IPO: Fedbank Financial Services

In a nutshell Quality: Fedbank Financial Services reported a three-year average ROE of 11 per cent. Moreover, it achieved an average NIM (net interest margin) of 7.8 per cent in the last three financial years. Growth: Over the last three years, its AUM (assets under management) grew by 36.6 per cent and PAT (profit after tax) by 70.9 per cent, annually. Valuation: The stock will be priced at a P/E and P/B of 27.2 and 2.6 times, respectively, as compared to its peer's median and average of 14.01 and 2.98 times, respectively. Overview: The largely underpenetrated retail credit market (32 per cent of total systemic credit in India, according to CRISIL report) presents an opportunity for the NBFC to grow. About Fedbank Financial Services Fedbank Financial Services is a retail-focused non-banking finance company (NBFC) promoted by Federal Bank, catering to MSMEs and the emerging self-employed individuals sector. It has a well-tailored suite of products targeted to match its customers' needs, which includes mortgage loans such as housing loans, small-ticket loan against property (LAP), medium-ticket LAP, unsecured business loans, and gold loans. Fedbank Financial Services is present in 16 states and union territories across India, with a strong presence in the southern and western regions. Strengths of Fedbank Financial Services Higher share of secured assets: As of March 31, 2023, 85.29 per cent of its total loan assets are secured against tangible assets (its customers' gold or property). Low cost of borrowing relative to its peers: As of June 2023, it has the third lowest cost of borrowing among the MSME, gold loan, and MSME & gold loan peer groups in India. Weaknesses of Fedbank Financial Services Lower interest rates of loans by banks: Banks have recently started focusing more on retail loans, offering them at comparatively lower interest rates. This may impact the growth of NBFCs. Higher attrition levels : The company's attrition rates have risen from 18.5 per cent in FY21 to 31.5 in FY23. High levels of attrition can result in elevated employee costs. IPO details Total IPO size (Rs cr) 1092 Offer for sale (Rs cr) 492 Fresh issue (Rs cr) 600 Price band (Rs) 133-140 Subscription dates November 22, 23 and 24, 2023 Purpose of issue To meet future capital requirements Post-IPO M-cap (Rs cr) 5165 Net worth (Rs cr) 2015 Promoter holding (%) 62.4 Price/earnings ratio (P/E) 27.2 Price/book ratio (P/B) 2.6 Financial history Key financials 2Y CAGR (%) TTM FY23 FY22 FY21 NII (Rs cr) 36 680 638 474 345 PAT (Rs cr) 70.9 190 180 103 62 AUM (Rs cr)