Five-Star Business Finance Ltd. share price target

Five Star Business Finance (Five Star)’s management attributes the company’s asset quality deterioration, stage3 assets increasing to 2.5% vs. 1.8% QoQ and 30+ DPD rising to 11.3% vs. 9.65% QoQ, to higher stress in its core product (INR 0.3–0.5mn LAP) in the near term.

Five Star Business Finance’s (FIVESTAR) 1QFY26 PAT grew 6% YoY to INR2.7b (in line). 1QFY26 NII grew ~20% YoY to INR5.8b (in line), while PPoP rose ~14% YoY to INR4b (in line).

Five Star Business Finance (FIVESTAR) had calibrated its AUM growth in light of the macroeconomic environment, the overleveraging of certain customers with unsecured loans, and regulatory expectations.

Five Star Business Finance (FIVESTAR)’s 3QFY25 PAT grew 26% YoY to INR2.74b (in line). NII grew ~28% YoY to INR5.4b (in line), while PPoP rose ~29% YoY to INR3.9b (in line). Other income declined 3% YoY to INR198m.

Q1FY25 is the eighth quarter for Five-Star Business Finance (Five-Star) post listing, with consistent financial performance and steady improvement in RoE to 18.95% from 14.78% in Q1FY23.

Five Star Business Finance (FIVESTAR)’s 1QFY25 PAT grew 37% YoY to ~INR2.5b (in line). NII grew ~31% YoY to INR4.8b (in line), and PPoP rose ~36% YoY to INR3.55b (in line).

Five Star sustained strong growth momentum in Q2FY24 with disbursement growing at 6% QoQ and AUM at 9% QoQ. We see upside risk to its full year FY24 growth guidance at 35% given addition of 70 new branches during Q2FY24. It highlighted that southern India would remain a key focus market for near-term incremental growth.

Five Star Business Finance’s FY23 annual report provides an insight on how it is progressing towards its vision of “reaching the unreached through suitable credit solution” and capturing the INR 22trn MSME lending opportunity. AUM growth reviving
to 37% in FY23 vs 14% CAGR between FY20-22 (covid impact) is a testimony to its agility and business resiliency.

Breaking the seasonality, Five Star has reported strong Q1FY24 operating performance, especially, on growth and asset quality fronts– AUM grew robust 10% QoQ even in a seasonally weak quarter and 30+ DPD fell to a multi-year low of 9.7%. Spread improve 20bps QoQ driven equally by an increase in asset yields (up 1obps QoQ) and a decline in the cost of funds (down 10bps QoQ).

Five-Star Business Finance (Five-Star) is a direct play on the increasing formalisation of credit, especially in the small-ticket business loan segment (total lending opportunity: Rs22trn). Peers include SCUF, Aavas, Aptus, HomeFirst, Equitas, AU, Repco, Can Fin, Veritas, Vistaar, etc.

Five-Star Business Finance (Five-Star) is a direct play on the increasing formalisation of credit, especially in the small-ticket business loan segment (total lending opportunity: Rs22trn). Peers include SCUF, Aavas, Aptus, HomeFirst, Equitas, AU, Repco, Can Fin, Veritas, Vistaar, etc.

Issue Snapshot: Issue Open: Nov 09 Nov 11, 2022 Price Band: Rs. 450 474 *Issue Size: Rs. 1960.01 cr (Entirely offer for sale) Reservation for: QIB upto 50% eq sh Non Institutional atleast 15% eq sh ((including 1/3rd for applications between Rs.2 lakhs to Rs.10 lakhs)) Retail atleast 35% eq sh Face Value: Rs 1 Book value: Rs 132.38 (June 30, 2022) Bid size: - 31 equity shares and in multiples thereof 100% Book built Issue IPO Note-Five-Star Business Finance Limited

Incorporated in 1984, Five Star Business Finance Ltd (FSBFL) is an NBFC-ND-SI (Non-Banking Finance Company) providing secured business loans to micro-entrepreneurs and self-employed individuals. The company has an extensive network of 311 branches, as of June 30, 2022, spread across 8 states and 1 UT and approximately 150 districts across India, with Tamil Nadu, Andhra

IPO NOTE