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Five Star Business Finance IPO Review: Five Star Business Finance Ltd is coming up with its Initial Public Offering. The IPO will open for subscription on November 9th, 2022, and close on November 11th, 2022. It is looking to raise Rs.1,960.01  Crores. In this article, we will look at the Five Star Business Finance IPO Review 2022 and analyze its strengths and weaknesses. Keep reading to find out! 

Five Star Business Finance IPO Review – About The Company

Five Star Business Finance Limited is an NBFC-ND-SI (Non-Banking Finance Company) that provides secured business loans to self-employed individuals and micro-entrepreneurs.

It has constructed a business model based on identifying an appropriate risk framework and the ideal installment-to-income ratio to ensure that customers have the necessary resources to repay the loan after meeting their regular obligations and other event-based capital requirements.

The company was incorporated in 1984 and is headquartered in Chennai and Tamil Nadu. The company has a strong presence in South India with a total of 4,306 employees as of September 30, 2021.

As of June 30, 2022, the company has a wide network of 311 branches spread across eight states and one union territory, and approximately 150 districts across India, with Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka being the key states.

The company has given loans to more than 1,85,000 customers and they had an active loan base of 230,175 and 217,745 as of June 30, 2022, and March 31, 2022, respectively. The company has the fastest-growing AUM among its peers with more than ₹ 30,000 million in AUM. 

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Five Star Business Finance IPO Review - Total Assets

Services provided by the company

The Company is engaged in providing secured loans to self-employed individuals and small business owners as well as s small mortgage loans to meet certain personal needs of its customers.

The company targets customers from urban and semi-urban locations in India and also targets customers from the rural markets who procure income from everyday cash and carry the business with a focus on services, with household cash-flows of approximately ₹25,000 to ₹40,000 per month who can provide collateral and whose family will act as co-applicants on the loan. 

Five Star Business Finance Ltd IPO Review – Financial Highlights

Five Star Business Finance IPO Review - Financials

(Source: DRHP of the company)

Five Star Business Finance IPO Review – Industry Overview

According to CRISIL Research estimates the total market size of MSME lending between various players was around  ₹ 19 trillion as of March 2021. Among the various players, NBFCs have managed to carve out a strong presence in MSME loans due to their focus on serving the needs of the customer segment, customer service provided, faster turnaround time, and expansion in geographic reach.

Over the years, the NBFCs have grown their MSME portfolio at a faster rate than the overall MSME portfolio at a systemic level. The total credit offered by NBFCs to MSMEs has been estimated to increase from 14% to 20% from the fiscal year 2015 to the fiscal year 2021.

Strengths of the Company

  • The company has more than ₹30,000 million in AUM and has the fastest AUM growth compared to its peers
  • One of the few institutions to develop an underwriting model that assesses the cash flows of small business owners and self-employed individuals in the absence of conventional documentary proofs of income
  • The company has 100% in-house sourcing, robust risk management, and a comprehensive credit assessment and collections framework, leading to good asset quality
  • The company has access to diverse and cost-effective long-term financing with a conservative to managing assets, liabilities, and liquidity
  • The company comprises of cycle-tested, experienced leadership with an experienced longstanding promoter, a professional management team, and marquee investors.

Weaknesses of the Company

  • Covid-19 has had some adverse effects on the company’s business operations, cash flows, and financial conditions. Such similar outbreaks in the future will have a similar fate on the business and they can be uncertain and unpredictable.
  • The company requires a huge amount of capital for its operations and any disruptions in the flow of capital can adversely affect the business operations.
  • The company’s operations can also be adversely affected if the borrowers default on the loans
  • The company has a high risk of loans getting defaulted as a substantial portion of customers are first-time borrowers.
  • The company’s operations could have an adverse effect if it fails to meet its obligations,  including financial and other covenants under our debt financing arrangements.

Five Star Business Finance Ltd IPO Review – GMP

The shares of Five Star Business Finance Ltd traded at a 1.8%  premium in the grey market on Wednesday before the IPO. The shares are traded at a price of Rs. 483. The price band has been fixed at ₹450-474 per share. 

Five Star Business Finance Ltd IPO Review – Key IPO Information

IPO Size₹1,960.01 Cr
Fresh Issue-
Offer for Sale (OFS)₹1,960.01 Cr
Opening dateNov 9, 2022
Closing dateNov 11, 2022
Face Value₹1 per share
Price Band₹450 to ₹474 per share
Lot Size31 Shares
Minimum Lot Size1(31)
Maximum Lot Size13(403)
Listing DateNov 21, 2022

Promoters: Lakshmipathy Deenadayalan, Hema Lakshmipathy, Shritha Lakshmipathy, Matrix Partners India Investment Holdings II, LLC, and SCI Investments V

Book Running Lead Manager:  ICICI Securities Limited, Edelweiss Financial

Services Limited, Kotak Mahindra Capital Company Limited, and Nomura Financial Advisory and Securities (India) Private Limited

Registrar to the Offer: KFin Technologies Private Limited

The Objective of the Issue

The net proceeds from this issue will be utilized for the following purposes:

  • To implement an offer for sale.
  • To receive the benefits of listing the equity shares on the stock exchanges

In Closing

In this article, we looked at the details of the Five Star Business Finance IPO Review 2022. Analysts remain divided on the IPO and its potential gains. This is a good opportunity for investors to look into the company and analyze its strengths and weaknesses. That’s it for this post.

Are you applying for the IPO? Let us know in the comments below.

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