Five Star Business Finance reported subdued results for the first quarter, with profit after tax (PAT) reaching INR 266.00 crores, representing a 6% year-on-year growth but a 5% decline quarter-on-quarter. The company faced asset quality challenges, primarily due to overleveraged customers in the below INR 3.00 lakh loan segment.

Key Financial Highlights

• Assets Under Management (AUM) grew by 20% year-on-year and 5% quarter-on-quarter, reaching INR 12,500.00 crores.
• Collection efficiency dropped to 96.3% as borrowers struggled with multiple loans from microfinance and personal loan lenders.
• Credit costs rose from 0.7% to 1.3%, impacting the company's profitability.
• Return on Assets (ROA) stood at 7.24%, while Return on Equity (ROE) was 16.57%.

Strategic Shifts and Outlook

Chairman and Managing Director Lakshmipathy Deenadayalan stated, "We admit we have slipped from our own standards, but let me assure you all, Five-Star's secured lending product with better underwriting and good collection infrastructure, we'll be the last to get hit and first to bounce back."

The company is implementing several strategic changes to address the current challenges:

1. Shifting focus towards INR 5-10 lakh ticket sizes while maintaining its sweet spot in the INR 3-5 lakh segment.
2. Avoiding highly indebted customers and risky locations, particularly in the below INR 3 lakh loan category.
3. Strengthening the collection team by adding 200 collection officers.
4. Maintaining the 25% growth guidance but revising credit cost guidance to 1.20-1.25%.

Management Changes

CEO Rangarajan Krishnan announced his resignation effective August 14, to pursue entrepreneurial activities. Lakshmipathy Deenadayalan will take charge of operations, supported by a strong second-line management team across all functions.

Geographic Performance

• Tamil Nadu and Telangana continue to perform well, with NPAs below the company average.
• Karnataka and Andhra Pradesh faced challenges due to local ordinances and higher exposure to smaller ticket sizes.

Future Outlook

The company expects stabilization by Q2 end, with improvement anticipated from the second half. Five Star Business Finance remains confident in its ability to maintain a 25% CAGR in loan book growth over the next three years, with profit growth projected at 15-18%.

As the company navigates through current challenges, it aims to leverage its secured lending model and improved underwriting practices to regain its strong performance metrics in the coming quarters.

Five Star Business Finance Limited (ISIN: INE128S01021), a leading non-banking financial company, has unveiled an ambitious growth strategy aimed at achieving a 25-30% compound annual growth rate (CAGR) in its Assets Under Management (AUM). The company's plan focuses on three key pillars to drive sustainable long-term growth in the financial services sector.

Strategic Focus on South India

Five-Star Business Finance is doubling down on its stronghold in South India, leveraging its deep understanding of regional markets. This geographical focus allows the company to capitalize on its existing network and local expertise, potentially leading to more efficient expansion and risk management.

Implementation of AI-Powered Credit Analytics

In a move to enhance its underwriting capabilities, Five-Star Business Finance is set to implement advanced AI-powered credit analytics systems. This technological upgrade is expected to improve the company's ability to assess creditworthiness, potentially leading to better loan quality and reduced risk.

Maintaining High Asset Quality Standards

The company has emphasized its commitment to maintaining high asset quality standards, a crucial factor in the financial services industry. This focus on quality over quantity could help Five-Star Business Finance in building a robust and sustainable loan portfolio.

Q1 FY2026 Financial Performance

Five-Star Business Finance's recent financial results for the quarter ended June 30, 2025, reflect the company's growth trajectory:

Expansion and Operational Highlights

• Branch Network: The company added 19 branches during the quarter, bringing its total branch count to 767 across 11 states and union territories.
• Employee Base: Total headcount increased to 12,043, up from 9,358 in the previous year, supporting the company's expansion plans.

Challenges and Outlook

While Five-Star Business Finance shows strong growth, the increase in Gross Stage 3 assets ratio from 1.41% to 2.46% year-on-year suggests some challenges in maintaining asset quality. The company's focus on high asset quality standards will be crucial in addressing this trend.

As Five-Star Business Finance implements its growth strategy, the financial services sector will be watching closely to see if the company can achieve its ambitious 25-30% CAGR target while maintaining asset quality in an increasingly competitive market.

The resignation of Mr. Rangarajan Krishnan as Joint Managing Director and CEO, effective August 14, 2025, marks a significant change in the company's leadership. As he departs to pursue entrepreneurial endeavors, the company's ability to execute its growth strategy under new leadership will be a key area to watch in the coming quarters.