Fedbank Financial Services Limited

Fedbank Financial Services reported robust Q1 FY27 results, with AUM growing 35% YoY to ₹21,136 Cr and disbursements increasing 14% YoY to ₹6,760 Cr. Profit after tax (PAT) saw a significant 52.5% YoY growth, reaching ₹114.4 Cr, while Return on Equity (RoE) expanded by 380 bps YoY to 15.4%. The company maintained credit costs at 0.8%, within its guided range, and improved its Cost-to-Income ratio by over 400 bps sequentially to 52.8%.

The Gold Loan business continued to be a primary growth driver, with AUM increasing 77% YoY to ₹11,191 Cr and disbursements rising 15% YoY to ₹6,087 Cr. Despite headwinds from a 15% decline in gold prices (Jan 31st to June 30th) and new RBI LTV regulations, Gold Loan AUM still achieved an 8.1% QoQ sequential growth. The RBI's revised LTV framework, effective April 1, now calculates LTV on the total amount due, leading the company to adopt a periodic interest-due structure and anticipate optically elevated overdue levels in the near term, though not an asset quality concern.

The company demonstrated improving asset quality, with GNPA reducing by 30 bps to 1.6% from 1.9% in Q4, and Net NPA falling marginally below 1.0% for the first time. Provision coverage increased to 38.36%. The increase in Stage II from 2.2% to 2.7% was primarily attributed to the re-adjustment required by the new gold loan regulations, rather than underlying asset quality deterioration, as collateral remains highly realizable.

Fedbank announced key leadership changes to optimize its business segments. Mr. George Oommen joined as Business Head – Gold Loans, Mr. Shardul Kadam transitioned to Chief Transformation Officer, and Mr. Jagadeesh Rao assumed additional responsibility as CBO for Small Ticket LAP and Home Loans. The company reiterated its strategic focus on Gold Loans and LAP as twin engines for growth, aiming for 20-25% entity-level AUM growth, with Gold AUM projected to grow 25-30% and LAP AUM 15-20%.

Operating expenses declined 2.4% sequentially, contributing to a 50% YoY growth in Pre-Provisioning Operating Profit (PPOP) to ₹187.5 Cr. Opex as a percentage of average total assets improved by 70 bps QoQ to 4.8%. The Capital Adequacy Ratio (CRAR) stood at 20.71%, a decrease from 22.4% in Q4, partly due to the shrinkage of the co-lending (CLM) book being brought onto the balance sheet. The company is actively working to enhance its partner network to conserve capital and support future growth.

The company maintained its guidance to add 200 branches in FY27, following 150 additions last year. While no new branches were opened in Q1, management stated that premises have been identified and preparatory work completed, with openings expected to be disclosed in Q2. This expansion is crucial for enhancing distribution capabilities and penetrating new territories, particularly in states like Orissa and other northern regions, to support its growth strategy.

True North Fund LLP, a long-standing shareholder, exited its entire holding of approximately 25.7 million equity shares (6.86% of equity capital) through a block deal. These shares were acquired by Nomura India Equity Fund. Management expressed appreciation for True North's support and warmly welcomed Nomura India Equity Fund as a new shareholder, looking forward to their participation in the company's growth journey.