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Fedbank Financial Services IPO Details: Date, Issue Price, Size, GMP & Review

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Fedbank Financial Services – About the Company

Fedbank Financial Services Ltd is a subsidiary of Federal Bank and operates as a non-banking finance company. Fedbank offers home loans, gold loans, and loans against property (LAP) and business loans with the second lowest cost of borrowing among the micro, small, and medium enterprises (MSMEs) in India compared to its peer group companies.

Fedbank is a retail-focused NBFC with a client base mainly from the MSME and emerging self-employed individuals (ESEI) sectors. Its loan products include - housing loans, gold loans, mortgage loans, small ticket loans against property (LAP), medium ticket LAP and unsecured business loans that is especially available for the MSME and ESEI sectors in India.

To disburse the loan faster in a hassle-free environment, the company adopts the Phygital doorstep model which is a combination of physical and digital initiatives to offer fully customized services to retail customers for all financial products across the regions.

As of March 31, 2023, Fedbank Financial Services operates with 191 districts in 16 states and union territories in India through its 575 branches that are widespread across the regions with a strong presence in Southern and Western regions of India including the southern state Andhra Pradesh (including Telangana) and northern state Rajasthan.

Fedbank Financial Services IPO Objectives

The main purpose of raising the funds through this IPO of Fedbank Financial Services is to issue fresh shares and utilise a large part of the fund towards augmenting the Tier-1 capital base to meet future capital requirements that arise due to the growth of business and assets in coming years.

However, some part of the net proceeds from the IPO will be also used for the expenses incurred for organizing the PO process.

Fedbank Financial Services IPO Details:

IPO Open Date 22-Nov-23
IPO Close Date 24-Nov-23
Basis of Allotment 30-Nov-23
Listing Date 5-Dec-23
Face Value Rs 10 per share
Price To be Updated
Lot Size To be Updated
Issue Size [.] shares
(aggregating up to ₹1,100.00 crore)
Offer For Sale 70,323,408 Equity  Shares, aggregating up to Rs 350 crore
Fresh Issue [.] shares
(aggregating up to ₹750.00 Cr)
Issue Type Book Built Issue IPO
Listing At BSE & NSE
QIB Shares Offered Not more than 50% of the Offer
NII (HNI) Shares Offered Not less than 15% of the Offer
Retail Shares Offered Not less than 35% of the Offer

 

Fedbank Financial Services IPO Issue Price & Size

The issue of price of the Fedbank Financial Services IPO is between the ranges of Rs XXX to Rs XXX. The total issue size of Fedbank Financial Services IPO will be around Rs 1,100 Crore consisting of Rs 750 crore by Fresh Issue and Rs 350 crore offer-for-sale.

The offer-for-sale comprisesof aggregating up to 70,323,408 equity shares by the promoters and other shareholders. Out of which Federal Bank may sell up to 16,497,973 equity shares, while its other shareholder, True North Fund VI LLP may sell up to 53,825,435 equity shares in the OFS.

Fedbank Financial Services IPO Launch Date

The launch date of Fedbank Financial Services IPO is 22nd Nov 2023, ending on 24th Nov 2023. This means the IPO will be open on 22 November 2023 and will be closed on 24 November 2023. The share allotment process will be organized on 30 November 2023.

Anyonenot allotted any share of the fund will be refunded on 1st Dec 2023, onwards and if someone allotted the shares will be credited into thedemat account on 04 Dec 2023. The shares will be listed on 05 Dec 2023 on both stock exchanges BSE & NSE.

Fedbank Financial Services Financial Statements:

Particulars (Rs in Million) FY22 (6M) FY21 FY20 FY19 CAGR
Revenue from Operations 4,056.74 6,918.25 4537.43 2532.12 65.29%
Other Income 33.52 57.41 122.75 23.25
Operational Expenses 1437.42 2148.49 1345.82 602.54
Other expenses 356.94 653.29 551.25 227.83
EBITDA 2295.9 4173.9 2763.11 1725.00 55.55%
EBITDA Margin% 56.59% 60.33% 60.90% 68.12%
Depreciation 153.50 272.69 192.12 77.49
Interest 1691.04 3131.91 2011.03 1139.36
Profit Before Tax 451.36 769.28 559.96 508.15  
Total tax 115.70 152.44 168.60 146.81
PAT 335.66 616.84 391.36 361.34 30.66%
PAT Margin% 8.27% 8.92% 8.63% 14.27%  
EPS Basic (Rs) 1.10 2.19 1.61 1.76 11.55%

Source: DRHP

Fedbank Financial Services Financial Performance

The revenue from operations of the Fedbank Financial Services has grown at a CAGR of 65.30% from FY19 to FY21. Even in the first six months of FY22 bank earned a revenue of Rs 405.67 crore. While the EBITDA of the same period stood at Rs 229.6 crore that has registered a CAGR of 55.5% from FY19 to FY22 from Rs 172.5 crore in FY19.

