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RATING

RECOMMENDATION

Strong Buy

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RATING

RECOMMENDATION

Strong Buy

Business Type

Emerging Leader

Get info on Five Star Stock Price before buying, selling and investing - Read our Research report on Five Star Pre IPO For Information like - Management, Business Model, Financials, Growth, Valuations, Funding Rounds, News.

ISIN

INE128S01013

Face Value

₹10.00

Total Share

2,71,90,741

Total Income

₹690.89 Cr

Profit After Tax

₹358.99 Cr

EPS

₹136.06

P/E

5.33

P/B

0.92

Market Capitalisation

₹1,971.33 Cr

Enterprise Value

₹4,056.10 Cr

Book Value

₹783.86

Earnings Yield

18.77 %

Sector

Financials

Sub-sector

Consumer Finance

Category

Pre IPO

Cashflow - Operations

-₹157.27 Cr

Cashflow - Financing

₹1,032.53 Cr

AUM

₹4,445.00 Cr

AUM Growth

14.21 %

Five Star Growth

Compounded Sales Growth

  • 32.59%

    1 Year

  • 72.61%

    3 Year

  • 81.97%

    5 Year

Pro Only

Compounded Profit Growth

  • 37.05%

    1 Year

  • 88.67%

    3 Year

  • 92.11%

    5 Year

Pro Only

Return On Equity

  • 16.84%

    1 Year

  • 16.86%

    3 Year

  • 16.68%

    4 Year

Pro Only

About Five Star

  • Five Star is a non-banking finance company (NBFC), and is specialized in providing loans to Micro- entrepreneur and self employed individual.
  • Five-Star Business Finance Limited provides financial services that include business, housing, and mortgage loans. It offers long tenure loans, cashflow based appraisal, transaction options, and documentation services.
  • The company target customers in urban and semi-urban locations in India, as well as rural markets who typically derive income from “everyday” cash and carry businesses with a focus on services.
  • The company had an extensive network of 268 branches as of September 30, 2021, spread across approximately 126 districts, eight states and one union territory. Such key states collectively accounted for approximately 85% of our branch network by number.
  • Five-Star Business Finance Limited is a Chennai based company and was formed in 1987, it was formerly known as Five Star Business Credits Limited and changed its name to Five-Star Business Finance Limited in July 2016.

  • Five Star IPO Details

Company filed its DRHP on November 9, 2021 and is expected to bring its IPO in FY22.

Five Star
Offer for Sale

₹ 2751.94 Cr

Five Star
Total IPO Size

₹ 2751.94 Cr

  • Five Star Funding

Funded By Funding Amount Date of Investment Funding Round Fund Name
KKR, Norwest Venture Partners, Sequoia Capital India, TVS Capital $ 218.86 M 26 Mar 2021 Unattribtd Private Equity
TPG $ 218.86 M 22 Jul 2019 Pr. Equity Private Equity
Sequoia Capital, Norwest Venture Partners - NVP, TPG Capital Asia, Morgan Stanley $ 168.83 M 31 Jul 2018 Growth Private Equity
Sequoia Capital, Morgan Stanley, Matrix Partners India, Norwest Venture Partners $ 68.90 M 09 Aug 2017 Series C Private Equity
Morgan Stanley Private Equity Asia limited $ 16.79 M 28 Jun 2016 Growth Private Equity
Matrix Partners India Advisors LLP $ 3 M 27 Feb 2014 Venture Private Equity
  • Five Star Merger & Acquisition

Acquisition

Sequoia Capital India Advisors Private Limited, Norwest Venture Partners, KKR Global Impact Fund SCSP, managed by KKR & Co. Inc. and TVS Capital Funds Limited completed the acquisition of an additional 12% minority stake in Five-Star Business Finance Limited from Morgan Stanley Private Equity Asia Limited on April 26, 2021. Combined consideration value of both the transactions is INR 17 billion.

  • Five Star Subsidiaries

The company has one wholly-owned subsidiary called Five-Star Housing Finance Private Limited.

  • Five Star Revenue Segmentation

  • Interest on loan
  • Interest on Deposits
  • Fee Income
  • Gain from fixed assets
  • Other Income
  • Five Star Product & Services

Business Loans
  • Loans provided to borrowers for furthering their existing businesses, starting new businesses
Mortgage Loans
  • Loans provided for takeover from other institutions, to meet family needs like education requirements, medical emergencies.
  • Five Star Assets

Assets of the company as of 31st Mar'21: 

Company owns Furniture and fittings of Rs.409.24 Lakhs.

Company possess Computers and accessories of worth Rs.212.57 lakhs.

Company owns Office equipment of Rs.131.50 Lakhs

Company possess Vehicles of  Rs.8.89 Lakhs.

Company owns Software of worth Rs.190.30 Lakhs.

