Five Star Business Finance Limited is a non-banking finance company. It was started in 1984 by V. K. Ranganathan. It provides business loans and was incorporated as Five-Star Business Credits Private Limited in Chennai, Tamil Nadu, as a private limited company. It also provides loans for asset creation and meeting expenses such as home renovation, education, marriage, etc.
The company is targeting consumers who generate income from cash and operate businesses. These customers are mostly micro-entrepreneurs and self-employed individuals. Subsequently, the name of the company was changed from “Five-Star Business Credits Private Limited’ to “Five-Star Business Credits Limited.”
The company is registered with the RBI to carry on the business of non-banking financial institutions without accepting public deposits. It expanded its geographical presence outside Tamil Nadu to Karnataka and Andhra Pradesh in 2014.
All of its loans are secured by the borrower’s property. Headquartered in Chennai, the company’s network comprises 311 branches across 150 districts. The 2021 loan book crossed $40,000 million. The 2022 loan book crossed $50,000 million
Over the last three decades, Five Star has been working as a specialized financial services company to address the needs of this segment, funding people who were perceived to be financially unsustainable.
Five Stars customers range all the way from small shop owners, flower vendors, maids, and masons to small and medium enterprises that form the backbone of India’s economy. It provides small business loans to meet the borrower’s requirements for starting new businesses and expanding his/ her existing businesses.
The typical loan ticket ranges between Rs 1 lakh and Rs 10 lakh for a tenure between 24 and 84 months. The repayments are to be made on a monthly basis.
The non-banking financial company Five Star Business Finance Ltd. mobilized Rs 588 crore from anchor shareholders ahead of its initial public offering (IPO). The firm has decided to allocate 1.24 crore equity shares to anchor shareholders, according to a circular uploaded on BSE’s website.
The anchor shareholders are SmallCap World Fund, Fidelity Investments, Capital Research, Malabar Investments, Government Pension Fund Global, Abu Dhabi Investment Authority, Norges Bank, Carmignac Gestion, White Oak, Bay Capital, Segantii, SBI Life Insurance, HDFC Mutual Fund (MF), Baroda BNP MF, Edelweiss MF, and Mirae MF.
The first stock sale is entirely an offer for sale (OFS) of shares to the tune of 1,960 crore by existing shareholders and promoter group entities.
According to market participants, Five Star Business Finance shares are commanding a premium (GMP) of 11 in the gray market today. The assets of the company are expected to list on the leading stock exchanges.
It provides secured business loans to micro-entrepreneurs and self-employed individuals. The NBFC opened its doors in 1984 with a focus on consumer loans and vehicle finance. It changed its business approach in 2005 towards small business loan lending in urban, semi-urban, and rural areas with growth potential.
Asset under management (AUM) increased from 5,100 crores to 4,400 crores. ICICI Securities, Kotak Mahindra Capital Company, Edelweiss Financial Services, and Nomura Financial Advisory and Securities (India) Private Limited are the book-running lead managers for the issue.
The company’s strength is that it is one of the few organizations that has developed an approach to underwriting that evaluates the cash flows of small business owners and self-employed individuals.
It sources all its loans in-house. This gives it full authority over the quality of the customer. Each relationship officer is responsible for no more than 120 customers (on average), so there is sufficient capacity to attend to each loan effectively.
The company’s only weakness we see is that, as of June 2022, 30.4 percent of its customers were first-time borrowers. Such customers generally have a higher risk of default. The RBI imposes numerous constraints on the business, including periodic inspections. Being unable to comply with such regulations could affect the company significantly.
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