Five-star Business Finance Limited · NSE:FIVESTAR
Five-star Business Finance — Q3 FY2024 Earnings Presentation
56 slides from Five-star Business Finance's earnings presentation, Feb 1, 2024
Slide 1: Exchange filing cover letter for investor presentation
Date: February 01, 2024 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: Investor Presentation on the Finan
Slide 2: Five-Star Business Finance Limited Investor Presentation Q3FY2024
Five-Star Business Finance Limited Investor Presentation Q3FY2024 STRICTLY PRIVATE AND CONFIDENTIAL
Slide 3: Safe Harbour
Safe Harbour This presentation and the accompanying slides (the “Presentation”) which have been prepared by Five-Star Business Finance Limited (the “Company”) have been prepared solely for information purposes and do not constitute any offer, recommendation or invitation to purchase or subscribe for
Slide 4: Presentation Path
Presentation Path Section 1 Business Highlights Section 2 Section 3 Company Overview Executive Summary Section 4 Section 5 Financial Performance, Asset Liability & ALM Quality & ECL 2
Slide 5: Section 1 Business Highlights
Section 1 Business Highlights
Slide 6: Business Highlights – Q3FY2024
Business Highlights – Q3FY2024 Number of Branches Loan Disbursement Loan Portfolio 480 ₹ 12,089 Mn ₹ 89,308 Mn +24 +111 +0.4% +33% +8% +43% Gross Stage 3 30+ DPD Profit After Tax Assets1 8.35% ₹ 2,168 Mn 1.40% +5 bps -5 bps -0.24% -3.75% +9% +44% NIM Return on Assets Return on Equity 16.80% 8.25% 17
Slide 7: Business Highlights – 9MFY2024
Business Highlights – 9MFY2024 Number of Branches Loan Disbursement Loan Portfolio 480 ₹ 35,450 Mn ₹ 89,308 Mn +111 +55% +43% Gross Stage 3 Profit After Tax 30+ DPD Assets1 8.35% ₹ 5,999 Mn 1.40% -5 bps -17 bps +38% NIM Return on Assets Return on Equity 17.36% 8.36% 17.16% -55 bps -28 bps +2.5% y-o-
Slide 8: Section 2 Company Overview
Section 2 Company Overview FIVE STAR Business Finance Limited
Slide 9: Five Star – Who we are
Five Star – Who we are NBFC providing secured financial solutions to Small Business customers and Self-employed Individuals who are largely cut-off from formal lending ecosystem Target Customer Segment Customers with informal income derived from everyday Typical ‘services’ Ticket Size & Income Profi
Slide 10: Built to address large market opportunity and achieve scale
Built to address large market opportunity and achieve scale Proprietary Underwriting & Registered as NBFC-ND-SI with 2 decades of lending to Small Collections model fine-tuned the Reserve Bank of India Business Loan customers over 2 decades of experience Built to take advantage of the large addressa
Slide 11: The Five Star Journey
The Five Star Journey Listed Entity ₹89 bn AUM Unlisted Entity (Dec-23) ₹39 bn AUM ₹69 bn AUM ₹5 bn AUM (Mar-20) (Mar-23) ₹1.3 bn AUM (Mar-17) ₹0.3 bn AUM (Mar-15) High Growth (Mar-10) Phase Setting the base Strengthening the for High Growth 2017 Onwards Building the Business Model 2015 – 2017 Busin
Slide 12: Transformational Journey
Transformational Journey FY15 FY23 Number of Branches 39 ~10x 373 Loans to borrowers (‘000) 5 ~60x 294 Relationship Officers 59 ~70x 4,0031 Disbursements (₹ Mn) p.a. 793 >40x 33,914 Assets Under Management (AUM) (₹ Mn) 1,315 >50x 69,148 Total Income (₹ Mn) 336 >45x 15,289 Profit After Tax (₹ Mn) 99
Slide 13: Shareholding as of December 31, 2023
