Buy Five Star Business Finance; target of Rs 930: Motilal Oswal

buy

Motilal Oswal's research report on Five Star Business Finance

Five Star Business Finance (FIVESTAR)’s 3QFY25 PAT grew 26% YoY to INR2.74b (in line). NII grew ~28% YoY to INR5.4b (in line), while PPoP rose ~29% YoY to INR3.9b (in line). Other income declined 3% YoY to INR198m. Opex grew 21% YoY to INR1.7b (in line). Credit cost stood at INR233m (~13% lower than est.). Annualized credit cost was stable QoQ at ~70bp (PY: ~50bp). Management guided for AUM growth of ~25% for FY25. However, the company will revisit the business outlook for the next year at the end of the March quarter and provide guidance for the next fiscal year. Overall Collection Efficiency (CE) stood at 98% (PQ: 98.4%). Unique loan collections (Due one, collect one) stood at 96.7% (PQ: 97%). FIVESTAR does not foresee any further significant deterioration in asset quality and expects no substantial increase in credit costs for 4QFY25. While credit costs have recently been in the band of ~70bp, its business model is designed to function effectively with credit costs of ~75-100bp.

Outlook

FIVESTAR will command premium valuations relative to its NBFC/HFC peers due to its ability to deliver strong RoA/RoE of 7.1%/18% in FY27E (despite the moderation in its RoA profile). Reiterate BUY with a TP of INR930 (based on 3.3x Sep’26E BV).

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Five Star Business Finance - 03022025 - moti