Chennai-based Five Star Business Finance Limited (FSBFL) has filed draft papers with capital markets regulator SEBI to raise up to INR2,752 crore through an Initial Public Offering. Five Star Business Finance IPO is a complete offer for sale by SCI Investments, Matrix Partners, Norwest Venture Partners, TPG Asia as well as the promoter group.
The NBFC (Non-Banking Financial Company) offers secured business loans to micro-entrepreneurs and self-employed individuals, each of whom are largely excluded by traditional financing institutions. The company has a strong presence in south India, and all loans are secured by the borrowers’ property, predominantly being self-occupied residential property (SORP).
Target customers of Five Star Business Finance are mostly everyday cash and carry businesses with a focus on services, it also provides secured loans to small business owners and self-employed individuals, as well as small mortgage loans to fund significant economic events in the lives of the customers like marriage, education requirements, etc, in urban and semi-urban locations, as well as rural markets with a potential for growth.
Consumer loans to business loan
Five Star Business Finance was set up by VK Ranganathan and commenced operations in 1984, with a focus on consumer loans and vehicle finance. Under the leadership of current Chairman and Managing Director Lakshmipathy Deenadayalan, the company changed its business approach in 2005 with a focus on Small Business loan lending in Urban, Semi Urban Markets as well as Rural Areas with growth potential. He has more two decades of experience in the small business loan lending segment.
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Five Star Business Finance IPO: Expanding operations
The company has grown from 173 branches in 2019 to 268 branches as on 30 September 2021 across 126 districts in eight states and one union territory. Its AUM grew 86% CAGR over fiscal 2016-21, and has had the fastest AUM growth amongst subset of large peers with over INR3,000 crore of AUM. Live accounts grew from 15,803 in fiscal 2017 to 1,92,270 as of 30 September 2021. In addition, it also has a business and collections team of 2,827 employees including 2,258 Relationship Officers.
Its AUM (Asset Under Management) stood at INR4,445 crores as of 31 March 2021, compared to INR3,892 crores as of 31 March 2020. Its Gross NPA stood at 1.02% as of 31 March 2021. As of March 2021, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana accounted for 95% of the overall portfolio. The NBFC posted a 34% growth in total income at INR1,051 crore in FY21 from INR787 crore in FY20, while its net profit jumped 37% to INR359 crore in FY21 from INR262 crore in FY20. The NBFC also recorded a PAT of INR218 crore for the first-half of the current financial year.
Focus on collections
Its strong collections focus during the Q2FY22 resulted in its average monthly collection efficiency reaching 102.04% (includes collection of arrears instalments dues for the period but without including any prepayments made by the customers). This also resulted in a reduction in its GNPA from 1.68% as of 30 June 2021 to 1.44% as at 30 September 2021. The NBFC has restructured 1.87% of its portfolio, and a large proportion of those borrowers have also started making payments of their dues during the months of August and September, which were moratorium months.
ICICI Securities Limited, Kotak Mahindra Capital Company Limited, Edelweiss Financial Services Limited and Nomura Financial Advisory and Securities (India) Private Limited are the book running lead managers to Five Star Business Finance IPO.