Shareholding as of December 31, 2023 Institutional Promoters 7.68% Individual Promoter & Promoter Group 18.29% Others 11.79% AIF & QIB 3.57% Employees 1.46% 4.08% 53.13% Mutual Funds Foreign Corporates1 % holding computed on a fully diluted basis, including ungranted, unvested and vested but unexerc
Slide 14: Large Market Opportunity
Large Market Opportunity1 Overall MSME Credit Gap Target Addressable Market for Five Star 1 2 3 Estimated share of Estimated number of Estimated number of self-employed self-employed households in India (Non-agri) on total households with SORP Total MSME households demand of debt FY22 Self-employed
Slide 15: Growth Strategy
Growth Strategy Large Market Strong Infrastructure of Five Star Ability to Demonstrate 35% Growth Opportunity Physical infra (480 branches) & Potential for strong growth INR 22 Trillion1 Human infra (8,714 employees) Growth Lever Growth Lever 1 1 Increased Increased branch network branch & penetrati
Slide 16: Challenges in Lending to Small Business Customers & Self-Employed individuals
Challenges in Lending to Small Business Customers & Self-Employed individuals Institutionalized Lenders Small Business Owners and Self- Medium Enterprises Small Enterprises - Key Underwriting Parameters Employed Customers Assessed from formal contracts since Typically assessed from VAT, sales tax, P
Slide 17: Five-Star approach to Small Business Lending
Five-Star approach to Small Business Lending Customers targeted by Five Star Rationale for customer selection Customers from semi-urban and fast-growing rural geographies Good potential & easier reach; fewer legal issues on collateral Customers with income derived from ‘every day’ services Resilienc
Slide 18: Key Strengths
Key Strengths Deep Understanding of Customer Segment & Compelling Economics & Best in Class Industry Leading Asset Quality Conservative Lending Practices Return Metrics Gross Stage 3 Assets of < 1.5% 20 years of operations Yields of ~24%; Spreads of ~12-13% Net Stage 3 Assets of <1% ATS of ~ 3-5 lak
Slide 19: Targeted Customer Focus & Product Offering
Targeted Customer Focus & Product Offering Customer Selection Typical Customer Profile Product Offering Typical Product Features • Lending to the same segment for • Small business owners and self- • 100% of the book backed by a hard • Loans provided for business 35+ years employed individuals collat
Slide 20: Unique Value Proposition – Product, Underwriting & Collections Strategy
Unique Value Proposition – Product, Underwriting & Collections Strategy Customer centric model underpinned by calibrated sourcing and distribution strategy and robust underwriting and collections practices Customer centric business model Comprehensive credit assessment and robust risk management Pro
Slide 21: Distribution Strategy
Distribution Strategy Maharashtra Geography # branches Total AUM % of AUM Chhattisgarh South India 404 83,975 94% Rest of India 76 5,333 6% Uttar Pradesh Vintage-wise average AUM (in ₹Mn) per branch (as of December 2023) Rajasthan Branch Vintage No of branches Average AUM 20 ₹747 mn <=1 year 111 37
Slide 22: Branch vs Cluster Strategy
Branch vs Cluster Strategy A key component of Distribution Strategy is following a Cluster approach to growth. This is achieved through… Taking advantage of the market • When a branch reaches a reasonable size threshold (typically about 500 - 1,000 accounts), an opportunity evaluation is made, if it
Slide 23: Cluster Strategy Illustration – Theni Cluster (Tamilnadu)
