FIVESTAR - Five-Star Business Finance Ltd. Share Price

During the earnings conference call held on April 29, 2026, Five-Star Business Finance Limited's management provided an optimistic outlook for the company, indicating that the worst challenges faced in the previous year are behind them. Management expects to achieve an AUM growth rate of approximately 20% for the financial year 2027, rebounding from a challenging financial year where they demonstrated resilience despite asset quality issues.

Key forward-looking points mentioned include:

1. Growth Metrics: Disbursement for Q4 FY26 was reported at INR 1,213 crores, a 24% increase from the previous quarter. For the full financial year, total disbursement stood at INR 4,675 crores, leading to a portfolio growth of 11%.

2. Customer Collection Efficiency: A unique collection efficiency rate of 98.1% was delivered, with x-bucket collections at 99.3%. Improvement in DPDs saw on-time customer proportions increase to 82.69%.

3. Asset Quality Indicators: The NPA ratio remained stable at 3.37%, with a slippage ratio dropping from 1.9% to 0.7% quarter-on-quarter.

4. Profitability: The company reported a PAT of INR 269 crores for Q4 FY26, marking a 2% increase year-over-year, resulting in a full-year PAT of INR 1,099 crores.

5. Future Initiatives: Management underscored the importance of their credit underwriting and collection infrastructure, with plans to adopt advanced technologies and AI to enhance operations.

6. Cost of Funds: The cost of funds improved to 8.95% from 9.12% in Q3, with further decreases projected as management remains optimistic about reducing costs further.

7. Dividend Declaration: A dividend consistent with the previous year's payout was announced, signaling stability and confidence in the company's financial health and outlook.

Overall, the management emphasizes their commitment to sustainable growth through robust risk management practices and operational excellence, expecting to make significant strides in 2027 and beyond.

Questions and Answers from the Q&A Session of the Earnings Call:

1. Question: "How April is trending in terms of collection and flows? Also, can you give insight on the disbursement run rate in April?"

   • Answer: April is typically a weak quarter; however, we don't expect material deterioration this year. So far, collections are in line with typical patterns, and we're optimistic about strong disbursement growth as we've operationalized the split between business and collections teams since April 1.

2. Question: "What kind of credit cost are we building in for FY27?"

   • Answer: We are guiding for a credit cost of 1.7% to 1.75% for FY27, which reflects an expected improvement from the 1.88% in Q4. Depending on the asset quality trend, this could improve further over the year.

3. Question: "What has changed regarding steady-state credit costs?"

   • Answer: We used previous credit costs based on total assets; adjusted to an AUM basis, we're seeing an increase from around 1.3% to 1.5% to 1.6%. This includes better understanding of our customer segment and macroeconomic conditions affecting credit quality.

4. Question: "Is there any impact on collections from the geopolitical scenario?"

   • Answer: So far, we haven't noticed any significant impact from geopolitical events on our collections. We've specifically monitored vulnerable sectors but currently see no alarming signals.

5. Question: "How do you see ROA evolving with credit costs?"

   • Answer: While credit costs remain at 20-30 basis points below current levels, our belief is that we can maintain ROA around 8.25% to 8.5% for FY27 and aim for 8% to 8.25% on a steady-state basis.

6. Question: "Is there any one-off increase in personal expenses?"

   • Answer: There isn't a one-off; the rise in personal expenses reflects our investment in the collections vertical and typical higher incentives in Q4 to spur good performance and growth.

7. Question: "How do disbursements this year compare to last year's?"

   • Answer: For FY27, we expect disbursement growth of about 20%, aiming for INR 6,200-6,400 crores. Given last year's challenges, we believe pent-up demand will support this growth.

8. Question: "What is the outlook for cost of funds?"

   • Answer: We anticipate limited further reduction in our cost of funds, likely maintaining around 8.5%. Macroeconomic uncertainties are influencing the borrowing landscape.

9. Question: "Why are we being conservative on credit costs despite improving asset quality?"

   • Answer: We are likely playing it safe by not drastically reducing provisions, focusing on maintaining a strong buffer as we monitor DPD trends. The conservative stance also depends on customer quality variations.

10. Question: "What's the growth outlook for AUM and geographical performance?"

    • Answer: We anticipate strong growth from Southern markets this year, offsetting previous slowdowns in non-South regions. We're focusing on steady growth in the INR 3-5 lakh ticket size range while ensuring adequate operational support.

Each response provides insight into the company's strategic decision-making and expectations moving forward, with a continued focus on growth and stability in the face of recent challenges.