Five Star Business Finance Q1 Review - Inline; Strong Loan Growth With Stable Asset Quality: Motilal Oswal

Motilal Oswal Report

Five Star Business Finance Ltd. Q1 FY25 profit after tax grew 37% YoY to ~Rs 2.5 billion (in line). Net interest income grew ~31% YoY to Rs 4.8 billion (in line), and pre-provision operating profit rose ~36% YoY to Rs 3.55 billion (in line).

Other income grew 43% YoY to Rs 283 million, aided by higher gains on fair value changes. Opex grew ~24% YoY to Rs 1.57 billion (in line). Credit costs at Rs 185 million translated into annualized credit costs of ~70 basis points (PY: ~90 bp).

Management shared that the company will be passing on the benefits of its cost of borrowings to its customers through a lending rate cut of ~50- 75 bp (on incremental disbursements) over the next nine months.

These rate cuts will be introduced as early as in August 2024. This will result in gradual moderation in portfolio yields over the course of this and the next fiscal year.

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