Five-Star Business Finance - ICICI Securities Initiates Coverage With A 'Buy' Rating

ICICI Securities Report

We initiate coverage on Five Star Business Finance Ltd. with a 'Buy' rating and target price of Rs 765, valuing the stock at four times September-24E book value per share.

Stock is currently trading at 3.1 times FY25 BVPS, at par with Aptus Value Housing Finance India Ltd. and Home First Finance Company Ltd., FY25E PBV multiple at 3.1 times.

Considering better return and growth outlook, we believe Five Star would command premium over peers.

Key risks: Deceleration in AUM growth, and stress unfolding higher than anticipated.

Investment Rationale:

Since FY15, Five-Star Business Finance Ltd. has added an average of 40 branches each year, taking its total branch count to 373 as of March 2023 – highest among select peers. We believe distribution infrastructure is a prerequisite to scale a business model involving high human touch.

Five-Star’s focused target market is semi-urban and rural areas and self employed customers with household-level net cashflows between Rs 25,000 to Rs 40,000 per month.

While Five-Star’s target customers appear to be vulnerable to even the smallest external event, its careful customer selection, deep understanding of customer behaviour (gained through more than two decades of experience in catering to this customer segment) and preference for high customer equity (in collateral) have enabled it to maintain pristine asset quality across credit cycles.

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