Five Star Business Finance Limited IPO Company Profile :
Five Star Business Finance Limited is an NBFC-ND-SI (Non-Banking Finance Company) providing secured business loans to micro-entrepreneurs and self-employed individuals, each of whom is largely excluded by traditional financing institutions. The company is headquartered in Chennai, Tamil Nadu with a strong presence in south India, and all of the loans are secured by the borrowers’ property, predominantly SORP.
Within a subset of large peers (with more than ₹3,000 crores in AUM), Five Star Business Finance Limited has the fastest AUM growth, with a compound annual growth rate (“CAGR”) of 65.0% (Financial Year 2017 to 2021), the company had the highest average return on AUM of 7.9%, across the period covering Financial Years 2021, 2020 and 2019; and the company is among the three best for Gross Non-Performing Assets (being NPAs that are 90+ Days-Past-Due (“DPD”)) (“Gross NPA”) as a percentage of AUM (the company had a Gross NPA as a percentage of AUM of 1.02%) as of March 31, 2021, while it has the best asset quality among lenders as engaged in extending MSME business loans, with other lenders reporting 90+ DPD in excess of 2%
The company had an extensive network of 268 branches as of September 30, 2021, spread across approximately 126 districts, eight states, and one union territory, with Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka being the key states. Such key states collectively accounted for approximately 85% of the branch network by number, as of September 30, 2021.
Five Star Business Finance Limited IPO Details:
|IPO Open Date||9th November 2022|
|IPO Close Date||11th November 2022|
|Listing Date||21st November 2022|
|Face Value||₹1 per share|
|Price||[.] to [.] per share|
|Issue Size||[.] shares
(aggregating up to ₹2,751.95 Cr)
|Offer for Sale||[.] shares
(aggregating up to ₹2,751.95 Cr)
|Issue Type||Book Built Issue IPO|
|Listing At||BSE, NSE|
|QIB Shares Offered||Not more than 50% of the Offer|
|NII (HNI) Shares Offered||Not less than 15% of the Offer|
|Retail Shares Offered||Not less than 35% of the Offer|
|Company Promoters||Lakshmipathy Deenadayalan, Hema Lakshmipathy, Shritha Lakshmipathy, Matrix Partners India Investment Holdings II, LLC, and SCI Investments V|
Five Star Business Finance Limited IPO Financial analysis:
|Particulars||6M FY-22(in cr.)||FY-21(in cr.)||FY-20(in cr.)||FY-19(in cr.)||CAGR|
|Revenue from operations||610.69||1049.74||786.71||408.91||36.9%|
|Impairment on financial instruments||21.93||35.17||49.34||7.55|
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Five Star Business Finance Limited IPO Strengths:
Fastest AUM growth among the compared peers with more than ₹3,000 crores in AUM, with strong return and growth metrics and a significant potential addressable market, the company had the highest average return on AUM of 7.9% among the compared peers with more than ₹3,000 crores in AUM, across the period covering Financial Years 2021, 2020 and 2019; and for each of those Financial Years, the return on AUM was 7.1%, 7.8%, and 8.9%, respectively. Such returns are as a result of the company’s ability to lend to customers at consistently superior yields and then control the costs.
Five Star Business Finance Limited has an underwriting model to provide secured financing solutions to small business owners and self-employed individuals and for over the last two decades of operation in this particular product, is among the few select institutions to have developed such a model in India. This model of the company is customer-centric and is underpinned by underwriting practices that triangulate the character, cash flow, and collateral of potential customers. This methodology of underwriting ensures that the company is able to evaluate both the willingness and the ability of the customer to repay the loan, despite the absence of traditional documentary proofs of income. This has enabled the company to mitigate credit risk and successfully underwrite new loans while maintaining asset quality.
100% in-house sourcing, comprehensive credit assessment, and robust risk management and collections framework allow the company to identify, monitor, and manage risks inherent in its operations. Serving primarily small business owners and self-employed customers while maintaining asset quality requires a special skillset in absence of traditional income evidence, such that lending to these borrowers is mainly based on an assessment of their income and cash flows through various methods.
The company has secured financing from diversified sources of capital, including term loans; proceeds from loans securitized; proceeds from the issuance of NCDs; issuances of principal protected market linked debentures; and proceeds from loans assigned; from banks, financial institutions, mutual funds, and other domestic and foreign financial and development finance institutions to meet the capital requirements. The company is able to access borrowings at competitive costs due to its stable credit history, strong credit ratings, equity capital position and low leverage, and risk management policies.
Five Star Business Finance Limited IPO Risk factors:
Five Star Business Finance Limited has customers who are first-time borrowers from the formal secured lending ecosystem. As of September 30, 2021, the company had 25.09% of its customers, who were new to the lending ecosystem. Such customers generally may have a higher risk of non-payment or default due to a number of reasons.
The company is affected by volatility in interest rates for both the lending and treasury operations, which could cause the net interest income (“NII”) and net interest margin (“NIM”) to vary and consequently affect the profitability, result of operations and cash flows of the company.
The company’s policies and procedures to identify, monitor and manage risks may not be fully effective. Some of the risk management processes may not be automated and subject to human error, such as the process required to assess an applicant’s cash income. Some of the methods of managing risks are based on the use of observed historical market behavior and may not accurately predict future risk exposures, which could be significantly greater than those indicated by the historical measures.
A portion of the equity share capital of one of the Promoters, Lakshmipathy Deenadayalan, has been pledged. In the event the pledge is invoked, or the security provided is enforced, it could adversely affect the business of operations of the company.
The company’s Promoter, Lakshmipathy Deenadayalan, has provided personal guarantees for loan facilities obtained by the company, and any failure or default by it to repay such loans could trigger repayment obligations on the Promoter, which may impact the Promoter’s ability to effectively service his obligations as the Promoter and thereby, adversely impact our business and operations.
Five Star Business Finance Limited IPO Objects of the Offer:
The Selling Shareholders will be entitled to the entire proceeds of the Offer after deducting the Offer expenses and relevant taxes thereon. The Company will not receive any proceeds from the Offer.
Five Star Business Finance IPO Prospectus:
- Five Star Business Finance IPO DRHP
- Five Star Business Finance IPO RHP
Registrar to the offer:
KFin Technologies Private Limited
(Formerly known as Karvy Fintech Private Limited)
Selenium, Tower B, Plot No. – 31 and 32
Hyderabad, Rangareddi 500 032
Tel: +91 40 6716 2222
Investor grievance e-mail: email@example.com
Contact person: M Murali Krishna
SEBI Registration Number: INR000000221
Signature Global (India) Limited IPO FAQ
Ans.Five Star Business Finance Limited IPO will comprise fresh share issue and new offer share issue. The company aims to go public to accelerate its growth and expansion plan.
Ans. The Five Star Business Finance IPO opens on Nov 9, 2022 and closes on Nov 11, 2022.
Ans. The minimum lot size that investors can subscribe to is <> shares.
Ans. The Five Star Business Finance Limited IPO listing date is <>.
Ans. The minimum lot size for this upcoming IPO is <> shares.