FIVESTAR - Five-Star Business Finance Ltd. Share Price

Management Outlook:
Five-Star's management remains optimistic, anticipating a return to "business as usual" in Q4 after a strategic slowdown in Q3 to align with growth targets. They expect improved collections, liquidity, and asset quality in Q4, driven by seasonal strength. For FY26, growth guidance remains under review but is likely to be revisited post-Q4 results, emphasizing prudence amid regulatory and macroeconomic conditions. The Company aims to maintain 25% YoY AUM growth for FY25, supported by branch expansion (69 branches added in Q3) and a focus on secured lending to mitigate risks.

Key Points:

1. Asset Quality & Collections:

   • Gross NPA rose marginally to 1.62% (up 15 bps QoQ), but remains industry-leading. Write-offs (Rs.36 Cr in 9M FY25) keep adjusted GNPA below 2%.
   • Collection efficiency stable at 97% (unique customers) and 98% (by value). Management expects improvement in Q4.

2. Growth & Profitability:

   • Disbursements declined 25% YoY in Q3 due to intentional slowdown; Q4 growth expected to rebound.
   • AUM grew 25.4% YoY to Rs.11,178 Cr. ROA/ROE at 8.1% and 18.5%, respectively.

3. Cost & Liquidity:

   • Cost-to-income ratio at 34.87% (including credit costs). Incremental borrowing cost flat at 9.56%.
   • Liquidity buffer of Rs.2,145 Cr + Rs.600 Cr unutilized sanctions. Diversified lender base (46 lenders; 35% non-bank funding).

4. Regulatory & Market Strategy:

   • Addressed RBI concerns via moderated growth and yield reductions. No material impact expected from MFIN guidelines.
   • Focus on 3"“5 lakh ticket size loans (53% of portfolio) and tier-6 expansion via branch splits.

5. Credit Cost & Provisions:

   • Credit cost at 0.69% in Q3; guidance of 0.75"“1% maintained. Provision coverage stable at 1.66% of AUM.

Forward Focus: Strengthening recoveries, leveraging secured lending differentiation, and optimizing liquidity. Management reiterated confidence in navigating overleverage risks while capitalizing on demand shifts from unsecured lenders.

1. Question on Asset Quality and Provisioning Strategy
   Aayush Sharma asked why Stage-1 assets are declining while Stages 2/3 are rising, and if reduced provisions aim to protect profitability.

Answer: Provisions are not reduced for profitability. Overall coverage (~1.6-1.65% of AUM) remains stable. Low loss given default (10-12%) due to secured lending justifies lower provisions despite stage shifts. Write-offs (Rs.36Cr) reflect prudence, not systemic risk.

2. Collection Efficiency Trends and Outlook
   Mahrukh inquired about Q3 collection efficiency dip and Q4 expectations.

Answer: October-November saw challenges (festivals/rains), but December improved. Q4 typically strengthens. Stress stems from overleverage (unsecured loans), not income drops. Secured loans ensure stable repayments.

3. 30+ DPD Increase and Credit Cost Trajectory
   Renish asked about the 70bps rise in 30+ DPD and credit cost outlook.

Answer: Overleverage (not MFI-specific) caused the increase. Focus is on stabilizing buckets, not immediate rollbacks. Credit costs (~0.69% in Q3) are unlikely to rise in Q4 due to secured collateral and recovery efforts.

4. Growth Guidance and Regulatory Discussions
   Viral Shah queried FY26 growth and regulator interactions.

Answer: FY25 guidance (25% AUM growth) stands. No new RBI directives; regulator seems satisfied. Growth acceleration depends on regulatory stance post-Q4 review.

5. Write-offs and MFIN Guidelines Impact
   Chandra questioned high write-offs and MFIN's effect.

Answer: Write-offs (Rs.36Cr) are technical/tax-driven, not credit loss indicators. MFIN guardrails may boost demand for secured loans. No credit policy changes for overleveraged customers.

6. Stage-2/3 Trends and Employee Costs
   Abhijit Tibrewal asked if Stage-2/3 will rise further.

Answer: Stabilization expected; secured loans limit forward flow. Employee costs remain controlled as collections are branch-embedded; no material cost increase.

7. AUM Distribution and Branch Strategy
   Divyansh Gupta noted tier-6 growth and prepayment policies.

Answer: Tier-6 growth stems from branch splits (derisking), not strategy shift. Prepayment penalties apply only within 1 year. Write-offs occur after ~2.3 years of NPA (policy: 4 years).

8. Disbursement Slowdown and MFIN Opportunities
   Pranav Gupta asked about Q3 disbursement drop and MFIN-led demand.

Answer: Slowdown was strategic to meet 25% growth guidance. MFIN may spur demand from new customers (not top-ups), but no immediate strategy shift.

9. RBI Concerns and Regional Growth
   MM Bansal asked about RBI issues and regional concentration.

Answer: No RBI concerns; yield cuts/growth adjustments were proactive. Non-southern states (~100 branches) grow at 50% CAGR but cautiously to maintain asset quality.