Fedbank Financial Services IPO to open on November 22; price band fixed at ₹133-140/sh

• Fedbank intends to raise ₹1,092 crore from the initial public offer.
• Investors can bid for a minimum of 107 shares and in multiples thereafter.
• It plans to use net proceeds to augment Tier-I capital base and others.

The initial public offer (IPO) of Fedbank Financial Services will open for subscription on November 22 and close on November 24. Its price band has been fixed at ₹133-140 per equity share. Investors can bid for a minimum of 107 shares and in multiples thereafter.

The company intends to raise as much as ₹1,092 crore via the IPO. The issue comprises a fresh issue aggregating up to ₹600 crore and an offer for sale by promoter Federal Bank, and selling shareholder of True North Fund VI LLP I.

The Reserve Bank's circular increasing the risk weights on unsecured lending will increase the borrowing costs, but the negative market sentiment will not impact the offering, Managing Director and Chief Executive Officer Anil Kothuri told reporters at its IPO press conference.

The non-banking financial company (NBFC) plans to utilize the net proceeds from the fresh issue towards augmenting its Tier – I capital base to meet future capital requirements, arising out of the growth of its business and assets.

ICICI Securities, BNP Paribas, Equirus Capital Private and JM Financial are the book running lead managers to the Issue.

The company & financials

It’s a retail focused non-banking finance company (NBFC) promoted by The Federal Bank. It has 584 branches, and is focussed on MSME loans, gold loan and more. It is one of the five private bank promoted NBFCs in the country.

As on March 31, 2023, it has the third fastest assets under management (AUM) growth among NBFCs in the peer set in India. Its AUMs grew at 33% CAGR (compounded annual growth rate) between FY20 and FY23. Its AUMs stand at 94,34 crore as of end of June 2023.

Its total revenues grew by 37% and 26% in FY23 and FY22 respectively. Its profit also grew by 74% and 67% during the same periods. As of June 30, 2023, its Gross non-performing assets (NPA) and Net NPA were at ₹189 crore and ₹147 crore, respectively.

Its listed peers in the market are Aptus Value Housing, IIFL Finance, Five Star Business Finance, Manappuram Finance, Muthoot Finance and SBFC Finance.

Source: RHP

Risk factors

As much as 93% of its gross AUMs are concentrated around six states and two union territories of Gujarat, Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Puducherry and Delhi. Any adverse developments in these regions could have an adverse effect on its business.

It has a concentration of loans to emerging self-employed individuals and MSMEs accounting to 45% and 64.7% of its loan profiles, respectively. The risk of non-payment or default by our borrowers may adversely affect our business, results of operations and financial condition, it says.

Since it handles high volumes of cash and gold jewelry in a dispersed network of branches, it’s exposed to operational risks, including employee negligence, fraud, petty theft, burglary and embezzlement.

Its inability to maintain capital adequacy ratio, meet its financial and other covenants under our debt financing arrangements; and deterioration in receivables may adversely impact its financial performance.

The company has undertaken 1,625 criminal proceedings amounting to ₹363 crore. It has three criminal proceedings against it, along with three tax proceedings, and one regulatory proceeding amounting to ₹46 lakh.

The promoter has undertaken 61 criminal cases against it, with two material civil litigations amounting to ₹1,601 crore. The promoter also has one criminal case, 12 tax cases, one disciplinary action by stock exchanges/SEBI and two material civil litigations amounting to ₹17,41 crore.

(With PTI inputs)

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