Founded in 1984, Five Star is an NBFC with AUM of ₹5067 Cr. catering to a business community of 177k customers with an average outstanding ticket size of ₹ 3 lakhs.
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They are an NBFC-ND-SI providing
secured business loans to micro-entrepreneurs and self-employed individuals,
each of whom are largely excluded by traditional financing institutions. We are
headquartered in Chennai, Tamil Nadu with a strong presence in south India and
all of their loans are secured by our borrowers’ property,
predominantly being SORP. According to the CRISIL Report, among our compared
peers (being NBFCs in India): Five
star have the fastest AUM growth, with a compound annual growth rate (“CAGR”)
of 65.0%; they had the highest average return on AUM of 7.9%,
they are among the three best for Gross Non-Performing Assets of 1.02% as of March 31, 2021,
while the other lenders
reporting 90+ DPD in excess of 2%.
Targeted Customers:
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In urban and semi-urban locations, as
well as in the rural markets of India, where CRISIL expects faster growth in
bank credit activity as financial awareness increases;
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Customer typically derive income from “everyday” cash
and carry businesses with a focus on services;
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household net cash-flows of approximately ₹25,000 to ₹40,000
per month;
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They also provide collateral (typically land and building of
approximately ₹1.0 million in value; and
- whose family will act as co-applicants on the loan.
Financial performance in FY22:
• Disbursal of over ₹ 1,750 crores
along with the borrower base crossing 2 lakhs during the year.
• Company also saw its portfolio
growing from ₹ 4,445 crores to ₹ 5,067 crores, an increase of 14%. • Growth in
Profit after Tax (PAT) from ₹ 359 crores to ₹ 454 crores, an increase of over
25%.
• Gross Stage 3 assets of 1.05%, which is one of the best asset qualities across the financial services industry.
Strength:
Credit strengths Augmented capital
structure to support medium-term portfolio growth: Five
Star a net worth of ₹ 3710 crore and capital adequacy ratio of 75.2% as of
March 31, 2022. The company secured regular equity infusions in the past (₹
1,366 crore raised during the period FY16-FY20) which supported its overall
risk profile even as it registered a sharp AUM growth. ICRA notes the recent
equity infusion of ₹ 518 crore from some of the existing investors, namely
Sequoia Capital and Norwest Ventures, and from two new investors, namely Sirius
II Pte. Ltd (KKR) and TVS Shriram Growth Fund, in April 2021. Post the
transaction, the net worth increased to ₹ 2,850 crore as of April 2021. The
promoter’s shareholding stood at 20.6% on a fully diluted basis with six
private equity (PE) investors holding a 70.0% stake as of April 2021. Key PE
investors include TPG, Sequoia , Matrix Partners and Norwest Ventures.
Diversified Board and experienced
senior management team – Five-star board is quite
diversified, consisting of 12 members. Apart from the Chairman and Managing
Director (promoter), the board consists of four independent directors, five
representatives of the PE investors and two non-executive directors. ICRA takes
note of the experience of the promoter and the senior management team in retail
lending and banking services. The senior management team has been steadily
augmented over the past few years in view of the growth plans. The key business
functions, including internal audit, business & collections, technology,
credit, risk, treasury and human resources, are headed by personnel who have
adequate experience in these fields.