Five-Star Business Finance Ltd (FIVESTAR) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator (Ambit Capital Private Limited): Ladies and gentlemen, good day, and welcome to Five-Star Business Finance Q2 FY27 earnings conference call, hosted by Ambit Capital Private Limited. As a reminder, all
Moderator (Ambit Capital Private Limited): 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 touch-tone phone. Please note, this conference is being recorded. I now hand the conference over to Mr. Raghav. Thank you and over to you, sir.
Raghav (Ambit Capital Private Limited): Good evening, everyone. On behalf of Ambit Capital, I would like to welcome you all to the second-quarter FY27 earnings call for Five-Star Business Finance. Joining us from the management today, we have Mr. Lakshmipathy Deenadayalan, Chairman and Managing Director; Mr. Srikanth Gopalakrishnan, Joint Managing Director and CFO; and Mr. Prashanth Srinivasan, Chief of Treasury and Investor Relations. I would like to first thank the management for giving us this opportunity to host the earnings call. We can now begin with the opening remarks from Mr. Lakshmipathy, post which we can open we can open the floor for questions. Thank you, and over to you, sir.
Lakshmipathy Deenadayalan (Five-Star Business Finance Ltd): Yeah. Thank you, Raghav. Good evening, everyone. I'm extremely happy to present to you all the details about another quarter of strong performance of Five-Star Business Finance. The quarter ended September 20th September 30, 2026, saw Five-Star delivering very strong numbers across various parameters. Our upward trajectory in disbursements contained continued during the current quarter as well, where we recorded our historical best disbursement of 2,078 crores, up 39% over previous quarter and 74% year-on-year. The loan book also saw robust growth, with our AUM at 14,640 crores, a growth of over 6.7% over the previous quarter and 14% year-on-year. Importantly, this growth has come alongside improving collections and stable asset quality and profitability. Collections continue to trend very well, with our unique customer collection efficiency improving to 98.2% in the current quarter from 97.7% in Q1, along with improvement in X-bucket collections to 99.4% from 99.2% in Q1, which has helped contained forward flows. As a result, the current bucket proportion of our AUM rose sharply from 83.3% to 84.78% and 30+ DPD came down from 12.38% to 11.5%. With our clear focus on containing flows from early buckets, I am very confident that we will continue to see our portfolio quality improving in coming quarters. Slippages eased marginally to 0.68% from 0.70% in Q1, and gross Stage 3 assets were broadly stable at 3.48%, despite macroeconomic headwinds being witnessed across the industry. Our credit cost improved to 1.80% of average AUM from 1.85% in Q1. We expect flattish credit slippages and credit cost for the next for the rest of the year, despite the industry headwinds. Let me repeat, we expect flattish credit slippages and credit cost for the rest of the year, despite the industry headwinds. With our collection framework yielding better-than-expected results, we continue to focus on bringing back the growth momentum Five-Star is known for. With strong collections, controlled slippages, and credit cost, we are well poised to continue our strong traction in disbursements in coming quarters, which will help us cross our growth guidance for this year very comfortably. We availed incremental debt of 825 crores during the quarter at an all-inclusive cost of 8.43%, and our cost of funds on book eased marginally to 8.78% from 8.80% in Q1. Net interest margin remained broadly stable at 19.87% as against
Lakshmipathy Deenadayalan (Five-Star Business Finance Ltd): 13.97% in Q1 and was 16 bps higher year-on-year, showing that our spreads have held up despite the drop in yields. With the tightening new With a tightening rate cycle, we expect to see some inch-up in our cost of funds, both on incremental debt and on our book, which would have some impact on spreads and NIM. However, we expect to cushion this impact through yield increases on our incremental disbursements, which has been made effective from October 2026. Further, through the operating leverage that we will be able to achieve going forward, resulting from increased productivity, higher growth, tighter control over operational and credit costs, we are confident of largely offsetting the hawkish stance of RBI expected for next few quarters. On the profitability side, we clocked a PAT of INR 299 crores for the quarter, up 10% sequentially and 5% year-on-year. This includes a one-time tax benefit of INR 19 crores pertaining to previous years. Even excluding this, our PAT was 3% higher on a sequential basis. We have seen improvements to return ratios compared to previous quarter. ROA was up 28 bps to 83 for to 8.39% and ROE up 79 bps to 15.25%. For the first half of the of this year, we have clocked we have clocked a PAT of INR 571 crores, up 3% year-on-year. After a year beset with challenges across multiple fronts, we have bounced back stronger than before. Some of these numbers across disbursements and collections are our historical best and clearly validate the actions we have taken over the last few quarters. They have also strengthened our confidence that we are moving in the right direction of onwards and upwards. Let me hand it over to Srikanth for further details.
