'Buy' Five Star Business Shares Maintains Motilal Oswal Despite Soft Q2 On Improved Growth Visibility

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Motilal Oswal Report

Five Star Business Finance Ltd. reported a soft operating performance during the quarter, marked by muted disbursements and weak AUM growth.

Asset quality deteriorated further, as evident in the increase of 30 plus days past due, leading to elevated annualized credit costs of ~1.35%.

Spreads and margins also contracted, primarily due to lower yields. Management guided for a turnaround on the horizon and expects growth and asset quality to improve in Q3 and strengthen further in Q4.

The stock currently trades at 2x FY27E P/BV. We estimate Five Star to post a CAGR of ~25%/14% in AUM/PAT over FY25-FY28, along with RoA/RoE of 6.7%/17% in FY28E.

Reiterate our Buy rating on the stock with a target price of Rs 710 (premised on 2.2x Sep’27E price/book value).

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