FedFina files for IPO with SEBI: All you need to know!

FedFina IPO
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Fedbank Financial Services Ltd (FedFina) which is the subsidiary of Federal Bank has filed draft papers with the SEBI to raise Rs 1700 crore via IPO. Let us look at the details:

About FedFina

  • FedFina is the fastest-growing gold loan NBFC in India.
  • The company has a presence in 15 states and UT across India. It has a strong presence in the Western and Southern regions.
  • It has 463 branches, and 86.25% of its total loan assets are secured against tangible assets, namely gold or customer’s property.
  • They have the lowest cost of borrowing among the MSME and gold loan peer set in India in Fiscal 2021 - CRISIL Report.

Offer Details

  • The company has filed for an issue that consists of a fresh issue aggregating up to Rs 900 crore and an Offer for Sale (OFS) of up to 45,714,286 equity shares (Rs 800 crore) by promoter and investor.
  • The OFS comprises up to 16,497,973 equity shares by Federal Bank and up to 29,216,313 equity shares by True North Fund VI LLP.
  • Federal Bank says it will continue to own more than 51% of the outstanding share capital post the listing.
  • FedFina will utilise the net proceeds from the fresh issue towards augmenting its Tier - I capital base to meet its future capital requirements arising out of the growth of business and assets.

Peers

The peers of FedFina include Aptus Value Housing Finance, HDB Financial Services, IIFL Finance, Manappuram Finance, Muthoot Finance, Repco Home Finance, Shriram City Union Finance, Five Star Business Finance, Veritas Finance, and Vistaar Finance.

FedFina Financials

  • FedFina has given instalment loans to MSMEs, and ESEIs had an AUM of Rs 2,933.83 crore, and gold loans had an AUM of Rs 2,132.92 crore.
  • For FY21 and FY20, FedFina reported a net interest income (NII) of Rs 344.92 crore and Rs 220.53 crore, respectively. 
  • Net profit for the same period stood at Rs 61.68 crore and Rs 39.14 crore, respectively.
  • The Gross NPA was 2.22%, 1.01%, 1.44%, and 2.25% for the six months ended September 30, 2021, and FY21, FY20, and FY19, respectively.
  • The Net NPA was 1.60%, 0.71%, 1.08% and 1.93% for the six months ended September 30, 2021 and Fiscals 2021, 2020 and 2019, respectively.
  • The gross loan book for FY21 stood at Rs 4,627.04 crore, and for FY20 it stood at Rs 3,720.25 crore.

USPs

  • Present in large, underpenetrated markets with strong growth potential.
  • Its 'Twin Engine' business model ensures growth and risk insulation across economic cycles.
  • Fedfina is focused on retail loan products with a collateralized lending model targeting individuals and the emerging MSME sector which is difficult to replicate.
  • Well-diversified funding profile with an advantage of lower cost of funds.

Growth Potential

  • It will deliver consistently and one of the industry-leading return matrices building on past performance.
  • Fedfina will focus on the performance of its large branch network and extracting operating leverage.
  • It plans to invest in technology and digitization initiatives.
  • FedFina will invest in talent and employee training to achieve industry-leading productivity parameters.

Risks

  • The business and operations of FedFina are dependent on its ability to timely access cost-effective sources of funding. Any disruption in the sources of funding will affect the overall business.
  • Its inability to adequately assess and recover the assessed or full value of collateral or amounts outstanding under defaulted loans promptly is a risk.
  • Non-compliance with the observations of RBI could adversely affect its business.
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