Five Star Business Finance : Transcript of Analysts/Institutional Investor Meet/Con. Call

Date: December 02, 2022
The National Stock Exchange of India Limited,	BSE Limited
Exchange Plaza,	Listing department,
Bandra-Kurla Complex,	First floor, PJ Towers,
Bandra (E), Mumbai 400 051	Dalal Street, Fort Mumbai 400 001
Symbol: FIVESTAR	Scrip code: 543663

Sub: : Transcript of the Earnings Conference Call for the quarter ended September 30, 2022

Dear Sir/ Madam

Pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Please find enclosed the transcript of the Earnings Conference Call held on Wednesday, November 30, 2022.

The same is available on the website of the Company athttps://fivestargroup.in/investors/

Kindly take the above on record.

For Five-Star Business Finance Limited

BASKAR AN SHALINI

Digitally signed by BASKARAN SHALINI

Date: 2022.12.02 18:27:03 +05'30'

Shalini Baskaran

Company Secretary & Compliance Officer

"Five-Star Business Finance Limited

Q2 FY '23 Earnings Conference Call"

November 30, 2022

MANAGEMENT: MR LAKSHMIPATHY DEENADAYALAN - CHAIRMAN AND MANAGING DIRECTOR - FIVE-STARBUSINESS FINANCE LIMITED

MR RANGARAJAN KRISHNAN - CHIEF EXECUTIVE OFFICER - FIVE-STARBUSINESS FINANCE LIMITED MR SRIKANTH GOPALAKRISHNAN - CHIEF FINANCIAL OFFICER - FIVE-STARBUSINESS FINANCE LIMITED

MODERATOR: MS MAHRUKH ADAJANIA - NUVAMA INSTITUTIONAL EQUITY

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	Five-Star Business Finance Limited
	November 30, 2022
Moderator:	Good morning, ladies and gentlemen, and welcome to the Q2 FY '23 Earnings Conference Call
	of Five Star Business Finance Limited. As a reminder, all participant lines will be in the listen-
	only mode. And there will be an opportunity for you to ask questions after the presentation
	concludes. Should you need assistance during the conference call, please signal an operator by
	pressing star then zero on your touchtone phone. Please note that this conference is being
	recorded. I now hand the conference over to Ms. Mahrukh Adajania from Nuvama Institutional
	Equity. Thank you. And over to you, ma'am.
Mahrukh Adajania:	Hi. Good morning, everyone, and welcome to the earnings call of Five Star Business Finance.
	We have with us the top management team of Five Star represented by; CMD, Mr. Lakshmipathy
	Deenadayalan; the CEO, Mr. Rangarajan Krishnan; and the CFO, Mr. Srikanth Gopalakrishnan.
	With this brief introduction, I hand over the call to the management team of Five Star business.
	Over to you.
Lakshmipathy D.:	Thank you, Mahrukh. Good morning, all. First of all, a warm welcome, and thank you for joining
	the first conference call of Five Star Business Finance. Before getting into the Q2 performance
	of Five Star, let me talk a bit about myself and my journey in Five Star. As introduced, people
	call me as Pathy. I joined Five Star in 2002. This is a 38-year-old NBFC started in 1984 lending
	to two-wheelers and consumer durables.
	When I joined Five Star, we wanted to move away from vehicle business to something new of
	its kind, niche of its kind. So that is where we found out lending to nano or small businesses,
	single-shop owners and self-employed, today, we are truly, fully present with them for last 20
	years, very successfully in the last 20 years. These profile of customers were not been seen
	positively by other former lenders, whereas we saw them very positively, especially the service
	segment in which we cater to essential service shops. So those are the predominant customers
	of Five Star.
	For last 20 years, first 10 years, we learned them a lot. How does we underwrite them, how does
	we set our collection model, which perfectly suits them. So that was a learning curve for Five
	Star, and from 2015 onwards, our growth started. So we were growing close to 90% CAGR
	before COVID has hit us in 2020. During COVID, it was a conscious call to grow slower. So
	we were growing at 15% in COVID-1 and COVID-2, but we put our collections in front, and
	we did one of the best collections, in one among the best collections among the lenders of this
	profile of customers.
	Now the COVIDs all settled, we are back to the growth plan. That takes us to the performance
	what we did in Q2 of this financial year. I will read this as one of the best quarters ever we have
	seen after COVID. Just to take you on the numbers, our AUM has grown from INR 4,639 crores
	in last September to INR 5,732 crores in this September. And from June, it has grown 8% from
	INR 5,297 crores to INR 5,732 crores. So we have grown 8% in the quarter and supporting the
	growth, the disbursement also has gone up from INR 568 crores in June quarter to INR 803
	crores in this September with a growth of close to 40% and from INR 353 crores in last
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Five-Star Business Finance Limited

