DAM - Capital - Initiating - Coverage - On - Five - Star - Business - Finance - With Authentic Reserach

Five-Star Business Finance
INITIATING COVERAGE
The best forward momentum on compounding in store
BUY
Five-Star Business Finance (Five Star) is focused on providing secured financial

solutions to small business customers and self-employed individuals who are
27 December 2023 largely cut-off from formal lending ecosystem. New to credit borrowers account for
BSE Sensex: 71337 25%, and the one’s with credit score have a very limited history through their MFI
and gold or 2W loans in the past. They offer a ticket size range of Rs0.1mn -
Sector: NBFC Rs1.0mn with ATS of Rs0.34mn to the borrowers having monthly income of Rs25-
40k. Loans are provided for business expansion, home improvement, marriage,
education, emergency, etc. with a tenure of 2-7 years. Average LTV and debt
burden ratio of ~50% at the time of disbursements and current on-book LTV stands
Stock data at ~38.5%. While disbursements entirely occur to bank accounts, 55% of the
collections take place through cash.
CMP (Rs) 696
Journey so far - Deep understanding of customer behaviour, strong knowledge of
Mkt Cap (Rs bn/USD m) 203.5 /2,446 the local market and regional dynamics are essentials to operate in this segment. To
master these essentials, they spent 10 years on pilots (2005-2015, AUM of Rs1.3bn
Target Price (Rs) 1000 by the end of FY15 with 39 branches) and in the next two years they reached Rs5bn
Change in TP (%)  of AUM. By this time, they had their Proprietary Underwriting (multi-layered) &
Collections model in place before pushing the peddle on growth starting FY18 and
Potential from CMP (%) 44 reaching Rs83bn in AUM by the end of 1H of FY24 with 456 branches. Five Star has
grown >50x in AUM between FY15A and FY23A with same ticket size and 100% in-
Earnings change (%)
house sourcing on the back of 10x growth in branch network. Top 3 states of AP, TN
FY25E  & Telangana account for 88% of the AUM.
FY26E  What is the problem they are solving and why competition would stay low? Five
Star’s borrowers come from Tier 3 to Tier 6 cities. They are small business owners
Bloomberg code FIVESTAR IN and self-employed individuals operating cash-and-carry businesses with a focus on
service-oriented offerings. Their cashflows are usually not defined/certain with no
1-yr high/low (Rs) 877/494
income documents, given minimal banking habits. 100% of the book is backed by
6-mth avg. daily volumes (m) 0.9 hard collaterals, of which 95% is SORP; however, the property title has
comparatively limited chain of ownership since inception, albeit current title
6-mth avg. daily traded value
documents are clear.
(Rsm/USDm) 662.1/8 Assessment of the real income and thereby repayment capability of such borrowers
Shares outstanding (m) 292.2 and fetching correct valuation of collaterals through a rigorous underwriting imbibing
complex ecosystem checks is thus an extensive task and an absolute expertise that
Free float (%) 68.7 Five Star has fine-tuned over its two decades of experience. Inability to use
SARFAESI tool, given smaller ticket size, adds to the complexities in the process of
Promoter holding (%) 31.3
recoveries from stressed accounts and makes it tough for any new player to venture
*Lakshmipathy and family holding
into this segment. Hence, though there are no absolute entry barriers, it is
Price performance – relative & absolute
reasonable to say that there are strong operational entry barriers.
Five-Star Business Finance Ltd (Rs - LHS)
Sensex (RHS) Key valuation metrics
200 Year to 31 Mar FY22 FY23 FY24E FY25E FY26E
150 NII (Rs. bn) 9.0 12.3 16.3 20.8 26.5
100 PPOP (Rs. bn) 6.5 8.2 11.4 14.3 18.1
50 PAT (Rs. bn) 4.5 6.0 8.0 10.0 12.6
0 EPS (Rs.) 16 20 27 34 43
Nov-22
Sep-23
Nov-23
Jul-23
Jun-23
Oct-23
Jan-23
Mar-23
May-23
Dec-22
Feb-23
Dec-23
Apr-23
Aug-23
BVPS (Rs.) 127 149 176 211 254

P/B (x) 5.4 4.6 3.9 3.3 2.7
(%) 3-mth 6-mth 1-yr
P/E (x) 43.3 33.7 25.1 20.1 16.0
FIVESTAR IN (0.1) 5.5 18.7 RoA (%) 7.5 8.0 8.1 7.8 7.5
BSE Sensex 8.0 13.3 19.2 RoE (%) 15.0 15.0 16.9 17.7 18.6
Source: Company, DAM Capital Research
Sanket Chheda Parth Jariwala

sanket@damcapital.in parth.j@damcapital.in
+912242022552 +912242022588
For Private Circulation only “Important disclosures appear at the back of this report”
Key investment rationales

Opportunity size and growth outlook – According to a study by CRISIL, the addressable market for SORP-backed
small business lending stands at Rs22tn (Refer Exhibit 3). Of this Five Star basis, its current AUM has just captured
~0.4%. The management’s stated guidance here is centred on delivering ~35% CAGR. We are of the strong opinion
that in India’s quest towards becoming an alternate manufacturing hub over next few years and its journey towards
becoming a developed country would essentially require an upheaval of this segment of the market and hence credit
growth here is likely to be highly robust. Limited/negligible competition as we had discussed earlier would also
ensure pricing power, and thereby lucid visibility of future margins and profitability.
Branch expansion strategy – Current branch network stands at 456 across 9 states with an employee base of 8261.
Management intends to add ~100 branches every year. Besides, there will also be some inch-up in productivity (AUM
per employee) by ~25% to Rs12.5mn. Expansion in other states/geographies is done through carefully crafted pilots
and they go for tapping it further only after a satisfactory asset quality outcome. However, as per management, there
is still enough to capture by going deeper into existing geographies, while with their pilots they would continue to look
out for tapping other geographies as and when they derive comfort on their potential asset quality.
Asset quality – Debt burden ratio of ~50% or less with average LTV at ~38.5% ensures adequate margin of safety.
Loans are essentially extended to the family and not to an individual as members of the family are made co-
applicants, which helps mitigate the repayment risk from an otherwise individual borrower. Also, shops/small
businesses are typically the last to get hit in an economic cycle, and the first to bounce back. Albeit owing to
behavioural subjectivity of this borrower segment, the early bucket delinquencies/bounce rates have been high
(current 30+DPD at 8.6%) but flow to NPA has been much lower (current Stage 3 at 1.35%). Despite the inability to
use SARFAESI and no income documents, the asset quality outcomes have been far superior, thus far (Refer Exhibit
2). GNPAs and credit cost have stayed below 150bps since FY18 (post ind-AS implementation). <2% IRR loss on
majority of settled loans which were 90+ DPD on settlement (4900 cases since 2018). Going ahead, management
guides for a credit cost of ~70-100bps. We are building in 85bps.
Much younger leadership to ensure longevity and continuity – Current Chairman and MD, Mr Lakshmipathy
Deenadayalan (Age 49), joined the business in 2002 (prior to his joining, his father-in-law had started this franchise).
CEO, Mr Rangarajan Krishnan (Age 44) and CFO, Mr Srikanth Gopalakrishnan (Age 44), both joined in 2015, along
with few other CXO-level executives who joined around 2015 (both did MBA together from the same institute). Few
others at CXO level also joined around 2015. Entire top management and mid-management stands duly incentivised
through ESOPs (approx. 350 employees, ~4-5% of total employee base). Hence, we see a potential that the current
management team could possibly deliver for fairly foreseeable future and this in our view could propel a strong sense
of building a lasting organisation.
Return ratios, valuations and our take – With a robust capital adequacy of ~59.4% (basis RBI’s increased risk
weights it would now be ~55%), we see no need of any dilution over next five years. They have clocked ~8.5% RoAs in
1H FY24 and current leverage stands at 2.0x resulting in RoEs of ~17%. With strong loan growth as the leverage
inches up, the RoAs could possibly come down from current levels in future. They can go up to a leverage of ~4.0x,
and at those levels RoAs could possibly settle at ~6.5-7.0%, which would ensure RoEs of comfortably above ~20%.
We see this business as one of the best compounding bet and perfect proxy to play India’s growth story over the next
~3-5 years. The stock currently trades at ~2.7x on FY26 book and 16x on FY26 EPS. Basis high potential growth,
strong return ratios given less potential competition and one of the best longevity of current management, we believe
the business has the potential to command a higher multiple. We assign a target 1 yr fwd multiple of 4.0x on FY26E
(23x on FY26E EPS basis 25% earnings CAGR), fetching a TP of Rs1000, a 15M upside of 44%.
Impact of RBI notification on risk weights - The company’s ~60% of the AUM is purely for business purposes and
~40% for ‘Others’ (of the Others, ~25-30% is towards consumer’s discretionary use). Although the entire AUM is
secured, however, conservatively assuming the entire discretionary portion, the impact on CRAR stands at ~400-
500bps. Incremental CoFs basis the risk-weights increase for banks could go up by ~25-30bps; however, they have
been in discussion with many banks to restrict the increase below this threshold. Assuming 25-30bps increase in
CoFs, they expect the on-book CoFs to stay below ~10%. In other words, this development would just delay the
decrease in CoFs by a few quarters.
2 | DAM CAPITAL 27 December 2023

