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

During the year, the Company added 79 branches resulting in the branch network increasing to 252 from 173.

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 investor’s Morgan Stanley, Norwest Venture Partners and Sequoia Capital. The deal has happened at approx. price of 1260 per share.
6. During the financial year 2019-20, the Company has:
a) issued and allotted 3,00,08,700 Secured, Listed, Rated, Redeemable, Taxable, Non-Convertible Debentures on
private placement basis on various dates, which were listed in BSE Limited.
b) allotted 1,78,450 fully paid-up Equity Shares of Rs.10/- each on various dates, pursuant to the Five-Star Associate Stock Option Scheme, 2015.
c) made a preferential issue of 13,32,262 fully paid-up Equity shares of Rs 10/- each which were allotted on 22nd July 2019 on a private placement basis.
d) made a preferential issue of 7,50,000 Partly Paid Equity shares of Rs 10/- each which were allotted on 25th
February 2020 on a private placement basis.
e) issued and allotted 9,67,597 Partly Paid Equity shares of Rs 10/- each on 21st March 2020 pursuant to a rights
issue.

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 2019-20- 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 a Net-worth of 71.25 Crores and a number of shares are 1.02 Crores. So the book value was ~70.
2. In 2015-16, the company has a Net-worth of 91 Crores and a number of shares are 1.07 Crores. So the book value was ~85.
3. In 2016-17, the company has a Net-worth of 222 Crores and a number of shares are 1.42651 Crores. So the book value was ~155.
4. In 2017-18, the company has a Net-worth of 592 Crores and a number of shares are 1.91689 Crores. So book value was ~308
5. In 2018-19, the company has a Net-worth of 1365 Crores and a number of shares are 2.38996 Crores. So the book value was ~571.
6. In 2019-20, the company has a Net-Worth of 1943 CRores and a number of shares are 2.558 Crores. So the book value was ~760.

Business Highlights of last 5 years

Credit Ratings:

Promoters And Management:

(a) D Lakshmipathy – Chairman & Managing Director He is an Engineering graduate from Madras University and hails from a business family. Before joining Five-Star he was the Executive Director at RKV Finance Limited, which was subsequently amalgamated with Five-Star. In 2002 he joined the Board of FiveStar as Executive Director and his wide exposure in lending to Small Business customers helped him to develop a similar advance portfolio at Five-Star with great success. He is responsible for the more expansive branch presence of the company in the last 9 years, growing from 6 branches in 2009 to about 175 as at March 2019 currently spread across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Maharashtra & Madhya Pradesh and has helped grow the portfolio to over INR 2000 Cr. (b) A Ramanathan – Independent Director He is a retired Chief General Manager from NABARD. His expertise lies in institutional development, organisational development, organisational behaviour, small business development, training need assessment, training techniques etc. He has more than 35 years of rich experience in the banking industry. (c) Bhama Krishnamurthy – Independent Director She was Country Head and Chief General Manager of SIDBI. She has closely dealt with multilateral and bilateral agencies in close co-ordination with the Government of India. Her areas of specialisation include, inter-alia, handling of the Human Resources Development Division covering recruitment, training and promotion aspects. She was also associated with drafting of CSR Policy guidelines for SIDBI.

Shareholding Pattern:

Financials of Five-Star Business Finance Limited Unlisted Shares:

A) Balance Sheet

Particulars (in Crs)	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20
Sources of Funds
Share Capital	10.2	10.7	14.2	19.16	23.89	25.58
Reserves	61	80	210	580	1341	1918
Borrowings	35	80	338	376	525	1284
Debt-Securities	15	14	46	50	429	1078
OtherLiability	42	40	86	146	31	47.42
Total Liabilities	163	225	694	1171	2350	4353
Application of Funds
Fixed Assets	0.7	2	5	5	8	11
CWIP	0	0	0	0	0	0
Investments	0.18	4	5	0	0	0
Cash & Bank Balances	28	18	184	131	219	450
Loans and Advances	134	198	495	1007	2095	3830
Other Assets	0.32	3	5	28	28	62
Total Assets	163	225	694	1171	2350	4353

B) Profit & Loss

Particulars (in Crs)	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20
Revenue	33.6	46	84	192	389	787
Interest	10.3	14	24	57	75	216
Employee Cost	4.8	8	20	45	76	127
Impairment of Assets	0	0	0	0	7	50
Other Expense	2	5	12	25	25	34
Finance Profit	15	19	27	65	206	360
Finance Margins	47%	42%	33%	34%	52%	46%
Other Income	0.6	2	3	16	18	40
Depreciation	0.36	0.5	0.9	3	4	10
Profit before tax	16	20	30	78	217	390
Tax	5	7	11	22	62	87
Net Profit	10	13	18	55	155	260
Shares	1.02	1.1	1.4	1.92	2.32	2.55
EPS in Rs	10	12	13	29	65	102

 C) Other Ratios

Particulars	2015	2016	2017	2018	2019	2020
NIM	17%	16%	12%	13%	15%	17.80%
D/E	0.7	1.04	1.71	0.71	0.7	1.21
ROE	15%	15%	8%	9%	11%	13.30%
Book Value	70	85	155	308	571	760

Key Highlights of FY18-19 a) Disbursed an amount of about 1,500 Crores to about 46,000 borrowers, resulting in an increase in the borrower base from around 34,000 to more than 73,000. b) Profit After Tax almost tripled from about INR 53 Crores in FY 2018 to about INR 157 Crores during the year. c) Gross NPA of 0.9%; arguably the best portfolio quality achieved among companies operating in this borrower segment. d) Achieved a rating upgrade from A- (A Minus) to A (Stable), despite the industry headwinds. e) Provided employment to close to 2,000 staff. Key Highlights of FY19-20 a) Disbursed an amount of about 2,400 Crores to about 79,000 borrowers, resulting in an increase in the borrower base from around 73,000 to more than 140,000. b) Increase in Assets under Management (AUM) from INR 2,113 Cr to INR 3,892 Cr, registering a growth of over 84%. c) Profit After Tax increased from about INR 157 Crores during the previous year to about INR 261 Cr INR during the year d) Gross NPA of 1.36%; while this is higher than what would have materialized in the absence of COVID-19, this is still one of the best asset qualities among companies operating in this borrower segment e) Provided employment incrementally to almost 2,000 staff and closed with a staff headcount of about 4,000 f) Incremental debt availment of INR 1,800 Cr during the year (as against INR 636 Cr in the previous year), despite the adverse sentiments that existed towards NBFCs during the year g) Additional equity capital of INR 315 Cr was infused by TPG Capital, reinforcing their confidence in your company. Five Star Finance Annual Report 2020 Five Star Finance Annual Report 2019 Five Star Finance Annual Report 2018 Five Star Finance Annual Report 2017

Company Address:

New No 27, Old No 4, Taylor’s Road, Kilpauk, Chennai - 600010 CIN: U65991TN1984PLC010844