Five-Star Business Finance LtdQ1 FY23
Five-Star Business Finance Ltd
Q1 FY23 Earnings Call Analysis
Management growth scorecard
Revenue
Category 2
Margin
Category 4
Fundraise
Yes
Order
Yes
Capex
Yes
3 of 5 growth signals are positive.
Full analysisRevenue guidance
Category 2- →Five-Star Business Finance plans to grow its Assets Under Management (AUM) by over 30% year-on-year for the next 2 to 3 years, driven by three primary levers:
- → - Adding 50 to 60 new branches annually, mainly in South India (~80% of new branches).
- → - Increasing the number of officers per existing branch, currently averaging just below 8, targeting gradual increases to 9 or 10 over time.
- → - Slight increases in average ticket size, currently around INR 3.2 lakhs, expected to return to pre-COVID levels of INR 3.3-3.5 lakhs, influenced by inflationary trends.
- →Branch expansion is expected to enable 20% growth even without new branches.
- →Operating leverage improvements are anticipated as senior management bandwidth expands for a larger company size.
- →The company expects steady-state return on assets (ROA) of about 6-6.5% and return on equity (ROE) above 20% in 3-5 years.
Margin guidance
Category 4- →Five-Star expects 30%+ year-on-year growth in AUM and disbursement over the next 2-3 years driven by branch expansion (50-60 branches annually), increased personnel, and slight ticket size growth.
- →Operating leverage is expected to improve as senior management bandwidth expands to manage larger scale (~INR7,000 crores currently, aiming higher).
- →Return on Assets (ROA) steady state targeted at 6% to 6.5% within 3-5 years.
- →Return on Equity (ROE) expected to be 20%+ due to increased leverage and scale in 3-5 years.
- →Profitability has grown with year-on-year net profit rising from INR454 crores to INR604 crores (33% increase) recently, supporting growth momentum.
- →Cost of funds may decrease slightly, with spreads stable around 12-13%, maintaining strong earnings quality.
- →Earnings per share (EPS) growth implied by strong profit growth and operational scale but specific EPS guidance not provided.
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Fundraise plans
Yes- →The company raised over INR1,400 crores of incremental debt during the recent quarter at an all-in cost of about 9.5%.
- →For the full year, incremental debt raised was INR3,100 crores at an all-in cost of about 9.2%.
- →The borrowing profile is well diversified with around 50 lenders, banks contributing about 56% of debt.
- →There's a focus on granularizing and diversifying debt sources further, including targeting AMCs for NCD subscriptions.
- →Comfortable operating at a leverage of around 4 to 4.5 times, translating to 3 to 3.5 times debt-to-equity.
- →Cost of borrowing has room to reduce further due to improved rating (A to AA) and capital adequacy.
- →No explicit mention of equity fundraising plans, emphasis remains on debt fundraising to support 30%+ growth and branch expansion.
- →The company plans to continue exploring securitization and maintain preference for bank term loans as sticky funding.
Order book
YesThe transcript does not explicitly mention the current or expected order book or pending orders for Five-Star Business Finance Limited. However, related growth and business expansion insights shared include:
- Strong loan book growth, with loan base increasing from about 215,000 to 300,000 accounts (25% YoY).
- AUM grew 37% from INR 5,067 crores to INR 6,915 crores.
- Disbursements increased by 93% for the year; Q4 disbursements were over INR 1,100 crores.
- Branch additions: 73 branches added last year; target is 50-60 new branches annually, mostly in South India.
- Expected growth rate: 30%+ year-on-year for next 2-3 years.
- Proactive liquidity management to support strong disbursal growth in upcoming quarters.
No direct figures on order book or loan pipeline/pending orders were disclosed.
Capex plans
Yes- Five-Star Business Finance is making significant investments in technology aimed at improving straight-through processing (STP) to reduce manual file handling and cut turnaround times. (Page 24)
- Investment in senior management to scale operations effectively as the company grows towards a larger asset base (INR7,000 crores target). (Page 24)
- Branch and people expansion planned evenly across Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka, with a minimum of 50 to 60 branches to be added. (Page 13, 24)
- Continuing to invest in non-South regions such as Madhya Pradesh, Maharashtra, and Chhattisgarh, where currently close to 50-55 branches exist. (Page 13)
- No mention of significant expected operating leverage to reduce cost-to-assets drastically; cost-to-assets expected around 6% in steady state. (Page 24)
In summary, capex is primarily focused on tech enhancement, senior management, and geographic branch expansion.
How does Five-Star Business Finance Ltd rank vs peers in Finance?
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