Exhibit 1: Valuation of different players (RoE wise)

ROA ROE P/B P/E
Company
FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E
BAF 4.7 4.8 5.0 22.7 22.9 24.3 5.8 4.6 3.7 29 22 17
Chola 2.6 2.7 2.8 20.3 21.7 22.8 5.5 4.5 3.4* 31 23 17
Aptus 7.5 7.3 7.2 17.2 18.0 18.9 4.3 3.7 3.2 27 22 18
FiveStar 8.1 7.8 7.5 16.9 17.7 18.6 3.9 3.3 2.7 25 20 16
HFFC 3.8 3.7 3.6 15.1 16.7 18.3 4.3 3.7 3.2 29 23 18
SUF 2.9 2.8 2.8 15.8 16.2 16.7 4.5 3.8 3.2 23 19 16
Poonawalla 4.4 4.8 4.4 13.0 14.3 16.5 4.1 3.4 3.1 29 25 20
SBFC 3.7 3.5 3.5 11.0 12.0 13.0 3.4 3.0 2.7 41 33 21
Source: Company, DAM Capital Research *Rs20bn of conversion built in for FY26 for CIFC
Exhibit 2: GNPA and credit cost

GNPA(%) Credit Cost (%)
Company
FY20 FY21 FY22 FY23 H1FY24 FY20 FY21 FY22 FY23 H1FY24
Chola 3.9 4.0 4.5 3.1 3.0 1.6 1.9 1.2 0.8 1.2
SBFC 2.3 3.1 2.7 2.4 2.4 1.8 1.3 1.2 0.7 0.8
SUF 2.7 1.9 2.3 1.7 1.9 1.0 1.1 1.1 0.4 0.6
HFFC 1.0 1.8 2.3 1.6 1.7 0.5 1.0 0.6 0.4 0.4
Poonawala 6.4 3.7 3.3 1.4 1.4 3.9 13.7 0.6 NA 0.6
Fivestar 1.4 1.0 1.0 1.4 1.4 1.3 0.8 0.9 0.3 0.6
Aptus 1.6 0.6 1.2 1.2 1.2 0.1 0.1 0.7 0.5 0.2
BAF 1.6 1.8 1.6 0.9 0.9 2.7 3.9 2.5 1.3 1.4
Source: Company, DAM Capital Research (GNPA figures are INDAS numbers and Credit cost for H1FY24 have been annualised.)
 Market opportunity and growth Strategy

The company operates in a segment (small business loan lending) where the sheer magnitude of the gap between
supply and demand of credit is notable, and the number of enterprises impacted indicates a veritable opportunity in
business loan financing. Based on the analysis conducted by CRISIL, small ticket size secured (SORP – Self occupied
residential property) MSME lending market’s potential is estimated at Rs22 tn which provides a significant market
opportunity. With not many formal financiers who cater to this segment and have built scale due to the associated
high cost and lack of expertise, Five Star is in a unique position to immensely benefit from the large opportunity.
Exhibit 3: Market opportunity
Source: Company data, DAM Capital Research

Exhibit 4: Growth lever
Growth Lever 1 – Increased branch network and penetration
Five Star has increased its branches from 130 in FY18 to 456 branches as of Q2FY24. With a proven ability to open
branches with a contiguous expansion strategy and expand into states other than the south, the company aims for
growth through deeper penetration as well as expansion into other geographies.
Growth Lever 2 – Increased FOS even in the existing branches
The company has constantly increased its average number of FOS in the existing branches upon the success of a
branch, indicating increase in business opportunity from the existing branches ─ Average Employees per branch has
increased from 9.9 in FY18 to ~18 in Q2FY24.
Growth Lever 3 – Increase in average ticket size
The company’s average ticket size has been in the range of Rs0.3mn-Rs0.35mn for the past six years. It aims to
increase its ticket size by the inflation percentage in the upcoming years, which will further enhance the growth
prospects.
Exhibit 5: Strategic technology focus

Recent Quarterly Performance

Exhibit 6: Q2 FY24 financial highlights
(Rs mn) 2QFY23 2QFY24 %YoY 1QFY24 %QoQ
Interest Income 3,573 5,041 41.1 4,637 8.7
Net Gain on fair value changes 14 106 642.5 112 (5.9)
Fee & Other income 31 77 146.6 86 (10.6)
Total Income 3,619 5,224 44.4 4,836 8.0
Interest expenses 609 1,059 73.8 962 10.1
Net interest income 3,010 4,165 38.4 3,874 7.5
Employee expenses 814 1,058 29.9 987 7.2
Operating expenses 182 331 82.2 276 20.0
Operating Profit 2,013 2,775 37.9 2,611 6.3
Provisions 85 106 24.2 152 (30.5)
Profit before tax 1,928 2,670 38.5 2,459 8.6
Provision for Tax 486 676 39.0 622 8.7
Reported PAT 1,442 1,994 38.3 1,837 8.5
Other Highlights 2QFY23 2QFY24 %YoY 1QFY24 %QoQ
AUM and Disbursement
AUM (Rs mn) 57,324 82,644 44.2 75,833 9.0
Disbursements (Rs mn) 8,028 12,040 50.0 11,318 6.4
Asset Quality
Stage 3 (%) 1.2 1.4 20bps 1.4 -6bps
PCR Stage.3 (%) 44 50 590bps 44 598bps
Stage.2 (%) 12.5 7.2 -523bps 8.3 -103bps
PCR Stage.2 (%) 8 8 63bps 8 33bps
Overall Stress (%) 13.6 8.6 -503bps 9.7 -109bps
1-30 DPD 8.1 4.9 -317bps 5.6 -64bps
Margins
Yields (%) 24.2 24.2 0bps 24.4 -25bps
CoFs (%) 10.5 9.7 -77bps 9.8 -9bps
Spreads (%) 13.7 14.5 77bps 14.6 -16bps
NIMs (%) 18.2 17.7 -52bps 17.7 -6bps
Return Ratios and CAR
ROA (%) 8.7 8.5 -25bps 8.4 6bps
ROE (%) 14.6 17.1 253bps 16.6 46bps
CAR (%) 67.7 59.4 -825bps 60.3 -87bps

