Five Star Business Finance sets IPO band at 10.6% discount to unlisted market price

Fusion Micro Finance IPO

Five Star Business Finance Ltd's investors are in shock after the company priced its initial public offering (IPO) below its unlisted market price, dealers said.

The South-based lender's share price is Rs 525-530 per share in the unlisted market while the IPO price band is fixed at Rs 450-474 per share, about 10.6 percent below the current unlisted price.

The stock is down nearly 35 percent in the unlisted market from its recent peak of Rs 730 a share hit in October 2021. The IPO, which is a pure offer for sale, opens for subscription on November 9 and closes on November 11.

"Five Star Business Finance is a notable NBFC player in South India which enjoys a unicorn status with the presence of some marquee investors. The prices for the unlisted shares ranged widely, from about Rs 360 to Rs 725. Despite all industry odds, the company has consistently produced excellent financial results, which has kept investors interested in its unlisted shares. However, due to a large downturn in both the listed and unlisted markets, the shares have declined almost 35 percent in the past year," said Manan Doshi, co-founder, unlistedarena.com.

"The issue is valued at a P/E of about 25 times its annualised FY23 earnings and a P/BV of 3.58x (based on June 2022 figures), which appear to be a little lower than its listed competitors. The primary market is gradually picking up steam, and the issues that are fairly priced, where investors have something to gain, are receiving a decent response," Doshi added.

IPOs at discount to grey market

Five Star Business Finance is not the only company to have set a price band that is far lower than the prevalent unlisted market price. Earlier, AGS Transact Technologies, UTI Asset Management Co Ltd and PB Fintech’s IPO price bands were below grey market levels.

AGS Transact listed on exchanges in January 2022 and its price band was set at 166-175 a share. Meanwhile, its unlisted price just before the IPO was around Rs 185-195 a share.

The same was the case with UTI AMC and PB Fintech's IPOs. UTI AMC listed on exchanges in September 2020 and its IPO price band was Rs 552-554 a share while its unlisted market price was around Rs 1,100 a share.

PB Fintech, the parent of Paisabazaar which listed in November 2021, had set an IPO price band of Rs 940-980 a share even though shares were quoting around Rs 1,900 apiece just before the IPO.

The business

Founded in 1984, Five Star Business Finance provides secured business loans to micro-entrepreneurs and self-employed individuals. The lender has an extensive network of 311 branches, as of June 30, 2022, spread across approximately 150 districts, eight states and one Union territory, with Tamil Nadu, Andhra Pradesh, Telangana and Karnataka being its key states.

The anchor investors in the IPO will start bidding on November 7. The allotment will be on November 16, initiation of refunds will be on November 17 and credit of equity shares to allottees will be on November 18. The shares will be listed on November 21. It has cut its IPO size to Rs 1,960 crore from the earlier planned Rs 2,752 crore.

For the June quarter, the lender reported revenue from operations of Rs 337.97 crore against Rs 300.52 crore a year ago. Net profit for the quarter stood at Rs 139.43 crore versus Rs 101.57 crore a year ago. Gross term loans stood at Rs 5296.54 crore from Rs 4577.51 crore last year. Disbursements were at Rs 568.43 crore versus Rs 333.16 crore.

Total borrowings were at Rs 2,520.32 crore from Rs 3,121.22 crore. Gross non-performing assets (NPA) for fiscal 2022 stood at 1.1 percent from 1 percent a year ago. Net NPA fell to 0.7 percent from 0.8 percent last year.