Five-Star Business Finance Limited Unlisted Shares

Overview of the Company

Formed in the year 1982, Five Star is non-Banking Finance Company (NBFC) with the Reserve Bank of India (RBI), specialized in providing financial services to address the needs of unbanked, and unserved segment, funding the people who were perceived to be non-fundable. The customers include all the way from small shop owners, flower vendors, maids, masons to small and medium enterprises that form the backbone of India’s economy.

The focus area of the company is to strike its operations to more and more under-served self-employed and Small Business customers and help them access credit on reasonable terms by opening more number of branches in the semi-urban/rural areas.
The company has one wholly-owned subsidiary called Five-Star Housing Finance Private Limited which was incorporated on 28th September 2015, registered with the National Housing Bank (NHB) as a non-deposit taking Housing Finance Company (HFC).

Five Star provides Small business loans to meet borrower requirements for commencing new businesses, expansion of his/ her existing businesses and to settle any unorganized dues he/ she has taken to further their businesses. The loans are given based on the company’s evaluation of the borrower household cashflows coupled against the security of the borrower’s house collateral.

The typical loan ticket ranges between Rs 1 lakh to Rs 10 lakhs for a tenure between 24 and 84 months. The repayments are to be made on a monthly equated basis.

What makes Five-Star business robust

A) Mortgage property to give loans:
The company follows a business model, where lending to potential borrowers is secured by the twin factors of strong business income and emotionally attached property. The income of the borrower secures the loan during good times while the property mortgaged secures the loan during difficult times. The right combination of income and property has helped and continues to help the company maintain its asset quality even during difficult times like demonetization, implementation of GST, recent liquidity challenges, etc.

B) Robust Capital Structure:
Five Star has manageable leverage, leading to a healthy D/E ratio. Despite regulatory guidelines allowing for a much higher cap, the company never crossed 3.5 – 4x of leverage, which gives a lot of comfort to lenders.

C) Asset-Liability Mismatch:
The company over the years has maintained a steady Asset-liability mismatch. Many times to increase the Net Interest Margin of the company, the management tries to get loans for a shorter duration- which means at a lower cost and lend for long-term. This creates a problem during difficult times, and the perfect example is DHFL, where due to the Asset-liability mismatch, the NBFC with more than 1 Lakh Crores of loan book got burst.

As can be seen from the table above, the company has always been on the positive side of ALM over the last 4 years. This did come at a cost in the form of the higher cost of funds; however, the company was fully cognizant that such short-term pains were necessary to create a longstanding institution.

Presence

Shares Issued by Five Star Business
1. In 2014-15, Five-star Business had issued 12,00,000 equity shares of Rs.10 each at a premium of Rs. 120 per share on preferential basis to M/s Matrix Partners India Investment Holdings II, LLC.
2. In 2015-16, the company has issued ~ 5 Lakhs shares at Rs. 130 per share.
3. In 2016-17, the company has issued ~35 Lakhs shares at Rs. 322 per share.
4. In 2017-18, the company has issued ~49 Lakhs shares at Rs. 646 per share.
5. In 2018-19, the company has raised ~49 Lakhs shares for capital amounting to INR 619 Crores, which was led by TPG Capital, one of the largest private equity investors across the globe and from the existing investors Morgan Stanley, Norwest Venture Partners and Sequoia Capital. The deal has happened at approx. price of 1260 per share.

Valuation of Five Star Business
1. In 2014-15, the company had total outstanding shares of 1.02 Crores, valuing the company at ~130 Crores.
2. In 2015-16, the company has total outstanding shares of 1.07 Crores, valuing the company at ~140 Crores.
3. In 2016-17, the company has total outstanding shares of 1.42651 Crores, valuing the company at ~450 Crores.
4. In 2017-18, the company has total outstanding shares of 1.91689 Crores, valuing the company at ~1200 Crores.
5. In 2018-19, the company has total outstanding shares of 2.38996 Crores, valuing the company at ~3000 Crores.
6. In July 2019- American private equity firm TPG has made a follow-on investment worth $50 million in Five-Star Business Finance Ltd. Last year also, TPG has invested $100 million in the company. With this round, Five-Star said it is close to attaining a valuation of at least ~6600 Crores.

Book Value of Five Star Business

1. In 2014-15, the company has Net-worth of 71.25 Crores and a number of shares of 1.02 Crores. So the book value was ~70.
2. In 2015-16, the company has Net-worth of 91 Crores and a number of shares of 1.07 Crores. So the book value was ~85.
3. In 2016-17, the company has Net-worth of 222 Crores and a number of shares of 1.42651 Crores. So the book value was ~155.
4. In 2017-18, the company has Net-worth of 592 Crores and a number of shares of 1.91689 Crores. So book value was ~308
5. In 2018-19, the company has Net-worth of 1365 Crores and a number of shares of 2.38996 Crores. So the book value was ~571.

Business Highlights of last 4 years