  • Five Star Industry Overview

Industry Statistics

  • Financial services in India consists of commercial banks, insurance companies, non-banking financial corporations(NBFC), housing finance  cooperation(HFC), pension funds, mutual funds and other smaller financial institutions.
  • As a critical part of India’s financial system, NBFCs have been driving credit inclusion among individuals and enterprises by improving access and bridging pricing inefficiency through innovative product solutions and delivery models.
  • As of FY21 NBFC lenders account for around 20.0%of the sector’s credit needs, clocking a CAGR of 30% over the last five years.
  • As per CRISIL report, non-bank lenders(NBFCs and HFCs) constitute about 25.0% (over Rs. 36 Lakh Cr.) of the systemic credit outstanding and have financed over 10 Cr. customers drawing strength from their extensive footprint largely in rural and semi-urban areas.
  • Credit accessibility in India remains comparatively lower against developed nations also mortgage to GDP ratio in India is low at 10.0%, which is a significant opportunity to bridge the gap in India’s credit.
  • While credit towards the retail and services segments has risen rapidly over the past five fiscal years, driven by strong consumer demand, lower NPA and better margins. Because of this, their shares in the overall banking credit mix have been expanding. However, in fiscal 2021, retail credit clocked slower growth as private consumption plunged on account of Covid-19 pandemic and its profound impact on economic activity.
  • The main reasons for the previous growth is high credit gap in the target customer segment, Increased data availability and transparency, growth in branch network of players in the segment with the increase customer acquisition and credit penetration of small business loans may also increase, reduction in TAT and increased use of technology.
  • The share of total credit outstanding is about 9% in rural areas and 91% in urban areas as of March 31, 2021. The massive divergence in the rural areas’ share of India’s GDP and banking credit services compared with urban areas is an indicator of the extremely low penetration of banks in rural areas.
  • NBFC has highest share of New to credit(NTC) customers. Overall, share of NTC in small business loan segment with ticket size less than ₹ 10 lakhs has increased from 9% in fiscal 2017 to 25% in fiscal 2020. 
  • The small business loans segment has been growing strongly with a 4Yr CAGR of 29% between fiscal 2017 and 2021. However, there are wide variations across states. Based on the value of small business loans lower than ₹ 10 lakhs ticket size outstanding, Tamilnadu accounted for highest share of 15% in this segment. While Five Star Business Finance has a strong base in Tamilnadu which is a positive point for the company.

Future Prospects

  • There is a huge demand supply gap in small business loan segment. With the increasing presence in smaller cities and rising focus of lenders on underserved target customer segment, loan portfolio is expected to see a strong growth in future.
  • According to the National Financial Literacy and Inclusion Survey (NCFE-FLIS) 2019, only 27% of Indian population is financially literate indicating huge gap and potential for financial services industry.
  • Going forward, CRISIL Research expects the small business loans portfolio to grow at 22% CAGR over fiscal 2021 and 2024 
  • Between fiscal 2021 and fiscal 2024, Indian retail credit market is expected to make a strong comeback and grow at 13-15%.
  • The report by IFC titled “Financing India’s MSMEs” published in November 2018 shows about 47.6 million MSME, which are unregistered and hence unlikely to have received any formal source of debt. Further, out of the total debt supply of INR 69.3 trillion to this sector, only INR 10.9 trillion is met by formal sources. This presents a huge opportunity to financial institutions that have developed an underwriting and collections model to cater to the business needs of this borrower segment. 

Government Initiatives

  • Liquidity boost for NBFCs : The government announced a ₹ 450 billion partial guarantee scheme (for NBFCs) and ₹ 300 billion special liquidity scheme for NBFCs, housing finance companies (HFCs) and MFIs, aimed at covering the concern of credit risk perception on mid and small size non-banks.
  • Loan interest subvention scheme (₹ 15 billon): Under this scheme, the government has provided 2% interest subvention for loans given under Mudra-Shishu scheme. These loans are up to the ticket size of ₹ 50,000 and are mostly given by NBFC-MFIs benefiting low income groups customers.
  • Collateral-free loans to MSMEs (₹ 3 trillion): Banks and NBFCs are directed to offer up to 20% of entire outstanding credit to MSMEs. MSMEs with up to ₹ 250 million outstanding credits and ₹ 1 billion turnover are eligible for these loans. It will have four-year tenure with a moratorium of 12 months on principal payment and can be availed till October 31, 2020. The government will provide complete credit guarantee cover to lenders on principal and interest amount.
  • Credit Guarantee Fund Scheme extended to cover NBFCs: One of the major reasons why MSMEs are credit-starved is the insistence by banks or financial institutions for the provision of collateral against loans. In order to address this issue, the government launched it to make collateral-free credit available to micro and small enterprises. 

