Buy Five Star Business Finance; target of Rs 700: Motilal Oswal

Motilal Oswal's research report on Five Star Business Finance

Five Star is in a phase of deliberate recalibration, focusing on portfolio stability and underwriting discipline over disbursement volumes. Management has adopted a consciously slow approach to disbursements in 3QFY26 as well, just to be sure that the observed stabilization is a ‘real recovery’ and not an aberration. This calibrated approach is likely to lead to a moderation in business volumes in 3Q but will also set the base for a significant acceleration in disbursements from 4QFY26/1QFY27 onwards. Stable collections in Oct-Dec’25 will bolster the management’s confidence in scaling business volumes. Simultaneously, Five Star is also strengthening its customer profile and building a robust cohort to ensure future growth does not compromise asset quality. Five Star continues to invest notably in technology to enhance customer experience and underwriting efficiency. Initiatives such as CKYC-based account aggregation, speech-to-text automation for field interactions, and AI-enabled calling efforts are expected to improve customer repayment behavior while improving operational efficiency.

Outlook

The stock currently trades at 1.9x FY27 P/BV. We estimate Five Star to deliver a CAGR of ~24%/17% in AUM/PAT over FY26-28E, along with RoA/RoE of 6.8%/16.6% in FY28E. We reiterate our BUY rating on the stock with a TP of INR700 (premised on 2.2x Sep’ 27E P/BV).