Fedbank Financial Services IPO: Issue receives tepid response from investors on Day 01

Fedbank Financial Services, a retail-focused non-banking finance company promoted by the Federal Bank, saw its IPO receive a tepid response from investors on the first day of bidding. The IPO opened for subscription today and will remain open until Friday (November 24).

The company aims to raise ₹600.77 crore via the issuance of fresh equity shares, whereas existing shareholders and promoters will offload 35,161,723 shares, aggregating to ₹492.26 crore. The total size of the IPO was ₹1,092.26 crore.

The price band for the offer has been fixed at ₹133–140 per equity share with a face value of ₹10 each. The quota for retail investors in the Fedbank Financial Services IPO has been fixed at 35% of the net offer. The QIB quota is fixed at 50%, while the quota for NII is reserved at 15%.

Subscription Status on Day 01

On the first day of its offering, Fedbank Financial Services IPO garnered a subscription rate of 38%. The IPO received bids for 2,14,85,493 shares against the 5,59,23,660 shares available for subscription, as per BSE data. Notably, the retail segment of the IPO showed strong demand, with a subscription rate of 67%.

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In the non-institutional investors (NIIs) segment, the subscription rate reached 21%, while the employee portion witnessed a subscription rate of 37%. On the other hand, Qualified Institutional Buyers (QIBs) bid for only 21,935 shares, falling significantly short of the 1,53,49,339 shares reserved for them.

Company Overview

Fedbank Financial Services is a retail-focused non-banking finance company promoted by the Federal Bank. It is the second and third lowest cost of borrowing among the micro, small, and medium enterprises (MSMEs), gold loan, and MSME and gold loan peer set in India in fiscal 2023 and the three-month period ended June 30, 2023, respectively, the company said in its RHP report.

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The company focuses on MSMEs and the emerging self-employed individuals (ESEIs) sector. According to the CRISIL Report, the ESEI and MSME segments are largely unaddressed by lending institutions in India. The company believes that this segment provides them with a sizeable opportunity to rapidly grow and expand further.

The company has a well-tailored suite of products targeted to match customers’ needs, which includes mortgage loans such as housing loans, small-ticket loans against property (LAP), medium-ticket LAP, unsecured business loans, and gold loans.

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The company is present in 17 states and union territories across India, with a strong presence in the southern and western regions of India.

Brokerage views

"NBFCs have shown remarkable resilience and gained importance in the financial sector ecosystem, growing from less than Rs. 2 trillion in assets under management (AUM) at the turn of the century to ₹34 trillion at the end of FY23. Their share in the overall credit pie has increased from 12% in FY08 to 18% in FY23 and is projected to remain stable in FY24," said brokerage firm BP Equities.

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The brokerage pointed out that the company has an edge over its peers as it has access to capital from its promoter, Federal Bank. Additionally, the brokerage stated that it has grown its liability relationships from 23 lending institutions as of March 31, 2021, to 27 institutions as of June 30, 2023.

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, the brokerage recommends investors "subscribe" to the issue for the benefit of listing gains.

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Anand Rathi also recommends a "Subscribe-Long Term” rating for the IPO, as the brokerage believes the issue is fairly priced. At the upper price band, the company is valued at a P/BV of 2.5X with a market cap of ₹51,651 million post-issue of equity shares, it noted.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.