Buy Five Star Business Finance; target of Rs 840: Motilal Oswal

Motilal Oswal's research report on Five Star Business Finance

FIVESTAR’s 4QFY25 PAT grew 18% YoY to INR2.8b (in line). FY25 PAT grew ~28% YoY to INR10.7b. 4Q NII grew ~21% YoY to INR5.6b (in line), while PPoP rose ~19% YoY to INR4b (in line). Other income grew 26% YoY to INR250m, primarily due to higher fee income. Opex grew 26% YoY to INR1.9b (in line). Credit costs stood at INR254m (~9% lower than MOFSLe). Annualized credit costs were largely stable QoQ at ~73bp (PY: ~85bp and PQ: ~71bp). AUM rose ~23% YoY to INR118.8b. AUM growth fell short of ~25% growth guidance primarily due to disruptions in Karnataka. Given the current uncertain situation, it guided for AUM growth of ~25% in FY26.

Outlook

FIVESTAR will command premium valuations relative to its NBFC/HFC peers due to its ability to deliver strong RoA/RoE of 6.9%/17% in FY27E. Reiterate BUY with a TP of INR 840 (based on 2.8x Mar’27E BV).

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