Five Star Business Finance lists at 5% discount to issue price at Rs 449

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Five Star Business Finance, which provides small business loans and mortgage loans to micro-entrepreneurs and self-employed individuals, made a muted debut on exchanges on November 21. It listed at a discount of 5 percent to its issue price of Rs 474.

It started trading at Rs 449.95 on the BSE. On the NSE, it started trading at Rs 468.80, down by 1.10 percent.

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The company’s IPO was an offer for sale by the company's promoters and existing shareholders. As per the Red Herring Prospectus, the selling shareholders were entitled to their respective portion of the proceeds from the OFS and the company did not receive any proceeds.

The issue failed to get full subscription during November 9-11, and was able to garner 70 percent subscription only. The QIB portion, which was subscribed 1.77 times, while the allotted quota of HNIs and retail investors remained undersubscribed (61 percent and 11 percent, respectively).

Headquartered in Chennai, the company provides secured business loans to micro-entrepreneurs and self-employed individuals, who are largely excluded by traditional financing institutions. All of its loans are secured by borrowers’ property (SORP or self-occupied residential property.

Analysts at Choice Broking are of the view that the Five Star’s ability to successfully expand to new underpenetrated geographies, strong on-ground collections infrastructure, in-house sourcing, robust risk management and good asset quality are its strengths.

As of 30 June, 2022, the company’s gross NPA ratio was at 1.12 percent while net NPA was at 0.68 percent.

Meanwhile, a major concern for the company is that it operates in a highly competitive space. Shriram City Union Finance, Vistaar Financial Services, Veritas Financial and Management Services, Lendingkart Technologies, Digikredit Finance, AU Small Finance Bank, Aavas Financiers and Aptus Value Housing Finance are some of its competitors.

"High competition and rising interest rates are big threats. Some of its peers are available at a better price in the secondary market," said Parth Nyati, Founder at Tradingo.

Five Star Business Finance recorded profit at Rs 453.5 crore for year ended March 2022, rising from Rs 359 crore in previous year and Rs 262 crore in FY20. Revenue from operations increased to Rs 1,254 crore in FY22, up from Rs 1,050 crore in FY21 and Rs 786.7 crore in FY20.

Asset Under Management stood at Rs 5100 crore as of March 31, 2022, compared to Rs 4400 crore as of March 31, 2021.

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