Fedbank Financial Services IPO: GMP, issue details, subscription status, 10 key things Should you apply or not?

Fedbank Financial Services IPO opened for subscription on Wednesday, November 22. The Federal Bank Limited is the promoter of Fedbank Financial Services, a non-banking finance company (NBFC) with retail in focus. According to the CRISIL Report, in the fiscal year 2023 and the three months ending on June 30, 2023, Fedbank Financial Services had the second and third lowest cost of borrowing among the micro, small, and medium-sized enterprises (MSMEs) gold loan and MSME & gold loan peer set in India.

Based on the CRISIL Report, as of March 31, 2023, the NBFC ranked third among NBFCs in the Indian peer set for assets under management (AUM) growth, with a three-year compound annual growth rate (CAGR) of 33% between Fiscals 2020 and 2023, and the fourth fastest year-over-year AUM growth of 42% for the three months ending June 30, 2023.

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The NBFC's listed industry peers are Aptus Value Housing (with P/E of 28.58), IIFL Finance(with P/E of 15.53), Five Star Business Finance (with P/E of 37.54), Manappuram Finance Limited (with P/E of 8.06), Muthoot Finance Limited (with P/E of 15.39), SBFC Finance Limited (with P/E of 48.33), according to Red Herring Prospectus (RHP).

Fedbank Financial Services Limited's profit after tax (PAT) increased by 74.11% and its revenue increased by 37.46%, between financial year ending with March 31, 2022, and March 31, 2023.

Subscription Status- 

The issue had been subscribed 0.54 times by 12.15PM on 23 November as per the BSE. The Retail investors had bid 0.94 times to the Number of shares offered  or reserved. 

 IPO Review-

Sushil Finance - 

Fedbank is a retail-focused non-banking finance company (NBFC), with the second lowest cost of borrowing among the micro, small, and medium enterprises (MSMEs), gold loan, and MSME & gold loan peer set in India in Fiscal 2023. The company's clientele comes mainly from the MSME and emerging self-employed individuals (ESEI) sectors. It also has a Phygital doorstep model, a combination of digital and physical initiatives, for providing customized services to customers across all the products.

As on March 31, 2023, FFSL had the 3rd fastest AUM growth among NBFCs in the peer set in India with a three-year CAGR of 33% between Fiscals 2020 and 2023, and the 4th fastest year-on-year AUM growth of 42% for Q1FY24.

The issue is priced at a P/BV of 3.19 based on its NAV of Rs. 43.95 as of June 30, 2023 and is asking for a PE of 25.04x taking the FY23 EPS ( ₹ 5.59) on the upper end of the price band, and a PE of 20.96x annualizing Q1FY24 EPS ( ₹ 1.67). Industry average PE is around 26, hence the issue is fully priced. 

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FSL has an edge over its peers as it has access to capital from its Promoter, Federal Bank. Additionally, they have grown their liability relationships from 23 lending institutions as of March 31, 2021, to 27 institutions as of June 30, 2023. Additionally, as of June 30, 2023, they have borrowed from 12 private sector banks (including its Promoter, Federal Bank), nine public sector banks, one NBFC, one foreign bank and four other entities (such as the Small Industries Development Bank of India). It has logged the third-fastest AUM growth amongst NBFC peers set in India, with a three-year CAGR of 33% during FY20-23 period. FFSL has also marked steady growth in its top and bottom lines over the last three years. Moreover, the NBFC has an effective underwriting capability due to its experienced underwriting team and established processes, which is likely to keep asset quality issues at bay going forward. On the valuation front, the issue is valued at a P/BV of 3.3x on the upper price band based on the FY23 book value. With most of the positives seemingly priced in, we advise investors to “SUBSCRIBE” to the issue for the benefit of listing gains.

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Here are the 10 key things to know about Fedbank IPO:

Fedbank Financial Services IPO date: Fedbank Financial Services IPO has opened for subscription from Wednesday, November 22, and will close on Friday, November 24.

Fedbank Financial Services IPO price band: Fedbank Financial Services IPO price band has been fixed in the range of ₹133 to ₹140 per equity share of face value of ₹10.

Fedbank Financial Services IPO lot size: Fedbank Financial Services IPO lot size is 107 equity shares and in multiples of 107 equity shares thereafter.

Fedbank IPO anchor investors date: The allocation to anchor investors for Fedfina IPO is scheduled to take place on Tuesday, November 21.

Fedbank Financial Services IPO details: Federal Bank arm Fedfina IPO comprises 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 selling shareholders and promoter group make up the offer, which has a face value of ₹10 per equity share, as per RHP.

The Federal Bank, the promoter shareholder, may sell up to 5,474,670 equity shares, and True North Fund VI LLP, the investor selling shareholder, may sell up to 29,687,053 equity shares, of the offer for sale up to 35,161,723 equity shares.

Fedbank IPO objectives: As per the RHP, the company plans 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.

In addition, the company expects to receive the benefits of listing of the equity shares on the stock exchanges, including enhancement of the company’s brand name and creation of a public market for the equity shares in India, said the company in its RHP.

Lead Manager and Registrar of Fedbank IPO: ICICI Securities Ltd, BNP Paribas, Equirus Capital Private Ltd, and JM Financial Ltd are the Book Running Lead Managers (BRLM) to the issue, and Link Intime India Private Ltd is the registrar to the offer.

Fedbank IPO reservation: Fedbank Financial Services IPO has reserved not more than 50% of the shares in the public issue for Qualified Institutional Buyers (QIB), not less than 15% for Non Institutional Investors (NII), and not less than 35% of the offer is reserved for Retail Investors. A discount of ₹10 per equity share is being offered to eligible employees bidding in the employee reservation portion.

Fedbank Financial Services IPO listing date and allotment date: Tentatively, Fedbank IPO basis of allotment of shares will be finalised on Thursday, November 30 and the company will initiate refunds on Friday, December 1, while the shares will be credited to the demat account of allottees on Monday, December 4. Fedbank Financial Services IPO shares are likely to be listed on BSE and NSE on Tuesday, December 5, as per reports. If in case, the company decides to switch to T+3 norm, the dates will get preponed.

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Fedbank Financial Services IPO GMP today: Fedbank IPO GMP today or grey market premium is +5. This indicated Fedfina share price today are trading at a premium of Rs5 in the grey market, according to investorgain.com.

Considering the upper end of the IPO price band and the current premium in the grey market, the estimated listing price of Fedbank Financial Services share price was indicated at Rs145 apiece, which is 3.57% higher than the IPO price of rs 140.

'Grey market premium' indicates investors' readiness to pay more than the issue price.

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 decisions