November 30, 2022

	September to INR 803 crores in this September. One of the good disbursement that ever we have
	seen in this quarter.
	Taking you directly to the asset quality, we have also moved our asset quality from 1.44% in
	September '21 to 1.15% in the September '22 with a sharp drop of close to 30%, 35%. And
	comparing to last quarter, we were almost flat in the asset quality. And finally, to the branches,
	which led the growth of disbursement and AUM, we have opened close to 80 branches in last
	one year. And specifically within last three months, from June to September, we have opened
	close to 41 branches, which is one of the best addition of branches ever we have seen in Five
	Star.
	Finally on the borrowing side, I think Five Star is sweetly positioned. The cost of funds keep
	dropping for Five Star. We were borrowing close to 9% last year. Now we are borrowing at
	8.6% all-in cost. And the cost of funds from the book has dropped down to 10.7% last year to
	10.5% this year. So even going forward, we think our borrowing cost is going to be in the same
	range. So there is no need of transferring any increase of lending cost to the borrowers for
	coming quarters. So with these numbers, let me hand over to Srikant to run through in more
	details.
Srikanth G.:	Thank you, sir. Very good morning to all of you. As Mr. Pathy said, I think this has been one of
	the very good quarters for us, especially coming after two years of pandemic. I will take you
	through some of the numbers and then open out for questions. So as of September 2022, our
	total active loans had grown to about INR 2.5 lakhs from about INR 1.9 lakhs in September
	2021, representing a growth of about 32% on a year-on-year basis. Branch count increased from
	268 to 352, which is like we added almost 75 to 80 branches in the last one year, one of the most
	robust growth that we have seen in the branch additions, about 84 branches during the year. In
	the first half of this year, we added 52 branches, which is again one of the highest for Five Star
	in the last many years. Disbursements increased by about 127% year-on-year to INR 803 crores
	in the second quarter and about INR 1,371 crores in the first half of this year.
	AUM grew by 24% year-on-year to INR 5,732 crores. The ratios remained stable. As of
	September, our average yield on the portfolio was about 24.19% for the quarter with a cost of
	funds of 10.48%, resulting in a spread of 13.71%. Comparing this number against the quarter of
	September 2021, we were at about 13.5% spread. So despite a significant increase in the rates
	by RBI, our spreads have increased, and this has come purely on the back of lower funding costs.
	NIMs very healthy at 18.2% for the quarter, and at about 17.6% for the first half of the year as
	compared to 15.94% for the half year ended September 2021. We have also been increasing our
	efficiencies. Our cost to income for the first half of this year was at 34.11% as compared to
	35.34% for the half year ended September 2021. This has resulted in a healthy return on assets.
	And whenever we are talking any of these ratios, I would just like to remind you that this is on
	the basis of average total assets and not on the portfolio. So we had a healthy return on assets of
	8.68% for the first half of this year with a return on equity of about 14.66%.

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Five-Star Business Finance Limited

November 30, 2022

	Coming to the borrowing side, we have a well-diversified borrowing profile with 51 lenders
	having lent to us. About 60% of our borrowings on the book today is fixed rate, so which is not
	going to have any impact in an interest rate rising scenario. Bank lending contribute about 50%
	of our debt. We pretty much have all the public sector and private sector banks on our debt table.
	We have also diversified our borrowings not just in term loans, but into nonconvertible
	debentures, market-linked debentures. We have done securitization transactions. We have also
	done an external commercial borrowing. So it's a well-diversified borrowing profile, both from
	a lender perspective as well as from a structure perspective.
	The on-balance sheet liquidity is sufficient at INR 795 crores as of September 2022 without
	assuming any of the incremental sanctions, which will help us to meet our growth targets for the
	next two quarters. As of now, we enjoy a rating upgrade of A+ from both ICRA and CARE, and
	we'll be taking up with the rating agencies for the possible rating upgrade to come.
	Over the last five quarters, the collection efficiencies have been showing consistent
	improvement. For the quarter of September '22, we clocked a collection efficiency of 100.1%.
	In fact, three out of five quarters from September 2022, we have been clocking over 100%
	collection efficiency. The other two quarters have seen north of 98%. So the pandemic clouds
	have receded, and we are back to our normalcy in terms of both growth and collections.
	While there was an increase in the 30-plus number consequent to the second wave of COVID,
	but we have been able to bring that down significantly to 13.62% as of September 2022. This
	will drop a little more gradually as we go forward. The gross Stage 3 assets, 90-plus stood at
	1.15% in September '22 as compared to 1.44% in September '21. And we maintained a very
	robust provision coverage, both on the Stage 3 assets and on an overall AUM. On Stage 3 assets,
	our provision coverage stood at a little over 44%. On our overall AUM, it was at 1.77%.
	Our restructured book as on September 22, we overall restructured a book of 1.83%. But as of
	September, '22, it stood only at 1.18%. And even on this portfolio, we maintain a provision
	coverage of over 50%. So, the restructured assets have seen post restructuring payment
	behaviour of more than 1 year and north of 91% of the restructured book remains in the standard
	category.
	For the first half of the year, we clocked a PAT of INR 284 crores, representing a growth of 30%
	year-on-year. For the quarter ended September 22, our PAT was at INR 144 crores, representing
	a growth of 22% year-on-year. We had a net worth of over INR 4,000 crores as of 30th
	September. So, we have delivered robust growth, profitability, and quality for the quarter and
	the first half of the year and are confident of this trajectory to continue for the remaining 2
	quarters as well. With these brief remarks, we open the floor out to questions. Thank you.
Moderator:	We have the first question from the line of Shailesh Kanani from Centrum Broking.
Shailesh Kanani:	Good morning, sir, and thanks for the opportunity. Also, congratulations on a good set of
	numbers. Sir, first question on our 30-plus DPD book. It seems to be a little on the higher side.
	Can you shed some light on that? And also, what can be the long-term average for 30% for us.
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