Exhibit 7: Key performance metrics

Particulars 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 4QFY23 1QFY24 2QFY24
AUM
AUM (Rs. bn) 46 48 51 53 57 62 69 76 83
Growth-YoY (%) - - - - 24 31 36 43 44
Growth-QoQ (%) 3 6 5 8 9 11 10 9
Disbursements
Disbursements 4 4 6 6 8 9 11 11 12
Growth-YoY (%) - - - - 127 114 72 99 50
Growth-QoQ (%) 6 21 51 -12 41 13 22 2 6
Asset Quality (%)
PCR 18 35 35 39 44 45 49 44 50
GNPA 1.4 1.3 1.0 1.1 1.2 1.5 1.4 1.4 1.4
NNPA 1.2 0.8 0.7 0.7 0.6 0.8 0.7 0.8 0.7
Borrowings Mix (%)
Bank term loans 27 26 32 37 50 56 56 66 69
Other term loans 8 7 6 6 4 5 6 5 4
NCD 43 45 39 38 30 18 12 6 4
Securitisation 23 21 19 16 14 19 23 21 21
ECB 0 0 3 3 3 3 2 2 2
Return Ratios (%)
RoA 7.4 7.3 7.5 8.6 8.7 8.6 8.6 8.4 8.5
RoE 14.6 13.3 13.1 14.8 14.6 14.7 16.1 16.6 17.1
Profitability Ratios (%)
Yield 24.0 23.9 24.2 24.2 24.2 24.1 24.3 24.4 24.2
Cost of borrowings 10.5 10.5 10.2 10.5 10.5 10.3 9.9 9.8 9.7
Spreads 13.5 13.5 13.9 13.6 13.7 13.8 14.4 14.6 14.5
NIMs 14.4 15.1 16.8 17.0 18.2 18.6 18.5 17.7 17.7
Capital Adequacy (%)
CRAR - - - - 67.7 68.0 67.2 60.3 59.4
C / I Ratio & Opex growth
C / I Ratio 31% 30% 37% 32% 33% 37% 36% 33% 33%
Opex Growth QoQ (%) 14 14 34 21 3 35 31 6 7
Exhibit 8: AUM Growth
AUM (Rs. bn) Growth-QoQ (%)

100 12%
83
76
75 69
11% 9%
62 10%
57 9%
51 53 9%
46 48 8%
50 6%
6%
25 5% 3%
3%
0 0%
2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23 4QFY23 1QFY24 2QFY24

Exhibit 9: Disbursements growth
Disbursements Rs bn) Growth-QoQ (%)

16 60%
51%
12
41% 11 11
12 40%
9
8
8 21% 6 22% 20%
6 13%
4 6%
4 6% 2%
4 0%
-12%
0 -20%
Exhibit 10: Asset quality
PCR GNPA NNPA

60 1.4 1.5 1.4 1.6
1.4 1.4
1.3
1.2 1.2
1.1
45 1.0 1.2
0.8 0.8 0.8
30 0.7 0.7 0.6 0.7 0.7 0.8
49 50
44 45 44
39
35 35
15 0.4
18
0 0.0
Exhibit 11: Borrowings mix
Bank term loans Other term loans NCD Securitisation ECB

100 0 3 3 3 3 2 2 2
23 21 16 14 19
19 23 21 21
80
6 4
30 18 12 5 4
60 38 6
43 45 39 5
4
40 6
6 66 69
8 7 56 56
50
20 37
27 26 32
0

Exhibit 12: Return ratios
RoA RoE
10.0 20.0
8.6 8.7 8.6 8.6 8.4 8.5
7.4 7.5 16.6 17.1
8.0 7.3 16.1 16.0
14.6 14.8 14.6 14.7
13.3 13.1
6.0 12.0
4.0 8.0
2.0 4.0
0.0 0.0
Exhibit 13: Profitability ratios (Yield, NIM & CoF)
Yield Cost of borrowings NIMs

30.0
24.0 23.9 24.2 24.2 24.2 24.1 24.3 24.4 24.2
24.0
18.2 18.6 18.5 17.7 17.7
16.8 17.0
18.0 14.4 15.1
12.0
6.0 10.5 10.5 10.2 10.5 10.5 10.3 9.9 9.8 9.7
0.0
Exhibit 14: CRAR
CRAR
72.0
67.7 68.0
67.2
68.0
64.0
60.3
59.4
60.0
56.0
52.0
2QFY23 3QFY23 4QFY23 1QFY24 2QFY24
Exhibit 15: C / I Ratio & Opex growth
C / I Ratio Opex Growth QoQ (%)

40% 34 35 40
31
30% 30
21
20% 14 14 20
10% 6 7 10
3
31% 30% 37% 32% 33% 37% 36% 33% 33%
0% 0

Company Overview
 Journey so far
Exhibit 16: What does the company do
Exhibit 17: Five-Star’s growth journey
Five Star (‘the Company’) is 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. The Company is
headquartered in Chennai, Tamil Nadu, with a strong presence in South India ─ all the loans of the Company are
secured by borrowers’ property, predominantly being self-occupied residential property. Over 98% of the total AUM
comprises loans between Rs.0.1 million and Rs.1.0 million with an average ticket size being Rs0.34 mn (As at
Q2FY24). As a result, the Company has built a strong granular portfolio.
 Five Star’s target customers:

 In the urban and semi-urban locations, as well as in the rural markets of India;
 who typically derive income from everyday cash-and-carry business with a focus on service;
 where the household net cash-flow ranges between Rs25,000 and Rs40,000 per month;
 who can provide collaterals;
 whose family will act as a co-applicant.

Exhibit 18: Five-Star’s transformation journey
The Company has an extensive network of 456 branches spread across 9 states and 1 union territory, with Tamil
Nadu, Andhra Pradesh, and Telangana being the key states. These states comprise 88% of the total AUM as at
Q2FY24.
The Company has maintained strong asset quality over the years, evident from the fact that the GNPAs have not
crossed ~1.5% since FY18-23 due to its ability to build a robust business model by deeply understanding the
customer behaviour and having a strong grasp of the local market and regional dynamics.
The Company has established itself as a unique player due to its moat in the product offering, underwriting and
collection strategy which includes:
 Long tenure loans for business, asset creation and other economic purposes.
 Strong presence in South with cautious expansion in other states.
 100% in-house sourcing and processing with focus on service-oriented business.
 Strong focus on cashflow based assessment.
 Strong focus on the collateral property and low LTVs.
 Strong on-ground collection infrastructure and supervisory follow up to cater to new-to- formal credit customer
segment.
 Key Highlights
 As of Q2FY24, the Company’s AUM stood at Rs83 bn. During FY18-23, its AUM has grown at a CAGR of ~47%.
 Stronghold in southern states which comprise 94% of the total AUM.
 The Company added 73 branches during the previous year and added 83 branches in 1HFY24.
 Live accounts as of Q2FY24 – 3,40,107.
 100% secured book with 95% against SORP.
 As at Sep-2023, gross stage 3 assets stood at 1.35% and net stage 3 assets stood at 0.68%.
 Average LTV of 38.5% as at Sep-2023.
 Capital Adequacy ratio – 59.40%.
 Total employee strength of 8261 with 4,399 employees in the business and collections team.

