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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)*** Shares of Five Star are available with us in the range of 637-643/share. You can see further details at :trade.altiusinvestech.com or reach out to us at +919830271248. |
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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).
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What has Five Star done differently from other NBFCs? |
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1). Fully backed by hard collateral with right sizing of loan amount: | | |
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- 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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| | 2). Carving out niche in lending to small businesses: |
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- Company has created its niche in lending to small business owners and self-employed individuals.
- Businesses to whom lending is targeted are usually businesses with cyclical experience, running successfully for few years and profitable too, but are outside the credit map
- Also, the loan is given in the name of several members of the family to
ensure family’s collective loan decisioning. - The family cashflows generally range between Rs25k-40k per month and typical collateral value is Rs1mn (no vacant land or commercial property).
- The end use of the loans provided (of ticket size of Rs0.1mn-1.0mn) is primarily for business purposes, but there might be some asset creation as well (home renovation / improvement and other mortgage purposes).
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| | 3). Investing into technology for efficiency: |
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- Five Star has made considerable investments in technology and operates on a core banking, ERP platform and facilitates paperless loan journey.
- Further, it believes, digitization will act as a business enabler to improve efficiency and productivity.
- Company is building digital capabilities through senior hires.
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| | 4). Marquee investor backing and professional management team: |
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- Five Star has raised over Rs19bn (US$260mn) in equity till date and is backed by marquee private equities including TPG, Matrix, Norwest, Sequoia, KKR and TVS Capital.
- Also, it is run by a professional team (15 department heads with banking background) and stands up to high governance standards.
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