Five-Star Business Finance - Healthy Performance; Outlook Remain Strong: Systematix

Systematix Research Report

Five-Star Business Finance Ltd. Q3 FY24 operational performance was healthy and ahead of consensus estimates. Net interest income/operating profit came in-line at Rs 4.2 billion / Rs 3.0 billion (versus consensus estimate of Rs 4.3 billion / Rs 2.9 billion) registering a growth of 32% YoY (6% QoQ) / 46% YoY (8% QoQ).

Net interest margins on AUM declined by 52 bps QoQ at 19.6%, mainly due to higher cost of funds (up 64 bps QoQ). AUM growth momentum was strong at 43% YoY (8% QoQ), even as disbursements were flat QoQ. Tamil Nadu and Andhra Pradesh together contribute ~68% of AUM and poor whether conditions in December 2023, impacted collection efficiency marginally (~1% QoQ.

Overall asset quality was steady QoQ with gross stage-III asset ratio at 1.4% with coverage of ~54% (versus 50% in Q2). Management has maintained AUM growth guidance of 35% in FY24 with marginal moderation on account of regulatory changes, resulting in a slight impact on return on asset.

At current market price, Five Star is trading at 3.8 times FY26 book value, we believe the premium valuation multiple compared with peers to sustain led by its unique position in the market, best in class RoA coupled with superior asset quality across cycles.

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