 Robust business model with strong collection infrastructure

Exhibit 19: Challenges in lending to small business and self-employed individuals
Five Star caters to/provides loans to micro-entrepreneurs and self-employed individuals in urban, semi-urban and
rural markets who typically derive income from “everyday” cash-and-carry businesses with a focus on services, where
the household cash flow approximately ranges between Rs25,000 and Rs40,000 per month. The Company places
strong emphasis on the customer ability to provide a collateral (typically land and building of approximately Rs1.0mn
in value) for such loans. Family is also made to act as a co-applicant for the loan. Based on its decades of experience,
the Company focuses on the businesses which fall within the description of everyday/essential services ─ the
segment is typically impacted by macro down-cycles last, while being first to emerge from such cycles.
The Company’s 100% book is secured, with 95% book secured against self-occupied residential property. Almost all
of the collaterals across the loan portfolio are standalone independent homes and the Company generally does not
resort to taking vacant land, agricultural land, or flats in residential complexes as a collateral. The Company takes an
exclusive charge on the collateral against the loan and does not share the collateral charge with any other lender
either at the time of sanction and disbursal or at any time during the tenor of the loan.
The Company has built a granular book where more than 98% of the total AUM comprises loans between Rs.0.1 mn
and Rs.1.0 mn with average incremental ticket size being Rs0.34 mn (for Q2FY24). Such granular book with strong
underwriting has resulted in low NPAs over the years.
Exhibit 20: ATS (Its current on-book average, incremental onboarding ATS is Rs0.34mn)
ATS - AUM (mn) ATS - Disbursements (mn)
0.4 0.36
0.34 0.34 0.34
0.30 0.31 0.30
0.29
0.3 0.27 0.27
0.25 0.26 0.24 0.24 0.24
0.23
0.2
0.1
0.0
FY18 FY19 FY20 FY21 FY22 FY23 Q1FY24 Q2FY24

Exhibit 21: Target customer focus and product offering
The Company charges interest rate on the loans based on the underlying tenor (which ranges from two to seven
years), with approximately 95% of the loans sanctioned falling between the interest range of 24% and 26% and
between the tenure range of 5-7 years. The Company offers EMI-based products conducive to the set of customers it
targets. As at Sep-2023, the average LTV was 38.5%.
 Branch Network
Exhibit 22: Network
As of Q2 FY24, the Company has an extensive network of 456 branches spread across 9 states and 1 union territory,
with Tamil Nadu, Andhra Pradesh, and Telangana being the key states. These states comprise 88% of the total AUM
as at Q2FY24. Five Star primarily operates in these Tier 3 to Tier 6, which constitute ~98% of the total AUM. The
Company is cautiously expanding its presence in other states beyond South India. Branches have grown at a CAGR of
~23.4%over FY18-23 which has also led to growth in AUM.

Exhibit 23: Distribution of branches Exhibit 24: Branch vintage wise Avg. AUM
South India Rest of India Branch Vintage No of branches Average AUM
<=1 year 104 27

72
1 -3 years 91 119
3 -5 years 107 203
384 5 - 7 years 80 301
>7 years 74 313
Source: Company, DAM Capital Research (As at Sep-23) Source: Company, DAM Capital Research (As at Sep-23)
Exhibit 25: Normal branch vs Super branch

Branch Particulars Normal Branch Super Branch
Branch size 500-600 sq. feet 1,200 – 1,600 sq. feet
Br. Manager / Sr. Manager 1 Branch Manager 2 Branch Managers; 1 Senior Branch Manager
Business Officer 4-6 10-12 (2 teams of 5-6 each)
1 (Exclusive/ Shared with neighbouring
Field Credit Officer 1 (Exclusive)
branches)
Cashier and operations personnel 1 Cashier; 1 Operations Personnel 1-2 Cashier; 1-2 Operations Personnel
Catchment Area Radius Approx. 25-30 kms Approx. 40-45 kms
Exhibit 26: State-wise AUM mix (%)

Tamil Nadu Andhra Pradesh Telangana Karnataka Madhya Pradesh Others
100 3 1 1 5 1 1
7 4 5 5 5
7 7 7 6 6
80 19 18 19 20 20 20
60
28 28 29 33 34 35
40
20 43 41 39 35 34 33
0
FY20 FY21 FY22 FY23 Q1FY24 Q2FY24
The decision to open a branch is based on a detailed analysis of the potential catchment area, economic and
business potential, competition, and availability of human resource talent. When evaluating a particular catchment
area to open a branch, the Company looks for prevalence of retail activity which demonstrates the potential for
lending to small business owners. The Company also analyses the general acceptance of a formal lender with EMI-
based loan products amongst the target customer segment, repayment behaviour, asset quality trends and
availability of suitable human resources for hiring as business and collections officers.
The Company prefers contiguous expansion and in cases of new geographic expansion or where contiguous
expansion is not possible, the Company operates through pilot branches to gain a deeper understanding of (1)
sourcing opportunities, (2) differences in legal and technical evaluation of collateral from its existing markets, (3)
collection behaviour, (4) understanding staff behaviours and culture, among other metrics. This approach was
utilised in Andhra Pradesh, Telangana and Madhya Pradesh.
Five Star’s all branches begin as normal branches and transition to super branches based on factors such as
consistent performance, meeting targets, maintaining asset quality, appropriate human resource skills, availability of
additional relationship officers, and growth potential in the catchment area.

Exhibit 27: Number of branches
500 456
373 386
400
300
300 252 262
200 173
130
100
0
Exhibit 28: Branch vs cluster strategy
Exhibit 29: Cluster Strategy Illustration - Theni Cluster (Tamilnadu)

Exhibit 30: Cluster Strategy Illustration - – Kakinada Cluster (Andhra Pradesh)
 Sourcing and Underwriting Model

Exhibit 31: Unique Value Proposition – Product, Underwriting and Collections Strategy
The Company sources 100% of its loans in-house either through its branch-led local marketing efforts (i.e., door-to-
door or specific referral marketing), repeat customers or through walk-ins. Once the lead is identified, it goes through
a three-stage filtering process comprising of:
 Pre-login assessment – Basic verification on the applicant’s business and residence to assess whether the lead is
likely to fulfil the Company’s criteria for sanction.
 Relationship officer assessment - The relationship officer visits the applicant’s business and residence and
conducts a more detailed assessment. The relationship officer therefore spends time at the place of business
going through payment evidence, delivery receipts of stock, inventory levels and other such proxies to assess
business traction and income levels of the applicant as formal proofs of income are non-existent.
 Branch manager assessment – The branch manager assesses all the inputs entered by the relationship officer,
arrives at the indicative value of the collateral, undertakes character check of the applicant and co-applicant and
performs various other checks.

