Five Star Business Finance Limited
Please refer to important disclosures at the end of this report
1
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
Pradesh, Telangana, and Karnataka being the key states. Company’s growth is
primarily volume led through increasing their customer base while keeping the
ATS stable, and they expect this to continue. They started their operations in
Chennai, Tamil Nadu and have increased the scale of their operations through
growth in number of branches by adopting a calibrated strategy of contiguous
expansion across geographies where there is substantial demand for their
offering.
Positives: (a) Fastest Gross Term Loans growth amongst its peers along with strong
return metrics (c) Well-positioned to capitalize on industry tail winds (d) Strong “on-
ground” collections infrastructure leading to its ability to maintain a robust asset
quality
Investment concerns: (a) Substantial portion of company’s customers are first time
borrowers which increases risks of non-payment or default. (b) Any downturn in
economy can impact GNPA/NNPA ratios (c) Any disruption in sources of funding or
increase in costs of funding could adversely affect liquidity and financial condition
Outlook & Valuation: In terms of valuations, the post-issue P/B works out to 3.7x
FY22 BVPS and P/E of 30.5x FY22 EPS (at upper price band of the IPO). FSBFL has
strong NII/PAT growth (CAGR of 31%/32% respectively), healthy advances growth
(CAGR of 15%) over 2 years period, strong ROE, and ROA metrics. Going forward,
strong tailwinds in banking sector, uptick in credit cycle and strong Q1FY23 results
of FSBFL, we believe all the near-term positive factors are priced in the valuation and
it is at reasonable levels. Thus, we recommend a NEUTRAL rating on the issue.
Investors may consider investment from a medium to long term perspective.
Key Financials
Y/E March (₹ cr)
FY’20
FY'21
FY'22
Net Interest Income
530
690
903
% chg
30%
31%
Net profit
262
359
454
% chg
37%
26%
NIM (%)
13.8%
15.8%
17.7%
EPS (`)
89.9
123.2
155.7
P/E (x)
5.3
3.8
3.0
P/ABV (x)
0.7
0.6
0.4
RoA (%)
6.0%
6.2%
7.2%
RoE (%)
13.5%
15.5%
12.2%
Source: Company RHP, Angel Research
NEUTRAL
Issue Open: November 09, 2022
Issue Close: November 11, 2022
Offer for Sale: ` 1,960cr
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 33.7%
Public 66.4%
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: ` 29.13cr
Issue size (amount): ₹ 1,960cr
Price Band: ₹450 - ₹474
Lot Size: 31 shares and in multiple thereafter
Post-issue mkt. cap: * `13,111cr - ** `13,811cr
Promoters holding Pre-Issue: 40.07%
Promoters holding Post-Issue: 33.65%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Fresh issue: ` 0cr
Issue Details
Face Value: `1
Present Eq. Paid up Capital: ` 29.13cr
IPO NOTE
Five Star Business Finance Limited
November 7, 2022
Five Star Business Finance Ltd | IPO Note
November 7, 2022
2
Company background
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 Pradesh,
Telangana, and Karnataka being the key states.
Among their compared peers (being NBFCs in India):
• Within a subset of large peers (with more than ₹ 3,000 crore in Gross Term
Loans), they have the fastest Gross Term Loans growth, with a compound
annual growth rate (“CAGR”) of 65.0% (Financial Year 2017 to 2021);
• Within a subset of large peers (with more than ₹ 3,000 crore in Gross Term
Loans), they had the highest average return on Gross Term Loans of 7.5%,
across the period covering Financial Years 2022, 2021 and 2020.
• They are among the 3 best for gross non-performing assets (being Stage
3 Gross Term Loans which are 90+ Days- Past-Due (“DPD”)) as a
percentage of Gross Term Loans (they had Stage 3 Gross Term Loans as a
percentage of Gross Term Loans of 1.05%) as of March 31, 2022, while they
have the best asset quality among lenders identified by CRISIL as engaged
in extending MSME business loans, with other lenders reporting 90+ DPD
more than 2%.
Over 95% of their loan portfolio comprises loans from between ₹0.1 million to ₹1
million in principal amount, with an average ticket size (“ATS” and calculated as the
average disbursed sum per customer during the period/year) of ₹0.29 million, ₹0.27
million, ₹0.28 million and ₹0.26 million and ₹0.31 million in the 3 months ended
June 30, 2022, and June 30, 2021, and the Financial Years 2022, 2021 and 2020,
respectively
Issue details
The IPO is made up entirely of Offer for sale of ₹1,960cr where the selling
shareholders would be receiving the entire amount.
