 "Fedbank Financial makes weak debut; lists at 2% discount to issue price")
Fedbank Financial Services made a weak stock market debut, with its shares listed at Rs 137.75, a 2 per cent discount against its issue price of Rs 140 per share on the BSE on Thursday. The stock of a non-banking financial company opened at Rs 138 on the National Stock Exchange (NSE).
At 10:22 AM; Fedbank Financial was quoting at Rs 135.85, down 3 per cent when compared with its issue price. The stock hit a low of Rs 133 and high of Rs 139.60 in intra-day trade. A combined 8.1 million equity shares changed hands on the NSE and BSE so far.
Fedbank Financial is a retail-focused NBFC promoted by Federal Bank. It focuses on Micro, Small & Medium Enterprises (MSMEs) and the emerging self-employed individuals (ESEIs) sector. The ESEI and MSME segment is 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.
Fedbank Financial has grown its asset under management (AUM) at a CAGR of 37 per cent over FY21-23. However upon comparing Fedbank Financial with companies focused on LAP and Gold loans, we observe that Fedbank Financial derives a higher share of loan book from competitive segments like Gold (33 per cent mix), Medium ticket LAP (25 per cent mix) and Unsecured Business Loans (16 per cent mix). Further Fedbank Financial has delivered lower ROA in FY23 at 2.3 per cent compared to peer average of 3.4 per cent and thus deserves to trade at a discount, analysts at Nirmal Bang Securities said in IPO note.
Fedbank Financial enjoys a competitive advantage with the second and third lowest cost of borrowing among peers, showcasing financial efficiency. It demonstrates robust financial performance, ranking third in AUM growth among NBFCs in India. Focusing on the underserved MSME and ESEI segment, the company has a diverse product portfolio, including secured loans against tangible assets.
With strong financial ratings, promotion by Federal Bank, a broad geographical presence, and innovative 'Phygital' customer engagement, the company is strategically positioned for sustained growth. On the flip side, the company faces the risk of asset-liability mismatches affecting liquidity, potentially impacting operations and profitability. Historical negative cash flows and concentration of operations in specific regions pose challenges, the brokerage firm SMC Global Securities said.