The report is digitised and made available to the file credit team for further assessment. No member of the business
and collections team in the entire organisational hierarchy including the Chief Business Officer has any loan approval
or sanction powers. Approval and sanction of the loan is done during the next stage of the assessment process.
The Company has set-up underwriting process with a two-layered credit team structure.
 Layer one – Field credit team – Once the file is logged into the system, field credit team undertakes an
independent field visit. Each Field Credit Officer conducts an independent verification of the property documents,
property measurements and an assessment of the valuation of the property collateral. A report is submitted by the
field credit team which makes comment on the character, assessment of cash-flows and valuation of collateral
and submits the report along with images of the applicant’s residence, business premises and proposed mortgage
property. The field credit officer does not have access to the report made by the branch manager.
 Intermediate level consolidation – Here the data reported by the branch manager and field credit officer is
tabulated in the system.
 Layer two – File credit team - The File Credit Team is the final team in the underwriting process and is the only
team with approval and sanction powers. The file credit team reviews all the information obtained from business
officers, branch managers and field credit officers and may approve the loan file and determine the sanctioned
loan amount, interest rate, tenor and EMI amount.
The Company places strong emphasis on assessment of Character (Intent to pay), Cashflow (Ability to repay) and
Collateral (for bad times) while evaluating any loan.
 Fundamental elements of the underwriting include:

 loans are given to the household where all household members whose cash-flows are factored in to evaluate the
proposal or those who have a current or potential claim on the property being mortgaged, shall be included as co-
applicants to the loan proposal.
 deliberately focusing on services-oriented businesses with majority of the target market comprising individuals
that are typically impacted by macro down-cycles last, while being first to emerge from such cycles.
 multiple physical verification touchpoints by Business and Collection teams and Field Credit Teams to assess
applicants and collaterals.
 SORP collateral focus.
 all activities carried out as part of our underwriting process are undertaken by its employees, which the company
believes ensures staff accountability.
 independent field credit verification is undertaken on all proposals.
 loan approval powers limited only to the File Credit Team, with loan amount limits based on approver’s experience;
and
 conservative loan-to-value ratios and debt-burden ratios.
 Strong collection infrastructure

The Company has created a strong ‘on-ground’ collections infrastructure to ensure it maintains a high asset quality.
The Company has observed minor delays in the servicing of regular instalments, which is a typical part of a
repayment culture as many of the borrowers have previously borrowed from moneylenders. A key mechanism the
Company uses to prevent defaults in such circumstances is maintaining a strong collections infrastructure designed
to keep the credit and repayment discipline of the borrower intact. The collections infrastructure is underpinned by
the following:
 branches adequately staffed with relationship officers, with an optimal number of loans per relationship officer,
which is expected to provide each officer with the capacity to undertake both business and collections activities
effectively.
 branches staffed with persons sourced from the local area, with each branch servicing an area with a limited
radius, resulting in branch staff being able to quickly attend a customer’s location as issues arise.
 keeping the responsibility of sourcing and collections with the same relationship officer (up to a certain vintage of
the loan) so that he/she is incentivised to source suitable files and undertake follow-up activities with the
customers until closure of the loan.

 move the loans beyond a certain vintage to a dedicated collections vertical which allows stronger and more
focused oversight; and
 branch staff incentives aligned with each of business and collection targets so that meeting such targets in both
areas is required to qualify for incentives.
The Company also has a strong monitoring mechanism that ensures involvement from various individuals and senior
management on a need basis depending on the DPD bucket of the loan to ensure that the Company maintains high
asset quality.

Key Metrics – Annual Trend

 Strong AUM growth
Five Star has displayed a robust AUM growth led by strong customer acquisition and branch expansion. AUM grew at
a CAGR of ~47% during FY18-23. During the same period, live accounts have also grown at a CAGR of ~47%,
whereas the branches grew at a CAGR of 23.4%. As at Q2FY24, the Company’s AUM stood at Rs83 bn with 3,40,107
live accounts and 456 branches. The Company has focused on volume-led growth while maintaining consistent ATS
and steady yields.
Exhibit 32: AUM
AUM (Rs. bn)
90 83
76
75 69
60 51
44
45 39
30 21
15 10
0
Exhibit 33: Live accounts
Live accounts
400,000
340,107
317,149
300,000
217,745 229,032
200,000 176,467
143,079
100,000 72,890
33,157
0
 Healthy asset quality
Five Star’s 100% in-house sourcing strategy, coupled with robust credit assessment and strong collection
infrastructure, has led to robust asset quality for the Company. The Company does observe minor delays in the
servicing of regular instalments, which is a typical part of a repayment culture as many of the borrowers have
previously borrowed from moneylenders. However, such delays do not necessarily result in accounts being NPA.
For accounts within 1-30 DPD, the collection team sends reminder messages, calls from the branch and visits by the
branch manager to the customer’s business/residence. Where the loans are in the range of 31-60 DPD, supervisory
layer, which includes senior branch managers, area managers, regional managers, business heads and collections
heads, gets involved, coupled with potential follow actions from head-office and further in-person visits from other
members of the collection and the business team. For 61-90 DPD accounts, senior management officials such as
deputy head – business and collections, chief business officer, COO, CEO, MD become involved on a need basis.
Subsequent actions also include sending of legal notice to the borrower. For 90+ DPD, there is a coordinated effort
between the corporate office and the branch to bring the account to a lower category. Branches are also incentivised
for adhering to certain stage 3 levels.
All the efforts of the Company has resulted in healthy asset quality with GNPA not going beyond ~1.5% in the past five
years.

Exhibit 34: Asset quality

PCR GNPA
60.0 1.4 1.4 1.4 1.6
1.4
45.0 1.0 1.0 49.3 50.2 1.2

0.9 44.2
30.0 34.0 34.9 0.8
23.1
15.0 0.4
0.1 17.7 18.0
0.0 0.0
Exhibit 35: 30+ DPD
30+ DPD
20.0
16.8
16.0
11.8 12.4
12.0 10.5
9.7
8.6
8.0
4.0
0.0
Steady asset quality has also resulted in benign credit cost for the Company.
Exhibit 36: Credit cost
1.27
Credit Costs
1.40
1.05 0.92 0.90

0.79
0.62
0.70
0.36
0.29
0.35
0.00
FY18 FY19 FY20 FY21 FY22 FY23 H1FY24
The Company’s write-offs have been minimal over the years due to its strong underwriting abilities including cash-flow
based assessment, collateral property and low LTVs.
Exhibit 37: Write-off/EAD
Write-offs / EAD
0.75
0.58
0.60
0.45 0.34
0.30 0.22
0.17
0.12
0.15 0.08 0.05
0.00
FY18 FY19 FY20 FY21 FY22 FY23 H1FY24
Source: Company, DAM Capital Research (H1FY24 figures have been annualized)

 Diversified sources of borrowings

The Company secures financing from diversified sources of capital, including term loans, proceeds from loans
securitised, proceeds from NCD issuance, etc. The Company has been able to access borrowings at a competitive
cost due to its stable credit history and strong credit rating. As a result, the Company has been able to constantly
reduce its borrowing cost even in a rising cost environment.
The Company enjoys a long-term credit rating of AA- from ICRA, CARE and India Ratings and short-term credit rating of
A1+ from CARE. Five Star has a strong 47 lender relationship with deepened relationships in the PSU and private
bank category.
Exhibit 38: Borrowings trend
Borrowings (in mn)