Srikanth Gopalakrishnan (Five-Star Business Finance Ltd): Thank you, sir. A very good evening to all of you. As Mr. Pathi highlighted, this has been our best quarter over the last couple of years after the last couple of years being beset with multiple challenges facing the company as well as the industry, with all the metrics stacking up very well across various parameters. Alongside our focus on increasing ticket size, we have also been growing our customer base with the active loans standing at about 5.1 lakhs, representing a growth of 5% over the previous year. During this quarter, we added 19 branches, and over the last 1 year, we have added 75 branches. The clear thought being focusing on deepening our presence in our core geographies and also putting up additional branches in those states where we have been operating for a while and develop good comfort across various aspects. Disbursements for the quarter grew by 74% YoY, and AUM growth was at 14% year-on-year. We ended September 30th with an AUM of 14,640 crores. Yields were marginally down at 22.26%, with the average cost of funds being marginally better. The NIM stood at 19.87%, better than a year ago, while the cost-to-income inclusive of credit cost remains slightly elevated at 47%, a little over 47%. We're also confident that through the operating leverage that we will be able to achieve in the coming years, we should be able to bring this down in the coming quarters and coming years. The return on average assets stands at 8.39%, up 28 bps sequentially, and ROE at 15.25%, which is also higher sequentially. Our proportion of borrowings from banks stood at about 69% as against 67% in the previous quarter. Despite tightening interest rate scenario, we managed to avail incremental debt of about INR 825 crores at an all-in cost of 8.43%, which is quite attractive. Our liquidity as on September 30th stood at about close to INR 1,300 crores, and we also have unavailed sanctions of about INR 1,100 crores, which is more than sufficient for us to take care of our requirements over the next quarter.
Srikanth Gopalakrishnan (Five-Star Business Finance Ltd): stated in the opening remarks by Mr. Pathi, we should expect some compression in spreads given the tightening interest rate cycle, but the increase in yields on incremental lending should help cushion this. On the DPDs, we are very glad to inform all of you that our DPDs improved significantly with 1+ dropping from 16.7 0.3% and 30+ dropping to 11.5% from 12.38%. Even in terms of absolute quantum, the overall Stage 2 assets dropped from about 1,225 crores as of September 30th, 2025 to 1,173 crores as of September 30th, 2026. Our PCR continues to be at around 40% on the Stage 3 assets, and on overall AUM, it's about 1.73%. This was also a strong quarter from a profitability perspective. We clocked a PAT of 299 crores. Even without the one-timer, we are almost at about 281 crores, which is 3% higher sequentially. Our net worth stands at about 7,903 crores, a touching distance of 8,000 crores. The complete focus being that with the disbursement momentum back, the collections holding up extremely well, we are poised to cross our growth guidance for this year in a very comfortable way. On that positive note, we will take a pause here and happy to invite any questions from any of you. Thank you.
Moderator (Ambit Capital Private Limited): Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Renish from ICICI. Please go ahead.
Renish (ICICI): Yeah, hi sir. Congrats on a good set of numbers. So, sir, just two-three things. So, one on this entire, you know, the drought, rainfall deficit scenario. So, from near term perspective, how do you see the asset quality moving out? And also, is there any, let us say, the lead asset quality indicator showing any kind of stress? And it's not, obviously, you know, in the opening remarks, you might have already mentioned that it will be, we're maintaining our guidance in terms of second-half at gross slippages and credit cost. But do you foresee any risk to that at this point in time?
Lakshmipathy Deenadayalan (Five-Star Business Finance Ltd): Yeah, Renish. I'll go one by one. On the drought, we all know Five-Star operates in many states, but our key states are Tamil Nadu, Andhra, and Telangana, which contributes more than 80% plus AUM. So, we don't see any kind of drought in these three states. In fact, this month and next month, we see good rains in Tamil Nadu and Andhra and some parts of Telangana, right? So, we don't see any kind of drought-like situation in these three states. And rest of the states like parts of North Karnataka, MP and MH people are calling out. But to be open, as as I as I say today, our collections are holding up in these three states as well. So, comparing with September same date or generally we compare with the first month of every quarter, that is July. So, if you compare with July 25th and September 25th with the October 25th what day has gone, the collections are standing well. So, as we speak today, I don't see any collections coming down or quality asset quality going up issues like things as we stand today.
Renish (ICICI): Got it. Got it. This is very helpful, sir. Sir, my second question is around this repayment rate trends, right? So, I mean last six-seven quarters, we have seen a consistent increase in repayment rate. So, how one should read this data point? I mean, is this because of higher BT-out or is there any you know, sort of change in product feature etc.?
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