 22nd November 2023 to 24th November 2023 |
| Face value | ₹10 per equity share |
| Price band | ₹133 to ₹140 per share |
| Market lot | 107 shares |
| Minimum Investment | ₹14,231 to ₹14,980 |
| Listing on | BSE and NSE |
| Offer for sale | Fresh Issue of ₹600.77 Cr (OFS: ₹492.26 Cr) |
| Registrar | Link Intime India Private Ltd. |
⚖️ What does the offer breakup look like?
| Qualified Institutional Bidde₹ (QIB) | 50% |
| Non-Institutional Bidde₹ (NIB) | 15% |
| Retail | 35% |
✅What makes Fedfina a good investment?
- Its market share in gold loans is growing.
With an LTV of 71.75% as of Q1FY24, the gold loan business is a high-yield secured portfolio for the NBFC.
It is expected to grow at a CAGR of 7.1% between 2023 and 2028.
- It’s expanding aggressively in terms of geographical presence.
Fedfina has operations through 584 branches, with its headquarters in Mumbai. 93.65% of gross AUM is in Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Puducherry and Delhi. The best part? It is seeing a healthy business generation as newer branches start maturing to break even in a year.
- It is maintaining high yields and returns despite increased interest rates.
While an increase in the Cost of Funds resulted in squeezing their spread over the last couple of years, they have improved RoAE to 14.4% for FY23 against 8.1% in FY21. Their RoAA increased from 1.3% in FY21 to 2.3% in FY23.
🚨What should you beware of?
The Reserve Bank of India recently released a circular increasing the risk weights on unsecured lending, increasing borrowing costs. This has created a negative market sentiment towards this sector. However, according to Managing Director and CEO Anil Kothuri, this will not impact the IPO.
Plus, there are also the following risks,
- Concentrated Portfolio: With 93.65% of its AUM located in Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Puducherry and Delhi, any adverse developments in these regions will negatively impact its business.
- Capital Adequacy Ratio: It has been unable to maintain a capital adequacy ratio, which could adversely affect business, operations and financial performance.
- Defaulters: With ESEI and MSME comprising 45.22% and 64.75% of total borrowers, the risk of non-payment by borrowers may impact the business.
⏩️What is Fedfina’s vision for the future?
The NBFC will use the funds from the issue to increase Tier 1 capital to meet its future capital requirements.
🧠 Our Final Thoughts
FedFina is a competitive player in the market because of the Federal Bank brand and its management expertise, track record and lengthy operating background. It’s been able to leverage the promoter brand to boost returns and maintain yield. If it continues to do so, it would be a good investment for long-term investors.
📬Also Read: A Simple Guide: Opening a Demat Account for Minors in Bharat