Five Star Strengths

  • Despite the significant downturns in the economy especially the financial services industry, the company managed to retain its rating of A stable from both ICRA and CARE Ratings.
  • During the financial year, the company added 10 branches resulting in the branch network increasing to 262 from 252 during the previous financial year. They are continuously diversifying geographically, thereby mitigating the risk of concentrated portfolio in one geography.
  • Despite the really difficult times during the year, the company closed the year with a Gross Stage 3 Assets (90+ Assets) of 1.02%, which is one of the best amongst companies operating in this customer segment.
  • For small business loans, company's distinguishing factor is that they lend to proprietors who are running the business and not to the business enterprise itself, this makes the owners liable to repay the loans, and reduce the risk for the company.
  • As at March 31, 2021, the total loan assets under management increased to Rs. 4445.38 Cr. from Rs. 3892.23 Cr. during the previous financial year, registering a growth of 14.21%. Within peers, Five Star has the fastest AUM growth, with a compound annual growth rate (“CAGR”) of 65.0% from FY17- 21.
  • Five Star deals in secured business loans and according to the company all of the loans are secured by our borrowers’ property, predominantly being SORP, which makes it secure investment for investors.
  • The company is among the three best for Gross Non-Performing Assets (being NPAs that are 90+ Days-Past-Due (“DPD”)) as a percentage of AUM as of March 31, 2021. They have Gross NPA as a percentage of AUM of 1.02%.
  • According to the CRISIL Report, NBFCs offering loans for business purpose with 170 property as collateral reported collection efficiency in the range of 90-92% in the third quarter of financial year 2021 and 94-96% in the fourth quarter of financial year 2021. While company's average monthly collection efficiency improved to 95.98% and 96.50% in the third and fourth quarters of Financial Year 2021, respectively.

Five Star Shortcomings

  • Company’s ROA has decreased from 7.8% in FY20 to 7.1% in FY21, which suggest company's financial assets are increasing but company is not able to provide adequate returns on them. As due to pandemic, loans of the company has increased but loan disbursement amount has decreased, which resulted in fewer recovery of fees. Hence increase in earnings of the company could not cover its increase in assets.
  • The “first wave” of COVID-19 had an impact on company's ability to procure capital from banks and financial institutions putting all of the borrowing proposals on hold and resulting in a reduction in liquidity position as of March 31, 2020.
  • Five Star provide loans to customers who are self-employed. They are often considered to be higher credit risk customers due to their increased exposure to fluctuations in cash flows due to adverse economic conditions. To the extent company is unable to successfully manage the risks associated with lending to self-employed customers, it may become difficult for them to recover outstanding loan amounts provided to such customers. 
  • A substantial portion of the company's customers are first time borrowers which increases risks of non-payment or default.

Five Star Opportunities

  • In order to bring about customer convenience, the company has facilitated payment of instalments through digital means like UPI, payment through the company’s website, etc. This would enhance the levels of technology towards enhanced and proactive identification of risks and mitigating them in the best manner possible.
  • According to the National Financial Literacy and Inclusion Survey (NCFE-FLIS) 2019, only 27% of Indian population is financially literate indicating huge gap and potential for financial services industry, company can work towards bridging that gap. 
  • The company can continue to invest in technology and data analytics to build a scalable and efficient operating model / to improve customer experience, increase productivity and decrease costs.
  • The company can continue increasing penetration in existing markets through increasing branch staff numbers, branch network in the existing geographies and diversifying to contiguous markets.
  • The company continue to focus on small business owners and self-employed individuals primarily in the semi-urban and urban markets of India, as well as in rural markets where CRISIL expects faster growth in bank credit activity as financial awareness increases.

Five Star Threats

  • Applicability of liquidity coverage ratio (LCR) was imposed on NBFCs by RBI. Such frequent changes in regulatory framework poses challenges on day-to-day operations of the NBFCs.
  • The outbreak of COVID-19 has further disrupted the existing stress in the Indian financial system due to significant drop in customer acquisition, sharp fall in customer repayments/collections and liquidity stress emanating from increased risk aversion by banks.
  • Since FY19, non-bank lenders have been increasingly challenged for growth on account of liquidity crisis in the sector. The key factors which have exposed them to growth challenges include difficulty in rolling over existing debt and raising new debt due to liquidity squeeze.
  • Large portion of company's customers belong to the low-income group, earning not more than ₹25,000 per month. They may default on their repayment obligations due to various reasons including business failure, insolvency, lack of liquidity, loss of employment or personal emergencies such as the death of an income-generating family member, including on account of events such as the COVID-19 pandemic. 
  • As company's loan portfolio grows, their NPAs may increase and the current level of company's provisions may not adequately cover any such increase. Negative trends or financial difficulties or a general economic slowdown could unexpectedly increase delinquency rates. 
  • The company is affected by volatility in interest rates for both lending and treasury operations, which could cause net interest income (“NII”) and net interest margin (“NIM”) to vary and consequently affect company's profitability, result of operations and cash flows.
  • The small business finance industry in India is highly competitive and the company compete with unorganized money lenders, certain larger NBFCs and HFCs, as well as certain microfinance entities, in geographies in which they operate. The competitors may have more resources, a wider branch and distribution network, access to cheaper capital, superior technology and may have a better understanding of and relationships with customers in these markets. This may make it easier for competitors to expand and to achieve economies of scale to a greater extent.
Five Star Rating

  • RECOMMENDATION

    Strong Buy

  • Five Star Detail Info

Industry Statistics

PRIVATE LIMITED

Registered In

India

last Updated

27/12/2021

Registered Date

05/07/1984

Planify Ticker

FSBF

Reg Office: New No 27, Old No 4 Taylor's Road, Kilpauk - 600010 Chennai, India

Website: http://www.fivestargroup.in