Growth Strategy
Five-Star Business Finance Limited has adopted a structured growth approach by focusing on its core strength—small-ticket secured lending. The company follows a disciplined lending model with an emphasis on collection efficiency, asset quality, and controlled growth. Key aspects of the growth strategy include:
- Branch Expansion: Over the past year, Five-Star has added 249 branches, with 69 new branches in the last quarter alone, demonstrating a commitment to expanding its physical footprint.
- Controlled Disbursement Growth: The company consciously slowed disbursements in the previous quarter to align with its growth target of 25% YoY growth, ensuring financial stability.
- Geographical Diversification: While the company has a strong presence in Tamil Nadu, Telangana, and Andhra Pradesh, it is expanding to other states cautiously, ensuring sustainable growth.
- Customer Segment Focus: The company remains committed to serving small business owners, with a preference for loan ticket sizes between ₹3 lakh to ₹5 lakh, where it sees the most stable customer base.
Future Outlook
- Strong Business Continuity: Five-Star expects a robust performance in Q4 FY25, indicating a return to regular business growth and stability.
- Expanding Lending Portfolio: The company has expressed interest in housing finance as a complementary business segment but is taking a cautious approach before expanding into this sector.
- Technology & Operational Enhancements: Continued investments in improving underwriting models and operational efficiencies are expected to strengthen its market position.
- Sustainable Leverage Management: With a strong return ratio and capital adequacy, the company is balancing growth with prudent leverage management.
Challenges
Despite its strong business fundamentals, Five-Star faces key industry and operational challenges:
- Regulatory Environment: The non-banking financial company (NBFC) sector is subject to evolving regulations, and the company has been actively adapting to any changes from the Reserve Bank of India (RBI).
- Overleveraged Borrowers: A significant portion of its target customer base has been impacted by overleverage due to unsecured lending from microfinance institutions (MFIs) and other lenders.
- Liquidity Management: While the company has secured funding from multiple lenders, including HDFC Mutual Fund and HSBC Mutual Fund, maintaining liquidity in a volatile credit environment remains a priority.
- Geographical Risk: While expanding beyond the southern states, the company is carefully monitoring regional credit risks to avoid overexposure.
Key Advancements
- Collection-First Approach: The company has reaffirmed its strategy of prioritizing collections over aggressive loan disbursement, ensuring strong asset quality.
- Operational Efficiency: Maintaining a cost-to-income ratio below 35%, even while expanding operations, showcases its efficiency-driven approach.
- Portfolio Stability: Five-Star has maintained a low Gross NPA (1.62%), demonstrating the strength of its secured lending model.
- Diversified Borrowing Base: The company has reduced its reliance on bank borrowings from 70% to 65%, securing funding from capital markets and developmental institutions.
Five-Star Business Finance Limited remains committed to profitable growth, risk management, and disciplined lending, ensuring its continued success in the NBFC space.