Chennai-based non-banking finance company Five Star Business aims to expand its footprint in the north. “Today our portfolio in the South is about 94 per cent. In the next three years, the north might contribute 15 per cent of our portfolio and the south might contribute about 85 per cent,” said Rangarajan Krishnan, CEO, Five Star Business Finance Limited.
For business purposes, asset generation, and other economic applications, Five Star Business provides small-ticket loans to small business clients such as proprietors of kirana stores, medical establishments, and independent contractors.
The company went public last year on November 9. The company raised around ₹1,588.5 crore through its IPO which was lower than the actual issue size. However, Krishnan says, “Since we got listed, HDFC Mutual Fund, Goldman Sachs, and Fidelity Capital have come in as our shareholders.”
Similarly, recently, India Ratings and Research (Ind-Ra) rated the outlook of the Chennai-based non-bank financial institution as stable. As per Ind-Ra, “Five Star’s sizeable franchise in the southern India geography, stable and experienced management, comfortable leverage, diversified funding profile and superior profitability ratios work in its favour.”
However, the company’s geographically confined and modestly seasoned loan book places restrictions on the ratings.
Factors behind stable outlook
The company’s assets under management (AUM) grew at “a CAGR of 46.6 per cent over FY18-1HFY24 to reach ₹82,644 million in September 2023.”
Five Star Business focuses on secured loans in the range of ₹0.3–0.5 million, backed by self-occupied residential properties, mainly in tier 3–tier 6 towns.
Listed in 2022, the 39-year-old company has also seen controlled non-performing assets (NPA), as per Ind-Ra. In FY23, the company’s NPA was 1.36 per cent.
The company has also attracted large investments from private equity firms such as TPG Asia, Matrix Partners, KKR & Co. Inc, Norwest Venture Partners, and Sequoia Capital. An equity infusion of around ₹9 billion helped the company cope and strengthen its equity, says Ind-Ra.
One factor that has acted in favour of the company has been its diversified portfolio. Its funding profile includes bank term loans, external commercial borrowings, and non-convertible debentures (NCDs). The company’s bank funding has grown significantly from 50 per cent in September 2022 to 69 per cent in September 2023.
However, NCDs will have a significant role in the portfolio. “We just got upgraded to AA-, so I think when your portfolio increases and you move to a double-A category, it helps us also diversify a lot more into NCDs,” said Krishnan.