With a widespread branch-led distribution network and expansion in new regions, Five Star is set to capture a larger share of the untapped MSME lending space while maintaining its competitive advantage in underwriting and collections.
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Motilal Oswal Report
Five Star Business Finance Ltd. currently trades at 2.3x FY27E price/book value. The stock has undergone a decent correction following the company's downward revision in its AUM growth guidance, coupled with customer overleveraging, which raised concerns about any potential deterioration in asset quality.
However, the company has consistently maintained strong asset quality even in a challenging external environment.
We believe that valuations will re-rate when the company emerges out of the current macro weakness without any significant impact on its asset quality and again embarks on a stronger AUM growth trajectory.
We believe that Five Star is sweetly positioned to leverage the strong target opportunity in the small business loans (SBL with a ticket less than Rs 500,000) segment. The company continues to strengthen its business model through a combination of improvements in its underwriting model and investments in technology to drive operational efficiency and better productivity of its branches and employees.
We estimate Five Star to deliver a ~26%/19% AUM/PAT CAGR over FY24-FY27, along with RoA/RoE of 7.1%/17.4% in FY27E. We reiterate our Buy rating on the stock with a target price of Rs 900 (premised on 3x Mar'27E book value per share).
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