Five Star Business Finance has raised $234 million in primary and secondary capital and has been valued at $1.4 billion, up from $950 million in July 2019, the small business lender said on March 26, making it India's fourth unicorn in 2021.
The round included primary capital and a secondary sale of shares by Morgan Stanley Private Equity. Existing investor Sequoia Capital led the round, investing about $130 million, with Norwest Venture Partners also doubling down, sources said. New investors include private equity giant KKR, which invested about $70 million, and TVS Capital. Moneycontrol was the first to write about the deal when it was being discussed.
“In our mission of ‘funding the unfunded,’ we have created a niche for ourselves empowering small businesses and the self-employed across corners of India by providing them with reliable and responsible funding alternatives. We aim to achieve this social goal through grass-root efforts without compromising on the pillars of asset quality and profitability that are needed to build a sustainable institution of scale,” Five Star Chairman and Managing Director D Lakshmipathy said.
The non-banking lender is the fourth startup in the country to be valued at over a billion dollars this year after Digit Insurance, SaaS firm Innovaccer and business to business marketplace Infra.market.
Founded in 1984 by VK Ramanathan, Five Star Finance was focused on consumer and auto loans. Ramanathan later handed over control of the business to Lakshmipathy, a relative. The company shifted focus to small and medium businesses (SMEs) in 2005 and saw its business grow. Till 2004, it had a loan book of less than Rs 1 crore, which grew to Rs 100 crore by 2012. The real growth, however, has come since 2012, as the business has grown 20 times since.
Chennai-based Five Star has 262 branches across eight states and as of December 31, 2020, had Rs 4,030 crore in assets under management, with gross non-performing assets (GNPAs or defaults) of 1.29 percent.
Tamil Nadu, Karnataka and Andhra Pradesh accounted for 96 percent of the company’s disbursements, though it is looking to expand in Uttar Pradesh, Chhattisgarh, Maharashtra and Madhya Pradesh.
For FY20, Five Star reported a net profit of Rs 261.9 crore on a total income of Rs 787.3 crore compared with a net profit of Rs 156.7 crore on a total income of Rs 408.9 crore for FY19.
“KKR is extremely excited to invest in Five Star and advance its mission to provide crucial funding to un-banked and under-banked populations in India. The company is a true pioneer in the market having supported the growth of MSMEs for decades, playing an important role in India’s economy,” said Gaurav Trehan, partner at KKR.Five Star was a terrific example of the type of solutions-oriented business that KKR looked to support through its global impact strategy and in India, he added.