Five-Star Business Finance share price jumps 7% as Nomura initiates coverage

Nomura initiated coverage on the stock with a Buy rating and target price of ₹750 per share, implying an upside of over 16% from today’s high.

The brokerage house believes Five-Star Business Finance is uniquely positioned with superior growth and best-in-class profitability among financial peers. 

The non-banking financial company (NBFC) provides secured business loans to micro-entrepreneurs and self-employed individuals with a strong presence in South India. 

It clocked an assets under management (AUM) CAGR of 47% over FY18-23, with an average ticket size of ₹3 lakh. Its focus on a large underbanked market provides superior pricing power (yields >24%) and strong underwriting leading to robust profitability with average ROAs of 7.6% and PAT CAGR of 61% over FY18-23, Nomura said.

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The brokerage estimates EPS CAGR of 25% during FY23-FY26 with RoA and RoE of 7.7% and 16.6%, respectively.

However, key risk for the company, according to Nomura, would be its inability to scale up in new states, rising competition from lenders and fintechs and worse-than-expected asset quality deterioration.

During the fourth quarter ended March 2023, Five Star Business Finance reported strong results with a 37% YoY growth in AUM. Growth in AUM, at ₹6,915 crore, was primarily driven by a 72% YoY increase in loan disbursals due to branch expansion and a rise in the average ticket size of loans.

The company’s net profit during Q4FY23 rose 43% to ₹169 crore from ₹118 crore in the corresponding quarter of the previous year. 

Five Star Business Finance shares have rallied 20% in the last three months, while they are up nearly 43% from its listing on November 21, 2022.

At 10:00 am, the shares of Five Star Business Finance were trading 5.31% higher at ₹633.05 apiece on the BSE.

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Updated: 19 Jun 2023, 10:07 AM IST