Five Star Business Finance Ltd IPO

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Overview of the Company

Formed in the year 1982, Five Star is non-Banking Finance Company (NBFC) with the Reserve Bank of India (RBI), specialized in providing financial services to address the needs of unbanked, and unserved segment, funding the people who were perceived to be non-fundable. The customers include all the way from small shop owners, flower vendors, maids, masons to small and medium enterprises that form the backbone of India’s economy.

The focus area of the company is to strike its operations to more and more under-served self-employed and Small Business customers and help them access credit on reasonable terms by opening more number of branches in the semi-urban/rural areas.The company has one wholly-owned subsidiary called Five-Star Housing Finance Private Limited which was incorporated on 28th September 2015, registered with the National Housing Bank (NHB) as a non-deposit taking Housing Finance Company (HFC).

Five Star provides Small business loans to meet borrower requirements for commencing new businesses, expansion of his/ her existing businesses and to settle any unorganized dues he/ she has taken to further their businesses. The loans are given based on the company’s evaluation of the borrower household cashflows coupled against the security of the borrower’s house collateral.

The typical loan ticket ranges between Rs 1 lakh to Rs 10 lakhs for a tenure between 24 and 84 months. The repayments are to be made on a monthly equated basis.

What makes Five-Star business robust

A) Mortgage property to give loans:
The company follows a business model, where lending to potential borrowers is secured by the twin factors of strong business income and emotionally attached property. The income of the borrower secures the loan during good times while the property mortgaged secures the loan during difficult times. The right combination of income and property has helped and continues to help the company maintain its asset quality even during difficult times like demonetization, implementation of GST, recent liquidity challenges, etc.

B) Robust Capital Structure:
Five Star has manageable leverage, leading to a healthy D/E ratio. Despite regulatory guidelines allowing for a much higher cap, the company never crossed 3.5 – 4x of leverage, which gives a lot of comfort to lenders.


C) Asset-Liability Mismatch:
The company over the years has maintained a steady Asset-liability mismatch. Many times to increase the Net Interest Margin of the company, the management tries to get loans for a shorter duration- which means at a lower cost and lend for long-term. This creates a problem during difficult times, and the perfect example is DHFL, where due to the Asset-liability mismatch, the NBFC with more than 1 Lakh Crores of loan book got burst.


During the year, the Company added 79 branches resulting in the branch network increasing to 252 from 173.

State No. of Branches(2019) No. of Branches(2020) No. of Branches(2021) No. of Branches(2022)
Madhya-Pradesh 7 26 27 37
Maharashtra 2 4 4 4
Telangana 31 36 38 45
Andhra Pradesh 46 64 68 79
Karnataka 11 30 32 33
Tamilnadu 76 88 89 98
Chhattisgarh 0 3 3 3
UP 0 1 1 1

Business Highlights of last 5 years



Objects of the Five Star Business Finance Ltd IPO:

The Company will not receive any proceeds from the Offer and all such proceeds will go to the Selling Shareholders.

Five Star Business Finance Ltd IPO Details:

Open Date: Nov 09 2022
Close Date: Nov 11 2022
Face Value: ₹ 1 Per Equity Share
Issue Type: Book Built Issue
Issue Size: 1,960.01 Cr.
Lot Size: 31 Shares
Issue Price: ₹ 450-474 Per Equity Share
Listing At: NSE,BSE
Listing Date: Nov 21 2022

Promoters And Management:

Lakshmipathy Deenadayalan is the Chairman and Managing Director on the Board of the Company. He holds a bachelor’s degree in engineering in computer science and engineering from the University of Madras. He was a member of the managing committee of Finance Companies’ Association (India). He was first appointed as a director on the Board of the Company on June 21, 2002. Anand Raghavan is an Independent Director on the Board of the Company. He is a member of the Institute of Chartered Accountants of India. He was associated as a Partner with Ernst and Young LLP for ten years. He has served as a member of the committee on functioning of asset reconstruction companies formed by the RBI and the committee to formulate schemes for revival of MSMEs constituted by the Government of Tamil Nadu. He has previously served as Vice President – Corporate Affairs of Sundaram Finance Limited. He has been serving as a director on the Board of the Company from July 28, 2016. Srinivasaraghavan Thiruvallur Thattai is an Independent Director on the Board of the Company. He holds a bachelor’s degree in commerce from the University of Madras and a master of business administration degree from Gannon College, Commonwealth of Pennsylvania. He has wide range of experience in the financial services industry and has served close to two decades as director of Sundaram Home Finance Limited. He has been serving as an independent director on the Board of the Company from August 25, 2021.

Financials of Five Star Business Finance Ltd IPO:

Particulars (in Crs) Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Revenue 33.6 46 84 192 389 787 1050 1256
Interest Cost 10.3 14 24 57 75 216 325 306
Employee Cost 4.8 8 20 45 76 127 163 236
Impairment of Assets 0 0 0 0 7 50 35 45
Other Expense 2 5 12 25 25 34 36 57
Net Profit 10 13 18 55 155 260 359 453
Shares 29.01 29.01 29.01 29.01 29.01 29.01 29.01 29.13
EPS in Rs 1 1.2 1.3 2.9 6.5 10.2 12.37 16

Comparison With Peers:

Name of the Company CMP FV EPS P/E Mcap(cr)
Five-Star Business Finance Limited 474 1 16 30 13,810
Aavas Financiers Limited 1,895 10 45.2 37.4 14,980
Aptus Value Housing Finance Limited 324 2 7.45 39 16,137
Au Small Finance Bank Limited 616 10 17.94 33 41,068

Recommendation on Five Star Business Finance Ltd IPO:

Review and Recommendation of Five Star Business IPO by IZ Team is 5/10

1. They are an NBFC providing secured business loans to micro-entrepreneurs and self-employed individuals, each of whom are largely excluded by traditional financing institutions. 2. Within a subset of large peers (with more than 3000 Cr in AUM), Five-Star have the fastest AUM growth, with a compound annual growth rate (“CAGR”) of 65.0% (Financial Year 2017 to 2021). 3.  Over 95% of the loan portfolio comprises loans from between 1 Lakh to 10 lakh in principal amount, with an average ticket size of 2.7 Lakh. 4.  63% of the loan amount is given to the business income. The 95% of the loans sanctioned being between the interest rate range of 24% - 26%. 5. The revenue has grown from 33 Crores in Fy15 to 1256 Crores in Fy22. 6. Net Profit has increased from 10 Crores in Fy15 to 453 Crores in Fy22. 7. The IPO is priced at P/B of 3.58x which looks reasonable. 

Registrar of Five Star Business Finance Ltd IPO:

  1. Kfin Technology Private Limited

Company Address:

Five Star Business Finance Ltd New No. 27, Old No. 4, Taylor's Road, Kilpauk, Chennai 600 010 Phone: +91 44 4610 6260 Email: Website

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