Five Star Business Q3 Results Review — Motilal Oswal Retains 'Buy' On The Stock, Sees 25% Upside - Here's Why

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Motilal Oswal Report

Five Star Business Finance Ltd. reported a weak business momentum in Q3 FY25. The company reported AUM growth of ~25% YoY, in line with its guidance to moderate growth momentum given the current weak macro environment and overleverage from unsecured retail. Interestingly, while asset quality deteriorated with GS3 rising ~15 bp QoQ due to a minor sequential decline in collection efficiency, credit costs remained broadly stable QoQ at ~70 bp.

The stock currently trades at 2.4 times FY27E price/book value. We believe that Five Star Finance’s premium valuations will remain intact, given its niche market position, superior underwriting practices, resilient asset quality, and (still) high return metrics.

We estimate Five Star Finance to deliver a ~26% AUM CAGR over FY24-FY27, along with net interest margin (as a % of average loans) of 18.3%/17.1% in FY26/FY27E.

Five Star Finance’s asset quality is expected to remain relatively resilient compared to the stress that is witnessed in the unsecured lending segment. We reiterate our Buy rating on the stock with a target price of Rs 930 (premised on 3.3x Sep’26E book value per share).

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