Cluster Strategy Illustration – Theni Cluster (Tamilnadu) Periya Theni Date Theni Bodi Andipatti kulam Cluster Parent Branch: Aug 2014 - - - - - Theni (Opened in Aug 2014) Jul 2018 523 - - - 523 Child Branches: Jul 2018 505 18 - - 523 1. Bodinayakkanur (Bodi) (After transfer to Bodi) 2. Andipatti Se
Slide 24: Cluster Strategy Illustration – Kakinada Cluster (Andhra Pradesh)
Cluster Strategy Illustration – Kakinada Cluster (Andhra Pradesh) Parent Branch: Kakinada Date Kakinada Jaggampeta Kathipudi Sarpavaram Cluster Kakinada (Opened in Jul Jul 2016 - - - - - 2016) Oct 2020 1,621 - - - 1,621 Child Branches: Oct 2020 1,281 340 - - 1,621 (after transfer to Jaggampeta) 1. J
Slide 25: Strategic Technology Focus
Strategic Technology Focus Robust investments in technology to efficiently manage the lending process, increase productivity and decrease costs Ongoing Investments to help build a scalable and efficient model… Till FY2017 ▪ Manual underwriting process with minimal technology involvement ▪ Significan
Slide 26: Robust Risk Management Architecture
Robust Risk Management Architecture Board of Directors Risk Management Audit Committee Committee Supported by Supported by ALCO Credit Committee Business Resource External Internal Audit Internal Internal Statutory Audit Liquidity, ALM risks Large ticket sanctions Committee Sundaram & Srinivasan Aud
Slide 27: Monitoring the Risk Management Architecture
Monitoring the Risk Management Architecture Monitored by Audit Committee Financial Risk Monitored by Audit Liquidity Fraud Risk Committee as part of audit / Risk Monitored by ALCO ICFR1 process Credit & Collateral Risk Monitored by RMC Monitored by Audit Monitored by Audit Operational HR Risk Commit
Slide 28: Continuing ESG Focus
Continuing ESG Focus Sustainable Business Model Built Around Societal Impact ₹ ₹ Corporate Social Financial Inclusion Majority of AUM from LIG Responsibility ◼ Caters to the underserved 66% 72% 73% 69% ◼ CSR Committee is focused on market of small business loans 58% improving education, health and 4
Slide 29: Continuing ESG Focus
Continuing ESG Focus Significant Branch presence in Social Impact achieved through… Tier 3 to Tier 6 towns - semi-urban and fast-growing rural geographies 0.63% 2.08% 11.04% Branch Presence • Significant branch presence in Tier 3 to Tier 6 towns 35.83% 18.96% • Low-income borrowers Customers ignored
Slide 30: Strong Governance framework
Strong Governance framework Board of Directors 4 Independent Directors (Incl 1 Woman) 1 Executive Director Committees Chaired by Other Committees Independent Directors 3 Non-Executive Directors Business & Resource Audit Committee Committee Corporate Social Responsibility Risk Management Committee Co
Slide 31: Distinguished Board of Directors
Distinguished Board of Directors Lakshmipathy Deenadayalan Anand Raghavan T T Srinivasaraghavan Bhama Krishnamurthy Chairman & Managing Director Independent Director Independent Director Independent Director Chair – Audit Committee Chair – Risk Management Committee Chair – Nomination & Remuneration
Slide 32: Experienced Management team
Experienced Management team Lakshmipathy D Rangarajan Krishnan Srikanth Gopalakrishnan Vishnuram Jagannathan Parthasarathy Srinivasan Sathya Ganesh Managing Director Chief Executive Officer Chief Financial Officer Chief Operating Officer Chief Credit Officer Chief Business Officer Vanamali Sridharan
Slide 33: Consistent Financial Performance over the years
