Buy Five-Star Business Finance, target price Rs 1020: JM Financial

JM Financial has buy call on Five-Star Business Finance Ltd. with a target price of Rs 1020.0. The current market price of Five-Star Business Finance Ltd. is Rs 773.2 .

Five-Star Business Finance Ltd., incorporated in the year 1984, is a Large Cap company (having a market cap of Rs 21578.37 Crore) operating in NBFC sector.

Five-Star Business Finance Ltd. key Products/Revenue Segments include Interest, Fees & Other Charges and Income From Sale Of Share & Securities for the year ending 31-Mar-2023.

Investment Rationale

Five-Star business finance (Five-Star) delivered yet another strong quarter with robust AUM growth (+39.4% YoY, +7.9% QoQ) fuelled by healthy disbursements (+20.4% YoY, +10.5% QoQ) and sustained profitability metrics (RoA at 8.36%, RoE at 18.6%). While yields dipped slightly to 24.2% (-10bps QoQ), CoB held steady at 9.6% (flat QoQ) and reported NIMs expanded to 17.19% (+39bps QoQ). Management indicated that with diversification of borrowing sources to continue going ahead, CoB could witness a slight uptick going forward.

Additionally, mgmt. envisages for 25%-30% of the overall disbursals in the coming year to be PSL compliant, benefits of which are expected to flow either in terms of CoF or attracting new lenders. Collection efforts proved effective with company’s 30+ DPD book witnessing a meaningful improvement to 7.89% (vs 8.35% in 3QFY24). Management guides for a 30%+ growth in AUM and 27%-28% growth in disbursements in FY25.

Given Five-star’s proven track record coupled with its unique positioning and deep understanding of its customer segment, we expect the company to maintain its growth trajectory and deliver on profitability and asset quality metrics with RoEs expected to reach 21.4% by FY26E. We maintain BUY with a revised target price of INR 1020 (valuing at 4x FY26E BVPS).

Financials
For the quarter ended 31-03-2024, the company has reported a Standalone Total Income of Rs 619.14 Crore, up 8.62 % from last quarter Total Income of Rs 570.02 Crore and up 40.94 % from last year same quarter Total Income of Rs 439.29 Crore. Company has reported net profit after tax of Rs 236.06 Crore in latest quarter.

The company?s top management includes Mr.Lakshmipathy Deenadayalan, Mr.Thirulokchand Vasan, Mr.Anand Raghavan, Mr.Srinivasaraghavan Thiruvallur Thattai, Mrs.Bhama Krishnamurthy, Mr.Ramkumar Ramamoorthy, Mr.Ravishankar Ganapathyagraharam Venkataraman, Mr.Vikram Vaidyanathan. Company has S R Batliboi & Associates LLP as its auditors. As on 31-03-2024, the company has a total of 29 Crore shares outstanding.

Promoter/FII Holdings
Promoters held 26.51 per cent stake in the company as of 31-Mar-2024, while FIIs owned 56.06 per cent, DIIs 6.97 per cent.

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