60,000
48,193
42,473 43,167
45,000
34,252
30,000 23,637 25,588
15,000
0
The Company’s major source of borrowings come from bank term loans (69%) followed by proceeds from
securitisation (21%)
Exhibit 39: Borrowings mix
Bank term loans Other term loans NCD Securitisation Others
100% 0% 0% 3% 2% 2% 2%
14%
24% 19% 23% 21% 21%
80%
6% 4%
12% 5% 4%
60% 46%
38% 39% 6%
40%
7% 6% 69%
9% 66%
56%
20%
33% 28% 32%
0%
Exhibit 40: Improving cost of borrowings (calculated)
Cost of borrowings
15.0
13.1
13.0
11.4 11.2
11.0 10.2 10.0
9.0 9.3
9.0 7.8
7.0
5.0

 Comfortable capital position
Five Star has a high CRAR of 59.4% which should be sufficient for the growth guidance of ~35% in the medium term,
considering internal accruals as well. The Company also has a comfortable ALM position with no cumulative
mismatch in any of the time buckets as at Sep-2023.
Exhibit 41: CRAR
CRAR
80.0 75.2
64.1
58.8 58.9 60.3 59.4
60.0 52.9 ~[VALUE]*
43.8
40.0
20.0
0.0
FY18 FY19 FY20 FY21 FY22 FY23 Q1FY24 Q2FY24 Q2FY24
*CRAR post RBI circular on risk weights
 Margins trend and efficiency metrics

Five Star charges a high rate of interest (24-26%) due to the type of customer profile it caters to. Also, the portfolio is
fixed in nature leading to a gradual rise in yield. However, the Company has been able to optimise its cost of
borrowings enabling it to maintain/improve its margins. While the yields from FY-18 have been steady at ~25%, the
cost of borrowings has reduced from 11.4% in FY18 to 7.8% in FY23 (Q2 – 9.3%) leading to improvement in yields.
Expect moderation in margins due to some increase in cost of borrowings in the light of revised RBI guidelines on risk
weights for banks and NBFCs (regulatory measures towards consumer credit and bank credit to NBFCs).
Exhibit 42: Yields, CoFs, NIMs (calculated)

Yield Cost of borrowings NIMs
30.0
25.7 25.4 25.2 25.4 25.1 25.9 25.8
24.8
25.0
20.4 20.0 19.9 19.7
17.9 18.6
20.0 17.6 16.8
15.0 13.1
11.4 11.2
10.2 10.0 9.3
9.0
10.0 7.8
5.0
0.0
The Company has been improving its AUM/branch since FY17 and has also increased its business and collections
team per branch. Its AUM / employee though has improved from FY17 levels, is down from FY21 levels.
The Company is currently under investment phase investing heavily in technology to efficiently manage the lending
process, increase productivity and decrease cost. The Company’s current cost/income is one of the best in the
industry. However, with the current ongoing investments, the Company expects that these investments will take 18-
24 months to start showing operational efficiencies and cost savings.

Exhibit 43: AUM / Branch (AUM/branch lower in Q2 due to large number of branches opened)
AUM / Branch (in mn) 196

200 185 181
170 169
155
150
122
100 78
50
0
Exhibit 44: AUM / Employee
AUM / employee (mn)

12.0 11.3
10.7 10.4 10.1 10.0
8.9 9.4
9.0 7.8
6.0
3.0
0.0
Exhibit 45: C/I and Opex / AAUM

C / I Ratio Opex to AUM
48% 7.6 9.0
7.3 7.0 7.0
6.9
40% 6.4 7.5
5.9 5.7
32% 5.1 6.0
24% 4.5
16% 3.0
8% 1.5
46% 40% 32% 30% 30% 32% 35% 33% 36%
0% 0.0
FY17 FY18 FY19 FY20 FY21 FY22 FY23 Q1FY24 Q2FY24
Five Star’s healthy margins (high yield and improved borrowing cost), coupled with controlled opex cost and benign
credit cost, have led to one of the highest returns on assets in this space and strong ROEs. The Company has now
shifted its focus to improve its ROE by increasing the leverage. The leverage currently stands at ~2x which is
envisaged to increase in the range of 3.5x-4x over next few years.
Exhibit 46: ROA and ROEs (Calculated)
RoA RoAE
10.0 17.4 16.8 17.2 20.0
16.0 15.8 16.6
15.0 15.0
8.0 13.3 16.0
6.0 12.0
4.0 8.0
2.0 4.0
5.7 5.9 9.0 7.8 7.1 7.5 8.0 8.3 8.6
0.0 0.0
FY17 FY18 FY19 FY20 FY21 FY22 FY23 Q1FY24 Q2FY24

 ESG Focus
Exhibit 47: Sustainable business model
Exhibit 48: Societal impact through continued focus on ESG

Management Team and Board of Directors

Exhibit 49: Distinguished Board of directors
Exhibit 50: Management Team

 Board of Directors
Director Designation Profile
Mr. Lakshmipathy is an Engineering graduate from Madras University. He hails from a business
family. Before joining Five-Star, he was Managing Director of RKV Finance Limited, a NBFC
registered with RBI. On amalgamation of RKV with Five-Star during 2002, he joined the Board
Chairman and of FiveStar as Joint Managing Director. His wide exposure in lending to small business
Lakshmipathy
Managing customers, which was successful in that company, helped him to develop a similar advance
Deenadayalan
Director portfolio at Five-Star with great success. Presently, he is also Director, Finance Companies
Association of India and Management Committee member, South India Hire Purchase
Association. He is on various committees of both the associations and takes active interest in
the development of trade associations
Mr Anand is a Chartered Accountant with over 30 years of industry experience. He worked in

Sundaram Finance for over 20 years occupying several positions in Finance and Audit. He also
worked as a Partner in Ernst & Young LLP covering Tax and Regulatory aspects of various
Anand Raghavan Independent Director industries such as Financial Services, Real Estate, Auto and Auto components, Media and
Entertainment. His specialisations include NBFC Regulations, Corporate Tax and Foreign
Investment and Exchange control regulation and corporate restructuring. He has also been
appointed as a Non-official Independent Director in MMTC Limited
She was Country Head and Chief General Manager of SIDBI. She has closely dealt with
Multilateral and Bilateral Agencies in close co-ordination with the Government of India. Her
Bhama
Independent Director areas of specialisation include, inter-alia, handling of Human Resources Development Division
Krishnamurthy
covering recruitment, training and promotion aspects. She was also associated with drafting of
CSR Policy guidelines for the Bank
Srinivasaraghavan is a graduate in Commerce and holds a master's in business administration

from the Gannon University, Pennsylvania. He began his career as a banker, before moving to
Srinivasaraghavan Independent Director Sundaram Finance Limited in 1983. Starting his career as a department manager in the
company, he was elevated as its Managing Director in 2003. He retired from Sundaram
Finance on March 31, 2021, after 38 years of service, 18 of them as its Managing Director.
Ramkumar Ramamoorthy spent over 22 years at Cognizant, a NASDAQ 100, S&P 500 and
Fortune 200 company. He incubated and built about half a dozen portfolios at Cognizant and
retired as Chairman and MD of Cognizant India, responsible for the company's India operations
Ramkumar
Independent Director with over 200,000 employees across 13 cities. Prior to joining Cognizant, Ramkumar worked
Ramamoorthy
for Tata Consultancy Services. He is now a Partner at Catalincs, a strategic advisory firm that
helps small tech companies scale and grow, and the Pro Vice-Chancellor of Professional
Learning at Krea University.
Vikram is a Managing Director at Matrix Partners. He is an MBA graduate from IIM Bangalore
Vikram Non-Executive, and interned at Procter & Gamble Singapore. He joined McKinsey & Co. after his MBA and
Vaidyanathan Nominee Director worked across a variety of sectors including mobile media, TV, retail, engineering construction
and manufacturing.
Mr G V Ravishankar is a Managing Director of Sequoia Capital India. Prior to joining Sequoia, he

has also worked at McKinsey in the capacity of an advisor to management teams of top Indian
Non-Executive, companies. He had also worked at Wipro prior to McKinsey, where he helped several venture-
Ravishankar G V
Nominee Director backed networking start-up clients on a wide variety of issues. He has a master’s in business
administration from Indian Institute of Management (IIM), Ahmedabad where he was awarded
the President's Gold Medal. He also holds a BE in Computer Science and Engineering from REC
Thirulokchand is a Hotel Management Graduate with over 17 years of experience in the

Thirulokchand Non-Executive
Hospitality business. His areas of expertise include Team Management, Customer satisfaction
Vasan Director
and Process Optimisation.