Consistent Financial Performance over the years1 Particulars (₹ Mn) FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 Operational Information Number of branches 39 64 103 130 173 252 262 299 373 Loan disbursals 793 1,319 3,830 7,072 14,822 24,087 12,450 17,562 33,914 AUM 1,315 1,981 4,9
Slide 34: Executive Summary – Q3FY2024
Section 3 Executive Summary – Q3FY2024
Slide 35: Five-Star Business Finance – At a glance
Five-Star Business Finance – At a glance Scale of Distribution Granular Book Asset Quality Liability Profile Profitability Operations ₹89.3bn / ₹62.4bn 480 100% Secured 1.40% 46 ₹2.2bn / ₹1.5bn AUM in Q3FY24 / Q3FY23 Number of Branches Loan Book Q3FY244 Lender relationships PAT for Q3FY24 / Q3FY23 4
Slide 36: Executive Summary
Executive Summary • Q3FY2024 maintained the momentum across Growth, Profitability and Quality. Growth momentum was sustained without any compromise on profitability or quality. • Robust disbursals coupled with strong asset quality showing betterment across various DPD buckets • Y-o-Y growth of 43% o
Slide 37: Balance Sheet indicators
Balance Sheet indicators Net Worth All amounts in ₹ Mn Disbursals AUM 33% 43% 19% 89,308 49,562 12,043 12,089 82,644 47,363 41,652 9,103 62,424 8% 5% 0.4% Borrowings Expected Credit Loss1 Liquidity2 82% 40% 57,911 1,452 17,991 48,193 1,350 12,669 10,130 31,785 20% 1,037 8% Q3FY23 Q2FY24 Q3FY24 Notes
Slide 38: P&L indicators
P&L indicators All amounts in ₹ Mn Income Interest expense Other expenses 47% (104%) (18%) 5,700 5,224 1,287 1,389 1,412 1,194 1,059 3,887 9% (22%) (2%) 631 Credit Cost PBT PAT 44% 44% (117%) 2,899 2,168 2,670 1,994 106 102 1,510 2,015 4% 9% 9% 47 Q3FY23 Q2FY24 Q3FY24 36
Slide 39: Well Diversified Portfolio across Parameters
Well Diversified Portfolio across Parameters AUM by Geography AUM by Ticket Size Q3FY24 1% 1% Q3FY23 Q3FY24 1% 0% 1% 0% Q3FY23 5% 5% 11% 10% 6% 7% 32% 37% 38% ATS for ATS for 20% 19% 46% Q3FY24 Q3FY23 3.44L 3.02L 43% 50% 36% 31% TN AP TS KA MP OTH <=3L 3-5L 5-10L 10-15L >15L AUM by Branch Tier1 AUM
Slide 40: Consistent & Best-in-class Spreads
Consistent & Best-in-class Spreads Portfolio Yield Cost of borrowing Spread 25.0% 12.0% 25.0% 14.0% 24.2% 24.3% 24.4% 24.2% 24.5% 24.1% 24.2% 24.2% 24.2% 24.2% 13.5% 24.5% 24.1% 24.3% 24.1% 11.5% 24.0% 24.0% 13.0% No yield increases 23.5% 12.5% 23.5% 11.0% done even during a 12.1% 23.0% 12.0% 23.0%
Slide 41: Financial Summary
Financial Summary 1. Net Q-o-Q AUM growth of ₹6,664 Mn in Q3FY24 as against ₹5,100 Mn in Q3FY23. AUM was up 43% Y-o-Y at ₹89,308 Mn as of December 31, 2023 as against ₹62,424 Mn as of December 31, 2022. 2. Disbursements during the quarter was at ₹12,089 Mn as against ₹9,103 Mn during Q3FY23. 3. Acti
Slide 42: Section 3 Asset Quality & ECL
Section 3 Asset Quality & ECL FIVE STAR Business Finance Limited
Slide 43: Asset quality indicators
Asset quality indicators Collections Efficiency (%) 30+ (%) 100.1 97.0 100.5 97.5 99.6 97.5 100.3 98.0 99.1 97.5 12.10 10.51 9.68 8.59 8.35 Dec'22 Mar'23 Jun'23 Sep'23 Dec'23 Dec'22 Mar'23 Jun'23 Sep'23 Dec'23 Amount of EMI received during the month (including arrears of previous months) divided by
Slide 44: Asset quality indicators – Amount in ₹ Mn
Asset quality indicators Amount in ₹ Mn As at Dec 20231 As at Sep 20231 As at Dec 20221 Bucket AUM % AUM AUM % AUM AUM % AUM Current (Stage-1) 77,434 86.70% 71,482 86.50% 50,484 80.87% 1-30 (Stage-1) 4,415 4.94% 4,060 4.91% 4,385 7.02% 31-60 (Stage-2) 3,311 3.71% 3,099 3.75% 3,384 5.42% 61-90 (Stage