The EBITDA Margin of Fedbank Financial Servicesis around 60% in FY21,which has marginally come down from 68% in FY19. While the bank has maintained the PAT Margins above 8% since FY20, however, it has come down from 14.27% in FY19.

At this PAT Margins Fedbank has earned a net profit of Rs 61.68 crore in FY21 and Rs 33.56 crore in the first half of FY22. The PAT of the Fedbank Financial Serviceswas Rs 36.13 crore in FY19,which has grown at a CAGR of 30.6% from FY19 to FY21.

Fedbank Financial Services IPO Promoters & Shareholding of the Company

Fedbank Financial Services is the promoter of the Fedbank Financial Services holding a 72.98% stake in the company. While the remaining stake of 25.64% is held by True North Fund VI LLP. As per the DRHP Federal Bank may sell up to 16,497,973 equity shares, and True North Fund VI LLP may sell up to 53,825,435 equity shares in the OFS.

S.No. Name of the Shareholder No. of Shares % of pre-Offer Shareholding
1 The  Federal  Bank Limited 235,685,332 72.98%
2 True  North Fund VI LLP 82,808,361 25.64%
 
  Total 318,493,693 98.62%

 

Why Invest in Fedbank Financial Services IPO?

As per the CRISIL Report, the retail credit growth is expected to benefit from factors such as formalization of the economy, growing working population, increasing urbanization and increasing digital adoption in India, and all of these factors are expected to contribute to the continued retail credit growth in coming years also will be beneficial for the NBFCs.

In the last five years during fiscal year from 2018 to 2023, the retail credit market in India grew at a strong pace from Rs 30 trillion in Fiscal 2018 to ₹ 60 trillion in Fiscal 2023. This total credit constituted 32% of total systemic credit in India. If the credit growth continues at the same pace, then Fedbank Financial Services bank will be also benefiting.

However, to invest in Fedbank Financial Services IPO you must have solid investment rationales. Every bank or company have some strength on the basis of that company's grow. However, while operating the business there are also some risks associated with the company that you also need to consider while investing in any company or newly launched IPO.

Also Read: What to Check Before Buying IPO: Things to Know & Is it Safe

In respect of the same and to make it easier to understand for you we brought here both the aspects its strengths and weakness or risk that such companies face, that you can read and consider while investing in the Fedbank Financial Services IPO.

Strengths:

  • The CRISIL Report also says the portfolio of MSME loans with ticket sizes between Rs 1 million and Rs 10 million is expected to grow at 15% CAGR over Fiscals 2021 and 2025. This category of loans will be supported by increasing lender-focus penetration of such loans and enhanced availability of data. The presence of Fedbank in the retail credit industry with suitable products provides the bank with the right platform to benefit from this anticipated growth.
  • Fedbank Financial Services has a presence in extensive underpenetrated markets and has strong growth potential in the MSME sector. Hence it is focusing on serving the MSMEs and the emerging self-employed individuals (ESEIs) sector.
  • Fedbank Financial Services has robust underwriting capability with a presence in the selected customer segments along with strong risk management capabilities that focus on effective underwriting and collections for outstanding loans.
  • Fedbank Financial Services is operated by a highly experienced cycle-tested management team to keep the growth of the company that ensures positive revenue prospects in coming years.
  • The company works with a technology-driven highly scalable operating model to offer a low-cost funding and loaning facility attracting new customers with a well-diversified funding profile.
  • The Bank believes that working with the twin-engine" business model ensures growth and risk insulation across economic cyclesthat focus on two complementary retail products, namely instalment loans to MSMEs or ESEIs and gold loans.
  • Further, the bank is going to implement effective business growth strategies to expand its operations and increase its revenue and net earnings. It is going to invest in new technology, new talent and employee training to achieve industry-leading productivity parameters.
  • At the financial end, the financial performance of the bank is quite impressive. During the past two years between FY19 to FY21, the revenue and EBITDA of the bank grew at CAGR of 65.3% and 55.5% respectively. The PAT for the same period grew at a CAGR of 30.6% with the EBITDA Margins and PAT Margins of the banks in the first six months of the FY22 remaining at 56.6% and 8.3% respectively.

