Five Star Business Finance IPO set to open on Nov 9; price band at ₹450 to ₹474 a share

  • Five Star Business Finance plans to raise ₹1,960 crore through a complete offer for sale by the company’s promoters and existing shareholders.
  • The price band of the IPO is set at ₹450-474 a share.
  • The non-banking lender provides secured loans to micro-entrepreneurs and self-employed individuals.

The initial public offering (IPO) of non-banking financial corporation Five Star Business Finance, is set to open on November 9 and close on November 11.

The Chennai-based lender plans to raise ₹1,960 crore through a complete offer for sale by the company’s promoters and existing shareholders. The price band of the IPO is set at ₹450-474 a share.

The company, which provides secured loans to micro-entrepreneurs and self-employed individuals, will not receive any funds raised from the IPO as all the shares are being sold by promoters.

Here are the promoters selling shares via the IPO:

Promoters Offer for sale
SCI Investments V ₹166.74 crores
Matrix Partners India Investment Holdings II, LLC ₹719.4 crore
Matrix Partners India Investments II Extension, LLC ₹12.08 crores
Norwest Venture Partners X – Mauritius ₹361.4 crore
TPG Asia VII SF ₹700.3 crore

The company has a strong presence in south India with assets under management (AUM) of ₹5,100 crore as of March 31, 2022 compared to ₹4,400 crore a year ago. It has a network of 311 branches in 150 districts, 8 states and 1 union territory and a workforce of 6,077 employees. Tamil Nadu, Karnataka, Andhra Pradesh and Telangana account for 85% of its overall portfolio. The company plans to deepen its presence in existing geographies through increasing the number of field officers and setting up new branches.

The NBFC’s total income grew 19.5% from a year earlier to ₹1,254 crore in FY22, while its net profit grew 26.5% to ₹453 crore.

While the pandemic seems to have ended, it impacted the NBFC by reducing disbursements from ₹2,408 crore in FY20 to ₹1,245 crore in FY21.

“The effects of the Covid-19 pandemic on our future results of operations, cash flows and financial condition could adversely impact our ability to service our debt obligations and comply with the covenants in our credit facilities and other financing agreements and could result in events of default and the acceleration of indebtedness, which could adversely affect our results of operations and financial condition and our ability to make additional borrowings,” said the company in its draft red herring prospectus.

Besides, a substantial portion of its customers are first time borrowers which increases risks of non-payment or default for the NBFC. “As of September 30, 2021, we had 25.09% of customers, who were new to the lending ecosystem. Such customers generally may have higher risk of non payment or default due to a number of reasons,” said the company.

The non-banking lender’s total borrowings have fallen to ₹2,558 crore in FY22 from ₹3,425 crore in FY21.

individuals Total revenue from operations net profit
FY22 ₹1,254 crore ₹453 crores
FY21 ₹1,049 crore ₹358 crore
FY20 ₹786 crore ₹261 crore

Some of the peer companies of Five Star Business Finance are AU Small Finance Bank, Aavas Financiers, and Aptus Value Housing Finance India. It also competes with unlisted companies like Lendingkart Technologies and Digikredit Finance.

Peer companies Total Income in FY22 % returns in 2022
Five-Star Business Finance ₹1,254 crore
Avas Financials ₹1,305 crore -28%
Aptus Value Housing Finance India ₹840 crore -7%
Au Small Finance Bank ₹6,915 crore 16%

(Source: Red Herring Prospectus)

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