 Management Profile
Name Designation Profile
Rangarajan is a well-rounded finance professional with about 15 years of work experience across
commercial banking, private equity investment, project finance and advisory. He started his
career with HDFC Bank in the Corporate Banking division and then moved on to Standard
Chartered Bank in the Mid-Market Commercial Banking division catering to a wide range of fund/
non-fund, trade and treasury requirements of these corporates. He then worked with the South
Asia Infrastructure Investment team at International Finance Corporation, World Bank, and led a
Rangarajan Chief Executive
wide array of equity/ debt investments in projects across different economies. Over the last 5
Krishnan Officer
years before joining FiveStar, he was with Spark Capital where he headed their advisory/
investment banking initiatives across the financial services and consumer sectors. He joined Five-
Star in Aug’15 as Chief Operating Officer and heads business, credit and operations. By
qualification, he is a commerce graduate and has done two master’s in business administration
(one from Sri Sathya Sai Institute of Higher Learning and one from The Indian School of Business)
with specialisation in Analytical Finance and Leadership.
Srikanth is a seasoned banking and finance professional with a combined experience of about 15
years across multiple functions. He spent the first 8 years of his career in Citibank and other
Citigroup entities working across various functions such as financial planning and analysis,
Securitisation and Structuring, Treasury, and Operations. He was the Vice President and Head of
Srikanth
Chief Financial Officer Business Planning and Analysis for the Consumer portfolio of Citibank when he moved out of the
Gopalakrishnan
bank to take up the role of Chief Financial Officer at Asirvad Microfinance Private Limited.
Srikanth is a commerce graduate and holds an MBA in Finance and General Management from
Sri Sathya Sai Institute of Higher Learning (Deemed University) and has been a gold medallist in
both the UG and PG courses.
Vishnuram is an experienced banking professional with over 15 years’ experience across
transaction banking and operations. He had previously worked with HDFC Bank and HSBC where
Vishnuram Chief Operating
he was part of the Global Trade & Receivable Finance team. Prior to joining Five-Star, Vishnuram
Jagannathan Officer
was the Vice President at Deutsche Bank heading the transaction banking division of the bank in
Tamil Nadu and Andhra Pradesh.
Parthasarathy is a Chartered Accountant with 14+ years of banking experience. He started his
career with ICICI Bank and then moved to Standard Chartered Bank as a Credit Analyst. His last
Parthasarathy
Chief Credit Officer assignment was with DBS Bank (Development Bank of Singapore) as a Vice President, where he
Srinivasan
worked close to 9 years in the Risk Analytical Unit of Large Corporates managing the portfolio of
clients based in Tamil Nadu and Kerala
Sathya comes with 18+ years of experience with Banks & NBFCs and had worked with various
organisations including ICICI Bank, Cholamandalam and Equitas. Prior to joining Five Star, Sathya
Sathya Ganesh
Chief Business Officer headed Shriram Housing in Tamil Nadu. At Five-Star, Sathya heads the Business and Collections
Thirumalaidoss
vertical of Tamil Nadu, Andhra Pradesh and Telangana. He is a postgraduate in Commerce from
Madras University and holds an MBA in Banking & Finance from Symbiosis, Pune.
Vanamali Sridharan is a banking and financial services professional with over 3 decades of
experience in the industry. He has spent many years with international banks such as Standard
Chartered & Natwest Group in global roles across various businesses and functions. He has led
many global technology transformation programmes in these organisations, with a significant part
Chief Technology of his career spent in the Middle East and South Asia markets, based in Dubai. During his career,
Vanamali Sridharan
Officer he has also worked in technology services organisations such as Tata Consultancy Services and
Accenture. More recently, he has been responsible for setting up and leading technology
transformation at a couple of small finance banks such as Equitas & Suryoday. By qualification,
he is an engineering graduate with a specialisation in Computer Science and a master’s in
business administration specialising in Marketing & Finance.
Jayaraman is a qualified Chartered Accountant and comes with about 22 years of work experience
Jayaraman
Chief Risk Officer in areas of Credit, Finance & Treasury. He was with Redington for over 15 years handling areas
Sankaran
like Credit Management, Investor Relations, Indirect Taxation and Internal Audit, etc.
Naveen Raj is a Qualified Chartered Accountant with more than 16+ years of industry experience
& has previously worked with leading audit firms like B S R & Co. LLP (KPMG) & Deloitte. He was
the Audit Director in B S R & Co. LLP and was pivotal in building the Financial Services sector
Naveen Raj Chief Audit Officer
practice in the audit firm. He has handled various capital market transactions including structured
transactions like Mergers & Acquisitions and has prior experience in analysing loan books &
identifying high risk portfolios.
Ramesh is a Law & MBA Graduate and a qualified CAIIB professional with specialisation in Rural
Banking. He has over 22 years of experience, specialising in Collections & Recoveries. Prior to
Ramesh Kannah Chief Legal Officer joining Five-Star, he was the Head – Collections (Legal) in Piramal Capital & Housing Finance
(DHFL). He had also worked in Legal divisions of leading Banks and NBFCs like Citibank, ICICI
Bank, HDFC Bank and Cholamandalam Finance.
Prashanth is an MBA with more than 16 years’ cross-functional experience across industry and
Prashanth S Chief Treasury Officer advisory, of which the last 7 years have been spent working with a number of corporates across
industries shepherding various fund-raise proposals from banks, FIs, etc.

 Shareholding Pattern
Exhibit 51: Shareholding pattern as at Sep-23
Exhibit 52: Top 10 shareholders

Investors % holding
TPG Asia SF Pte Ltd 14.27%
Lakshmipathy Deenadayalan 10.50%
SCI INV VI 7.82%
-Hema 7.15%
Sirius II Pte Ltd 6.02%
NVP Associates LLC 5.17%
Matrix Partners India Investment Holdings LLC 4.74%
SCI growth investments II 3.77%
Capital Group Cos Inc 3.49%
Sequoia Capital Global Growth Fund LP 3.48%

