Trading below IPO price, 3 brokerages rate FedFina ‘buy’, see up to 47% upside
Currently trading at ₹125, FedFina is down almost 11 percent from its issue price. The stock witnessed a weak debut and was listed on the bourses at ₹137.7 on November 30.
The stock has gained around 5 percent in March so far, snapping 3 months of losses. It fell 9 percent in February 2024, 3.5 percent in January 2024 and 3 percent in December 2023.
The stock is currently 18.5 percent away from its record high of ₹153.50, hit on December 15, 2023. Meanwhile, it has advanced over 6 percent from its 52-week low of ₹117.70, hit on February 29, 2024.
IPO Details
The ₹1,092.26 crore IPO was open for subscription between November 22 and 24 with a price band in the range of ₹133-140. Fedbank Financial Services IPO was subscribed 2.24 times. The public issue was subscribed 1.88 times in the retail category, 3.48 times in QIB, and 1.49 times in the NII category.
The IPO consisted of fresh issue of equity shares up to the value of ₹600 crore and an offer-for-sale (OFS) of up to 35,161,723 equity shares by the promoters.
As per the RHP, the company planned to use the net proceeds from the new issue, to increase its Tier-I capital base in order to meet future capital requirements that will arise from the expansion of its assets and business. Additionally, a portion of the new issue’s proceeds will go towards covering offer expenses.
Earnings
Fedbank Financial Services reported a 27.8 percent YoY rise in its net profit to ₹65.4 crore in the October-December quarter of financial year 2023-24. The company had earned a net profit of ₹51.17 crore in the year-ago period. The company’s total income and total revenue from operations stood at ₹413.5 crore, a 34 percent YoY rise from ₹308.73 crore reported during the year-ago period.
The company’s gross non-performing assets (NPA) declined from 2.34 percent in the previous quarter to 2.19 percent, according to FedFina’s BSE filing. Its net NPA improved to 1.66 percent during the quarter under review. The financial firm also witnessed a 24 percent annual rise in disbursals, which were reported at ₹3,344 crore in the reporting quarter.
Brokerages initiate coverage with ‘buy’ calls
ICICI Securities: The brokerage has a target price of ₹184, implying an over 47 percent upside.
The brokerage noted that during FY19-23, Fedbank Financial Services (FedFina) achieved an impressive >40 percent Compound Annual Growth Rate (CAGR) in Assets Under Management (AUM), while maintaining an average Gross Non-Performing Loan (GNPL) ratio of approximately 1.8 percent.
“Over the years, FedFina has transitioned from merely being a sourcing partner to its parent, Federal Bank, to establishing itself as a robust independent Non-Banking Financial Company (NBFC). This evolution has been underpinned by a solid foundation laid during its decade-long lending journey. FedFina stands out among NBFCs by offering a diverse range of products tailored to the MSME segment, including small to medium Loan Against Property (LAP), housing loans, business loans, gold loans, and unsecured business loans, it pointed out. Moreover, FedFina has earned a reputation for providing timely and customised financial solutions to the informal self-employed segment,” it said.
Backed by its strong parentage (one of only five NBFCs supported by a bank), FedFina boasts one of the lowest costs of borrowing as of March 2023. Additionally, it maintains a diversified geographical presence, with no single state contributing more than 20 percent of its AUM, ensuring balanced risk exposure. Furthermore, FedFina has consistently upheld best-in-class asset quality standards, further cementing its position as a reliable player in the NBFC space, added the brokerage.
JM Financials: The brokerage has a target price of ₹160 for the stock, indicating an upside of 28 percent from the current market price.
As per the brokerage, FedFina stands out in the MSME financing sector with its focus on secured asset classes. Its flagship product, small ticket LAP (STLAP), offers strong returns with minimal competition. Additionally, FedFina’s diverse portfolio includes medium-ticket LAP (MTLAP), affordable home loans, and gold loans, adding to its growth potential. With business loans comprising about 16 percent of its portfolio, FedFina enjoys a profitability boost, it noted.
As a bank-promoted entity, FedFina benefits from strong brand recognition and favourable borrowing costs, further bolstered by recent credit ratings upgrades, said JM. Its emphasis on secured business and robust underwriting methods ensures healthy asset quality. With an experienced management team and a focus on risk management and technology, FedFina is poised for profitable growth with relatively low volatility, added the brokerage.
It anticipates a rise in Return on Assets (RoA) to 2.6 percent by FY26E, driving Return on Equity (RoE) to 16.7 percent from 14.4 percent in FY23. At current valuations (1.6x FY26e P/BV, 10.1x FY26e P/E), coupled with its strong growth profile and granular asset book, FedFina offers a significant margin of safety.
Equirus Securities: The brokerage also has a target price of ₹160, implying a 28 percent upside.
Backed by a robust parentage, FedFina benefits from access to ample liquidity and capital. Its diverse and predominantly secured product portfolio has garnered strong credit ratings, including CARE ‘AA+/Stable’, CRISIL ‘AA/Positive’, and Indian Rating ‘AA+/Stable’, for long-term bank facilities and NCDs. These factors bolster liquidity access and help manage fund costs effectively, enhancing its position on Risk Management (RM) costs, said Equirus.
However, asset quality performance remains a key monitorable, with potential impacts on credit costs.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 06 Mar 2024, 01:50 PM IST