Risks:

  • Banking and finance is a highly sensitive sector towards the interest rates that are regulated by the central banks of the country depending on the economic conditions. As per the liquidity in the market and demand or supply of financial products, RBI keeps changing the interest rates that can affect the net interest income of the bank which will also affect the operating and profit margin of the bank.
  • As per the bank records, more than 64% of loans have been disbursed to MSMEs which could be a major source of risk, as compared to larger banks MSMEs may pose a higher amount of risk.
  • The availability of low-cost funds or cost-effective sources of capital is very important to maintain the operating margins of the bank. Any kind of unavailability of funds or increase in the cost of acquiring the capital for disbursing the loan will also affect the interest margins of the bank.
  • Apart from the cost of borrowing, to rise in the NPA will also increase the cost of writing-off the loans and increase the liability of the bank which will not only affect the financial performance of the bank but will also disturb the financial health or liquidity ratio of the bank, putting the investors' money at high risk.
  • The banks also deal in giving loans against the gold jewellery that is disbursed through its widespread branch network. And keeping this jewellery is highly exposed to operational risks like petty theft, burglary, embezzlement and negligence by employees. During FY23 company faced 15 cases amounting to Rs 17.67 crore caused by third parties and by its employees.
  • Apart from that Fedbank and its promoters, both are also facing a few pending litigations against them. And any kind of unfavourable decision regarding these legal proceedings may attract liabilities or penalties. This will also affect not only reputation of bank but business operations and cash flow of the company.

Fedbank Financial Services IPO Grey Market Premium

The Grey Market Premiumor GMP of Fedbank Financial Services IPO is trailing around Rs XXX. The GMP is the price of the unlisted stock in the grey market that is going to be listed soon after launching the IPO. The GMP is the price with the premium over the issue price that fluctuates till the date of listing as per the demand and supply of the shares in the market.

Also Read: What is Grey Market Premium in IPO: How is GMP Calculated & Reliable

However, the GMP is not considered a true or reliable parameter to decide the listing price of any stock. It is the price of unlisted shares that can be a speculative price influenced by the sentiments of investors and market conditions in the secondary market. And before buying shares through the IPO also consider various risk factors involved in applying for any IPO.

Also Read: What are the Risk Factors Involved in Applying for an IPO

Fedbank Financial Services IPO Review & Analysis

As per the financial growth and current market conditions, the Fedbank Financial Services IPO is considerable to apply if available at a fair price. Though the issue price is not yet known if you compare the price to earnings (P/E)ratio of the industry you can find the highest P/E is around 77.5 while at the lowest side, the same is around 7.52. However, the average P/E of the industry is around 31.66 which you can consider while comparing with its listed peers.

If the issue price of Fedbank Financial Services IPO is very high, you can avoid applying in the shares. However, if it is issued at a discounted price, and available at much lower than industry P/E, then you can subscribe or apply for the Fed bank Financial Services IPO.

However, the Fedbank Financial Services IPO is issued at neither at premium nor at discounted price, if you can say fairly priced around the industry P/E, then you can apply in the IPO with some listing gain prospects or invest in the shares with long-term investment point of view for keeping the stocks of small non-banking financial companies in your portfolio.

How to Apply for Fedbank Financial Services IPO?

To apply for Fedbank Financial Services IPO, you need a trading account and a demat account with the broker. If you have these accounts with any other broker you can check their website or ask your broker. Moneysukh is one the best discount broker in India and offering best trading platform in India for trading or investing in equity, commodity and currency.

However, if you have these accounts with Moneysukh, or don't have, then you can apply for the trading and demat account here and follow the steps below.

Steps to Apply for Fedbank Financial Services IPO:

Step 1: Wait for Fedbank Financial Services IPO to open on 22 Nov 2023 for online bidding.

Step 2: Now you have to visit trade.moneysukh.com and log in with your User ID & password.

Step 3: Here you need to navigate the IPO section and choose the Fedbank Financial Services IPO.

Step 4:Here just fill in the required details like price, quantity, and so on.

Note: At the time you apply for any IPO, make sure to bid at the cutoff price and then submit your application. 

Step 5:Finally at the time of submitting your IPO application make the required payment.

How to Check Fedbank Financial Services IPO Allotment Status?

The share allotment procedure of the Fedbank Financial Services IPO will be organized on 30th Nov 2023. Hence, on or after this date, you can check the Fedbank Financial Services IPO allotment status through online platforms like NSE or BSE including Moneysukh.

Also Read: How to check IPO allotment status on NSE, BSE through Moneysukh

In oversubscribed IPO market conditions, there is less chance of getting the allotment to retail investors applied to buy the shares into the primary market. You can apply in the HNI category to increase your chances of getting the share allotment in any IPO. However, there is minimum required of funds that’s much higher compared to the retail category.

However, if you have been allocated the shares applied in the Fedbank Financial Services IPO then the number of allotted shares will be allocated or transferred into your demat account. If you have been not allocated any share, then your IPO application money will be refunded into your bank account or the amount will be unblocked if applied through ASBA.

Also Read: What to Know Before Investing in Stocks: 10 Things to Consider

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