Financials
Exhibit 53: Income Statements
Year ended 31 Mar (Rs mn) FY22 FY23 FY24E FY25E FY26E
Interest Income 12,038 14,988 20,698 26,594 34,402
Interest Expended 3,006 2,663 4,396 5,839 7,884
Net Interest Income 9,032 12,325 16,302 20,754 26,518
Growth % 31.0 36.5 32.3 27.3 27.8
Other operating income 503 221 243 267 294
Other Income 21 81 89 98 108
Total net income 9,556 12,627 16,633 21,119 26,919
Growth % 31.6 32.1 31.7 27.0 27.5
Operating expenses 2,936 4,205 5,014 6,519 8,474
- Staff Expenses 2,361 3,464 4,126 5,363 6,972
- Other Expenses 575 741 889 1,155 1,502
Depreciation 122 173 199 259 336
Pre-Provision Profit 6,497 8,249 11,420 14,342 18,108
Provisions & Contingencies 455 201 676 903 1,238
Profit before tax 6,042 8,047 10,744 13,438 16,870
Provision for tax 1,507 2,012 2,740 3,427 4,302
Adjusted Net profit 4,535 6,035 8,004 10,012 12,568
Growth % 26.3 33.1 32.6 25.1 25.5
Exhibit 54: Balance Sheet

Year ended 31 Mar (Rs mn) FY22 FY23 FY24E FY25E FY26E
Capital 291 291 291 291 291
Reserves & Surplus 36,812 43,104 51,128 61,140 73,708
Networth 37,103 43,395 51,420 61,431 73,999
Borrowings 25,588 42,473 55,215 74,550 100,657
Current Liabilities & Provisions 739 1,160 5,174 9,449 15,883
Total Liabilities 63,430 87,028 111,809 145,430 190,539
Advances 51,024 68,222 91,988 124,492 168,405
Investments 2,482 1,446 1,518 1,594 1,674
Fixed assets 328 449 530 627 744
Deferred Tax asset 467 533 587 645 710
Current Assets, Loans and advances 9,130 16,378 17,185 18,072 19,006
Total Assets 63,431 87,028 111,809 145,430 190,539

Exhibit 55: Key ratios

Year ended 31 Mar FY22 FY23 FY24E FY25E FY26E
Operational & financial ratios (Rs)
EPS 16 20 27 34 43
BV 127 149 176 211 254
ABV 127 148 175 209 252
DPS - - - - -
Valuation ratios (x)
P/E 43.3 33.7 25.1 20.1 16.0
P/BV 5.4 4.6 3.9 3.3 2.7
P/ABV 5.5 4.7 3.9 3.3 2.7
Div. Yield (%) 0.0 0.0 0.0 0.0 0.0
Spread Analysis (%)*
Yield on Advances 25.4 25.1 25.8 24.6 23.5
Cost of funds 10.0 7.8 9.0 9.0 9.0
Net Interest Margin 18.6 20.0 20.0 18.9 17.9
Profitability Ratios (%)
RoAA 7.5 8.0 8.1 7.8 7.5
RoAE 15 15 17 18 19
Asset quality ratios (%)
GNPA 1.0 1.4 1.5 1.6 1.7
NNPA 0.7 0.7 0.7 0.6 0.6
Provision Coverage 35 49 55 60 65
Solvency ratios (%)
Tier 1 75.2 67.2 51.1 46.9 43.2
CRAR 75.2 67.2 51.1 46.9 43.2
Total Assets/Equity 2.0 1.9 2.1 2.3 2.5
Efficiency ratios (%)
Cost/Income 32.0 34.7 31.3 32.1 32.7
*Spreads do not match with the reported numbers due to calculation differences.

Disclaimer
This document has been prepared by DAM Capital Advisors Limited [the company/DAM Capital]. DAM Capital is a full-service, integrated investment
banking, and institutional broking company. DAM Capital is registered with SEBI as Research Analyst having SEBI Registration number as INH000000131.
Disclaimer/Disclosures:
The following disclosures are being made in Compliance with the SEBI Research Analyst Regulations 2014 (hereinafter referred to as Regulations)
1. DAM Capital the Research Entity (RE) is also engaged in the business of Investment Banking and Stock Broking and is registered with SEBI for the same.
2. There are no material disciplinary actions taken against DAM Capital as on the date of publication of this report.
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Copyright of this document vests exclusively with DAM Capital Advisors Limited
Contd…

Disclaimer
Foreign currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or the price of, or income derived
from, the investment. In addition, investors in securities, the values of which are influenced by foreign currencies effectively assume currency risk.
Associates of DAM Capital may have issued other reports that are inconsistent with and reach different conclusions from, the information presented in this report.
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Reports based on technical analysis centres on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's
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Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. DAM Capital will not treat recipients as
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The analyst certifies that all of the views expressed in this research report accurately reflect his/her personal views about any and all of the subject issuer(s)
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and/or views expressed in this report.
Research Disclaimer - Notice to US Investors

This report was prepared, approved, published and distributed by DAM Capital Advisors Limited, a company located outside of the United States (a “non-US
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Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
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Rating System
Investment Ratings Expected returns (over 12-month)

Buy > =10%
Sell < -5%
Neutral <-5% to 10%
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DAM - Capital - Initiating - Coverage - On - Five - Star - Business - Finance - With Authentic Reserach

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Five-Star Business Finance

Five-Star Business Finance (Five Star) is focused on providing secured financial

BVPS (Rs.) 127 149 176 211 254

Sanket Chheda Parth Jariwala

Key investment rationales

2 | DAM CAPITAL 27 December 2023

Exhibit 1: Valuation of different players (RoE wise)

Exhibit 2: GNPA and credit cost

 Market opportunity and growth Strategy

Exhibit 3: Market opportunity

Source: Company data, DAM Capital Research

3 | DAM CAPITAL 27 December 2023

Exhibit 4: Growth lever

Source: Company data, DAM Capital Research

Growth Lever 1 – Increased branch network and penetration

Growth Lever 2 – Increased FOS even in the existing branches

Growth Lever 3 – Increase in average ticket size

Source: Company data, DAM Capital Research

4 | DAM CAPITAL 27 December 2023

Recent Quarterly Performance

5 | DAM CAPITAL 27 December 2023

Exhibit 7: Key performance metrics

Exhibit 8: AUM Growth

AUM (Rs. bn) Growth-QoQ (%)

Source: Company, DAM Capital Research

6 | DAM CAPITAL 27 December 2023

Exhibit 9: Disbursements growth

Disbursements Rs bn) Growth-QoQ (%)

Exhibit 10: Asset quality

PCR GNPA NNPA

Source: Company, DAM Capital Research

Exhibit 11: Borrowings mix

Bank term loans Other term loans NCD Securitisation ECB

Source: Company, DAM Capital Research

7 | DAM CAPITAL 27 December 2023

Exhibit 12: Return ratios

Exhibit 13: Profitability ratios (Yield, NIM & CoF)

Yield Cost of borrowings NIMs

Source: Company, DAM Capital Research

Exhibit 14: CRAR

Exhibit 15: C / I Ratio & Opex growth

C / I Ratio Opex Growth QoQ (%)

Source: Company, DAM Capital Research

8 | DAM CAPITAL 27 December 2023

Source: Company, DAM Capital Research

Exhibit 17: Five-Star’s growth journey

Source: Company, DAM Capital Research

 Five Star’s target customers:

9 | DAM CAPITAL 27 December 2023

Exhibit 18: Five-Star’s transformation journey

Source: Company, DAM Capital Research

10 | DAM CAPITAL 27 December 2023

 Robust business model with strong collection infrastructure

Source: Company, DAM Capital Research

11 | DAM CAPITAL 27 December 2023

Exhibit 21: Target customer focus and product offering

Source: Company, DAM Capital Research

Source: Company, DAM Capital Research

12 | DAM CAPITAL 27 December 2023

South India Rest of India Branch Vintage No of branches Average AUM

<=1 year 104 27

3 -5 years 107 203

384 5 - 7 years 80 301