Five Star Business Finance IPO of the Non-banking lender envisages to raise ₹1,960-crore. Five Star Business Finance IPO is entirely an offer for sale (OFS) of shares by existing shareholders and promoter group entities. The IPO of the Chennai headquartered NBFC will be open for public subscription during November 9-11. Five Star Business Finance is backed by investors like TPG, Matrix Partners, Norwest Ventures, Sequoia and KKR.

Bidding date9th Nov – 11th Nov’2022
Issue  Size (shares)41,350,317 Shares ( OFS only)
Issue Size  (Rs. Cr. )₹ 1,960 Cr
Face Value in Rs. 1
Bid Lot shares31 and multiples
Price Band₹ 450 – 474
Issue Structure :
QIB50%
NIB15%
Retail35%, 14.5 L shares, 686 Cr.
Applications for 1x Retail4.7 lac

About Five Star Business Finance

  • Five Star Business Finance Ltd commenced operations in 1984 with a focus on consumer loans and vehicle finance.
  • It changed its business approach in 2005 and moved to small business loan lending in urban, semi-urban markets and rural areas.
  • Five Star Business Finance is an NBFC-ND-SI providing secured business loans to micro-entrepreneurs and self-employed individuals, each of whom are largely not covered by traditional financing institutions.
  • Company is headquartered in Chennai, with a strong presence in south Indi
  • All of their loans are secured by their borrowers’ property.
  • Over 95% of their loan portfolio comprises loans from between ₹0.1 million to ₹1 million in principal amount, with an average ticket size 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.
  • They had an active loan base of 230,175 and 217,745 as of June 30, 2022, and March 31, 2021, respectively.
  • Five Star had an extensive network of 311 branches as of June 30, 2022, spread across approximately 150 districts, 8 states and 1 union territory, with Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka being their key states.
Five Star Business Finance IPO GMP, Date & Best review 2022

Anchor Book: Five Star Business Finance IPO

  • Five Star Business Finance Ltd has raised Rs 588 crore from 21 anchor investors ahead of its initial public offering (IPO. SmallCap World Fund, Fidelity Investments, Capital Research, Malabar Investments, Government Pension Fund Global, Abu Dhabi Investment Authority, Norges Bank, Carmignac Gestion, White Oak, Bay Capital, Segantii, SBI Life Insurance, HDFC MF, Baroda BNP MF, Edelweiss MF and Mirae MF are among the anchor investors.
Anchor Investor% of Anchor Book
Small Cap World Fund Inc28.87%
Fidelity Funds – India Focus Fund12.31%
Volrado Venture Partners11.16%
Abu Dhabi Investment Authority8.37%
Government Pension Fund – Norway7.14%
American Funds Insurance Series6.00%
HDFC Banking & Financial Fund5.08%
Ashok India Opportunities Fund4.18%
SBI Life Insurance Company3.49%
Winro Commercial India1.70%
Mirae Banking and Financial Fund1.70%
Carmignac Portfolio1.58%
  • The Anchor book mutual fund allocation represents 11.05% of the overall anchor allocation which appears low.

Five-Star Business Finance IPO : Financials

Particulars / (₹ Cr)2022(03) 2021(03) 2022(12) 2021(12) 2020(12) 
Revenue from Operations 337.97300.521,254.621,049.74786.72
Revenue Growth (%) 12.46%– 19.52%33.43%
EBITDA as stated 254.58224.38917.05813.02576.3
EBITDA (%) as stated 75.33%74.66%73.13%77.45%73.25%
Profit/Loss Before Tax 186.16135.35604.21476.44349.3
Net Profit 139.43101.57453.55358.99261.95
Net Profit (% )41.12%33.77%36.11%34.15%33.27%
Equity Share Capital 29.1427.1229.1325.6525.58
Reserves 3,827.842,917.303,681.222,292.531,919.00
Net worth3,856.982,944.413,710.352,318.171,944.58
EPS-Diluted (₹) 4.743.6615.9213.6110.07
RONW (%) 3.62%3.45%12.22%15.49%13.47%
NAV (₹) 132.38102.73127.3585.2671.68
Post Issue share Cap29.14
FV in Rs. 1
IPO price474
EPS post IPO FY2215.57
PE 30.4
EPS post IPO FY23 ann19.1
PE  FY23 ann24.8
Market Cap Rs. Cr. 13811
Market Cap/Sales11.01
Price / BV3.58