Pre & Post Shareholding
(Pre-Issue)
(Post-Issue)
Particulars
No of shares
%
No of shares
%
Promoter
11,67,52,493
40.07%
9,80,57,219
33.65%
Public
17,46,13,627
59.9%
19,33,08,901
66.3%
Total
29,13,66,120
100.0%
29,13,66,120
100.0%
Source: Company, Angel Research
Five Star Business Finance Ltd | IPO Note
November 7, 2022
3
Financial Summary
Income Statement
Y/E March (₹ cr)
FY’20
FY’21
FY’22
Net Interest Income
530
690
903
- YoY Growth (%)
30%
31%
Other Income
41
36
52
- YoY Growth (%)
-10%
44%
Operating Income
570
726
956
- YoY Growth (%)
27%
32%
Operating Expenses
172
214
306
- YoY Growth (%)
25%
43%
Pre - Provision Profit
399
512
650
- YoY Growth (%)
28%
27%
Prov. & Cont.
49
35
46
- YoY Growth (%)
-29%
29%
Profit Before Tax
349
476
604
- YoY Growth (%)
36%
27%
Provision for Taxes
87
117
151
- as a % of PBT
25%
25%
25%
PAT
262
359
454
- YoY Growth (%)
37%
26%
Source: Company, Angel Research
Five Star Business Finance Ltd | IPO Note
November 7, 2022
4
Balance Sheet (Consolidated)
Y/E March (₹ cr)
FY’20
FY’21
FY’22
Equity
26
26
29
Reserve & Surplus
1,919
2,293
3,681
Total Net worth
1,945
2,318
3,710
- Growth (%)
19%
60%
Financial Liabilities
Debt Securities
-
-
1
Borrowings
1,079
1,304
1,009
Subordinated liabilities
1,285
2,121
1,550
Other Financial Liabilities
22
26
54
Non-Financial Liabilities
Provisions
6
7
9
Other Liabilities
17
17
9
Total Liabilities
4,353
5,794
6,343
Financial Assets
Cash Balances
290
1,267
613
Bank Balances
161
89
267
Advances
3,831
4,359
5,102
- Growth (%)
14%
17%
Other Financial Assets
5
5
266
Non-Financial Assets
Fixed Assets
28
25
33
Other Assets
38
50
62
Total Assets
4,353
5,794
6,343
- Growth (%)
33%
9%
Source: Company, Angel Research
Five Star Business Finance Ltd | IPO Note
November 7, 2022
5
Key Ratios
Y/E March (₹ cr)
FY’20
FY'21
FY'22
Profitability ratios (%)
NIMs
13.8%
15.8%
17.7%
Cost to Income Ratio
30%
30%
32%
RoA
6.0%
6.2%
7.2%
RoE
13.5%
15.5%
12.2%
B/S ratios (%)
CAR
36%
27%
22%
Tier I
33%
26%
20%
Asset Quality (%)
Gross NPAs
1.1%
5.5%
5.7%
Net NPAs
0.4%
2.4%
1.7%
Provision /Avg. Assets
1%
1%
1%
Provision Coverage
65%
57%
69%
Per Share Data (`)
EPS
90
123
156
Diluted EPS
90
123
156
BVPS
667
796
1,274
Source: Company, Angel Research;
ROA TREE
Y/E March
FY’20
FY'21
FY'22
Interest Income
17.2%
17.5%
19.0%
Interest Expense
5.0%
5.6%
4.7%
Net Interest Income
12.2%
11.9%
14.2%
Other Income
0.9%
0.6%
0.8%
Total Income
13.1%
12.5%
15.1%
Operating Expenses
3.9%
3.7%
4.8%
PPoP
9.2%
8.8%
10.2%
Provisions
1.1%
0.6%
0.7%
Profit Before Tax
8.0%
8.2%
9.5%
Provision for Taxes
2.0%
2.0%
2.4%
ROA
6.0%
6.2%
7.2%
Leverage
2.2
2.5
1.7
ROE
13.5%
15.5%
12.2%
Source: Company, Angel Research;
Five Star Business Finance Ltd | IPO Note
November 7, 2022
6
Research Team Tel: 022 - 40003600 E-mail: [email protected] Website: www.angelone.in
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