Five-Star Business Finance mulls diversification into affordable housing & used vehicle segments
Five-Star Business Finance Ltd, a Chennai-based non-banking finance company, is looking to diversify into newer opportunities, even while staying focused on its core business of providing secured loans to ‘bottom of the pyramid’ borrowers, where the typical loan ticket size is ₹2-10 lakh.
This core business is growing more than 30 per cent, says G Srikant, Chief Financial Officer of the company which got listed on the stock exchanges in November 2022. The company raised ₹1,588.5 crore via its initial IPO (initial public offering).
Over the past two decades, the company has managed to achieve some level of financial inclusion by bringing the borrowers in this category to the formal segment from money lenders without compromising on asset quality and product. In FY23, it clocked a PAT of about ₹604 crore; in the 9 months of 2023-24, the net profit touched ₹600 crore.
The company’s assets under management (AUM) have grown to about ₹9,000 crore now from about ₹1,300 crore in March 2015 with the same ticket size and tenfold growth in the branch network. The average loan ticket size has been ₹3-3.5 lakh, which may increase to Rs.3.5-4 lakh in the coming year.
“We can definitely grow in the range of 30-35 per cent year-on-year depending on regulatory conditions. We have a strong infrastructure by way branch network to drive our growth. So we will continue to open branches as we want to grow our business further to emerge as one of the big players,” Srikanth told businessline today.
Other opportunities
Yet, there are other opportunities of good potential the company can’t ignore. “You cannot be a single product company forever. While this product itself has a significant opportunity, maybe down the line, we may look at good product diversification. The natural progression will be towards affordable housing and affordable used vehicles, among others. We will look for the inorganic opportunity in the product diversification journey,” he added.
Srikanth asserted that Five-Star would never get into unsecured products as the DNA of the company is to be on the secured portfolio. The company believes affordable housing and used vehicles would be complementary products.
“Today we are doing housing loans. But neither am I getting any benefit on risk weights – if it’s a housing finance company, the risk weight for home loans is 35 per cent, whereas our risk weight is 100 per cent. Also, if it is a housing finance company, it can get a refinance from the National Housing Bank. We don’t have any refinance lines. Even for the borrower, we can offer a better rate with a longer tenure under housing finance operations, he said
However, Five-Star is not actively in discussions with anyone, but keeping its eyes and ears open, and as and when there is an opportunity that can help complement its existing operations, it will be open to consider.
The company’s scrip closed at ₹723 per share, up 0.91 cent, on BSE on Thursday.