Salient Points: Five-Star Business Finance IPO

  • The IPO is entirely an offer for sale (OFS) of shares to the tune of Rs 1,960 crore by existing shareholders and promoter group entities.
  • The Chennai-based NBFC is backed by investors like TPG, Matrix Partners, Norwest Ventures, Sequoia and KKR.
  • Promoters holding Post-Issue will be 33.65%
  • The OFS will see the sale of shares to the tune of ₹166.74 crore by SCI Investments V, ₹719.41 crore by Matrix Partners India Investment Holdings II LLC, ₹12.08 crore by Matrix Partners India Investments II Extension LLC, ₹361.44 crore by Norwest Venture Partners X- Mauritius and ₹700.31 crore by TPG Asia VII SF Pte Ltd.

Concerns

  • Challenge of regional concentration: 87% of its Rs. 5,300 cr loan book comes from the states of Tamil Nadu, Andhra and Telangana
  • Substantial portion of company’s customers are 1st time borrowers which increases non-payment or default risk
  • Any downturn in economy can impact NPA numbers.
  • Increase in costs of funding could adversely affect its financial condition
  • Change in NBFC regulations

Five Star Business Finance IPO: Assessment

  • Five star Business Finance is catering primarily to the ₹3 – 5 lakhs ticket size of loans
  • It has shown the fastest Gross Term Loans growth amongst its peers with strong return metrics
  • At present it looks well positioned to capitalize on industry tail winds
  • The company has a strong on ground collections infrastructure leading to its ability to maintain a robust asset quality.
  • Five Star Business Finance has lending relationships with leading banks like SBI, HDFC Bank, ICICI Bank, and IDFC First Bank among others. Among NBFC, the company has relationships with majors like Bajaj Finance, Aditya Birla Finance, and Tata Capital among others.
  • Healthy growth, margins and asset quality.
  • Five Star Business has witnessed robust and steady growth in its loan portfolio for the last four years. The company has more than doubled the same from Rs 2,113 crores in FY 2019 to Rs 5,067 crores in FY 2022.
  • Healthy advances growth (CAGR of 15%) over the 2 years period,
  • Even during pandemic, AUM grew at 14% CAGR in FY20-22 and it could maintain net interest margin at ~16%.
  • Five Star Business Finance has reported strong NII growth (CAGR of 31%) and PAT (CAGR of 32%)
  • FSBFL has strong NII/PAT growth (CAGR of 31%/32% respectively), strong ROE, and ROA metrics. Going forward, strong tailwinds in banking sector, uptick in credit cycle and strong QIFY23 results of FSBFL
  • IThe post IPO Price/BV works out to 3.6x and P/E of 30.5x on FY22 EPS (at upper price band of the IPO). on TTM basis Five Star Business Finance is offered at 28x of annualized EPS for period ended June 2022. Among peers, MAS Financial Services is trading at PE of 30.3x of annualized EPS for TTM ended June 2022 and Shriram City Union Finance at 10.7x. Lenders like Aptus hosuing despite good results have increase little appreciation in stock prices.
  • Deluge of IPOs and OFS may suck liquidity from the market.
  • I have a neutral viw on the stock despite some positives. I donot intend to apply in the Five Star Business Finance IPO at this stage.

Five Star Business Finance IPO: Apply or Not (My view Only)

Risk : Low to moderate
Expected Reward : Low profit to possible small loss on listing.
Listing Gains : Not sure Current GMP ~Negligible in single digits
Hold for Medium Term: Not sure. can be OK if same growth pattern maintained.
Subscription : Expected to low/Moderate
Above are my views only. Please do your own diligence.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

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