Slide 45: ECL Provisioning
ECL Provisioning Amount in ₹ Mn As of December 31, 20231 Stage 1 Stage 2 Stage 3 Total Loans Outstanding (Gross)2 81,849 6,208 1,251 89,308 ECL Provision3 293 476 679 1,447 Loans Outstanding (Net) 81,556 5,732 572 87,861 ECL Provision % 0.36% 7.66% 54.26% 1.62% As of September 30, 20231 Stage 1 Stag
Slide 46: Lag NPA
Lag NPA Amount in ₹ Mn Q3FY2024 Q3FY2023 Q3FY2022 Q3FY2021 Loan Portfolio 89,308 62,424 47,676 40,311 Gross Stage 3 assets 1,2511 9071 6062 5222 Gross Stage 3 assets % 1.40% 1.45% 1.27% 1.29% Gross Stage 3 assets % - 1 year Lag 2.00% 1.90% 1.50% 1.60% Gross Stage 3 assets % - 2 years Lag 2.62% 2.25%
Slide 47: Financial Performance – Q3FY2024
Section 4 Financial Performance – Q3FY2024
Slide 48: Balance Sheet
Balance Sheet Particulars (₹ Mn) Q3FY2024 Q3FY2023 Q2FY2024 FY2023 Assets Cash & Cash equivalents 15,308 7,317 10,154 13,404 Bank balances other than cash & cash equivalents 1,361 2,365 1,341 2,405 Loans1 88,887 61,542 81,323 68,222 - Loan portfolio 89,308 62,424 82,644 69,148 - Inter-Corporate Depo
Slide 49: Quarterly & Yearly Profit & Loss Statement
Quarterly & Yearly Profit & Loss Statement Particulars (₹ Mn) Q3FY2024 Q3FY2023 Q2FY2024 Y-o-Y Q-o-Q 9MFY2024 9MFY2023 Y-o-Y FY2023 Loan Portfolio 89,308 62,424 82,644 43% 8% 89,308 62,424 43% 69,148 Interest Income (1) 5,495 3,828 5,041 44% 9% 15,173 10,753 41% 14,988 - Interest on loan portfolio 5
Slide 50: RoA Tree
RoA Tree Particulars Q3FY2024 Q3FY2023 Q2FY2024 9MFY2024 9MFY2023 FY2023 Interest Income (as a % of average portfolio) 24.25% 24.05% 24.19% 24.29% 24.11% 24.23% Interest Expenses1 (as a % of average borrowings) 9.64% 10.26% 9.71% 9.71% 10.35% 10.12% Net Interest Income % 14.61% 13.79% 14.48% 14.58%
Slide 51: Liability & ALM
Section 5 Liability & ALM FIVE STAR Business Finance Limited
Slide 52: Diversified and Cost-Effective Funding Profile
Diversified and Cost-Effective Funding Profile Well diversified borrowing mix Number of lenders in each category 54 53 50 46 14 11 7 Increased number of lending relationships from 40 6 12 25 as of Mar 2019 to 46 as of Dec 2023 13 8 25 16 12 8 9 Deepened relationships in the PSU and private 9 9 4 9 b
Slide 53: Diversified and Cost-Effective Funding Profile
Diversified and Cost-Effective Funding Profile Well diversified borrowing mix 100% 1% 2% 2% 2% 3% 21% 21% 21% 23% 19% 80% 5% 4% 6% 6% 4% 5% 12% 18% 60% 6% 5% 40% 66% 69% 66% 56% 56% 20% 0% Dec'23 Sep'23 Jun'23 Mar'23 Dec'22 Bank Term Loans Other Term Loans NCD Securitisation ECB Cost of incremental
Slide 54: Cashflow Position as of Dec’23 – Cumulative
Cashflow Position as of Dec’23 – Cumulative Particulars Up to 1M 1-2 M 2-3 M 3-6 M 6M – 1Y 1-3 Y 3-5 Y >5 Y Opening Liquidity1 19,044 18,178 18,076 17,664 17,265 17,512 21,301 36,359 Add: Inflows from advances2 992 1,072 968 3,310 7,286 31,579 29,310 14,113 Less: Outflows on borrowings 966 1,072 1,3
Slide 55: Strong Liquidity Position as of Dec’23
Strong Liquidity Position as of Dec’23 Amount in ₹ Mn Liquidity buffer as of Dec 20231 Unencumbered cash & cash equivalents1 17,991 Unavailed sanction from banks / FIs 4,750 Total Liquidity 22,741 Projected Cashflow Schedule Q4FY24 Q1FY25 Q2FY25 Q3FY25 Opening Liquidity 22,741 24,410 26,089 27,569 A
Slide 56: Thank You
Thank You For further information, you may please email to: ir@fivestargroup.in 54
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