Five-Star Business Finance Ltd.(A Complete Deep-dive Research report)

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We had first invested in Five-star Business Finance Ltd. in October 2020 at around Rs 200/sh, since then this is how the price graph has moved:

March 2021 – Rs 345/sh

June 2021 – Rs 485/sh

October 2021 – Rs. 630/sh

December 2021 – Rs. 730/sh

This translate to a CAGR of roughly around 47.28%+

***All the prices has been adjusted for split (Split = 1:10, on 8th Oct’2021)***

About the Company

Founded in 1984, Five Star is an NBFC with AUM of Rs45bn catering to a
business community of 177k customers with an average outstanding ticket size
of Rs250k.

  • It has created a niche in lending to ‘underserved’ business owners and
    self-employed segment in tiers 3-6 cities, thereby commanding IRRs of ~24% and spreads of ~12%. The execution excellence helps it manage opex/AUM at 6-7%.
  • It contain credit cost, thereby generating RoAUM of 8-9% and RoE of 16-18%.
  • The scale-up all through past couple of decades was led purely by customer addition (not increased average ticket size).


What has Five Star done differently from other NBFCs?

1). Fully backed by hard collateral with right sizing of loan amount:

  • 100% of FiveStar’s lending portfolio is backed by hard collateral, of which ~95% is self-occupied residential property (SORP).
  • Loans are right sized within its internal parameters of LTV and IIR of about 50%.
  • the loans are structured with relatively longer tenures (maximum seven years and minimum two years) to reduce the EMI burden (average behavioral tenure is of about 5 years).

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