Five-Star Business Finance Ltd (BOM:543663) Q1 2026 Earnings Call Highlights: Strategic Growth …

Branch Openings: 19 new branches opened, totaling 767 branches as of June 30, 2025.
Customer Base: Approximately 4.8 lakh customers.
Disbursements: Flat compared to the same quarter last year.
AUM Growth: 5% quarter-on-quarter and 20% year-on-year, ending with a portfolio slightly short of INR 12,500 crores.
Yield: 23.5%, a 20 basis point drop due to yield compression on incremental loans.
Cost of Funds: Reduced by 10 basis points in the quarter, with incremental debt at 3.59%.
Credit Cost: Increased from 0.7% to 1.3%, with full-year guidance revised to 1.2%.
ROE: 7.24%.
ROA: 16.57%.
Profit After Tax: INR 26 crores, a 6% year-on-year growth but a 5% decline from the previous quarter.
Provision Coverage: Overall provision coverage increased from 1.3% to 1.94%, with Stage 3 provisions maintained at over 50%.
Net Worth: Slightly over INR 600 crores.

Release Date: July 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Five-Star Business Finance Ltd (BOM:543663) has implemented strategic measures to address overleveraging by focusing on higher ticket loans, specifically in the 5 to 10 lakh segment, while maintaining their sweet spot in the 3 to 5 lakh range.
The company has strengthened its collection efforts by adding 200 collection officers in stress-prone areas, which is expected to improve collection efficiency.
Despite the challenges, Five-Star Business Finance Ltd (BOM:543663) has maintained its growth and profit guidance for FY26, targeting a 25% growth and 12% to 15% profit.
The company has successfully reduced its cost of funds by 10 basis points in one quarter, thanks to better negotiation with lenders and favorable repo rate cuts.
Five-Star Business Finance Ltd (BOM:543663) has a strong second-line management team across all functions, ensuring operational stability despite the CEO’s resignation.

The company experienced a muted quarter with increased credit costs, rising from 0.7% to 1.3%, leading to a revision in credit cost guidance to 1.20% to 1.25% for the full year.
There is significant stress in the small loan segment, particularly loans below 3 lakh, and in regions like Karnataka and Andhra Pradesh, affecting asset quality.
The resignation of the CEO, Rangarajan Krishnan, could pose challenges in leadership continuity, although the company has a strong management team in place.
Collection efficiency for the quarter was at 96.3%, indicating ongoing challenges in recovering dues from overleveraged customers.
The company’s cost-to-income ratio has increased, primarily due to higher credit costs, and is expected to stabilize at 35% to 37% in the second half of the year.

Q: What factors are affecting the collection efficiency, and what macro changes are needed to improve it? A: The collection efficiency is impacted by overleveraged customers, particularly in the small loan segment. The macro changes needed include a halt in new overleveraging, which is being addressed by new guardrails from MFIN. Additionally, the focus is on secured lenders like Five-Star, who will see improved collections as unsecured lenders write down bad loans. (D. Lakshmipathy, Chairman and Managing Director)

Q: How is Five-Star addressing the issue of overleveraged customers, and what changes are being made to the underwriting process? A: Five-Star is moving away from customers with high overleverage and focusing on better quality, financially literate customers. The underwriting process now includes stricter checks on customer leverage and a focus on higher ticket loans with better financial understanding. (D. Lakshmipathy, Chairman and Managing Director)

Q: What is the impact of the CEO’s resignation on the company’s operations and management? A: The CEO’s resignation will not affect the company’s operations as the Chairman, D. Lakshmipathy, will take over operational responsibilities. The company has a strong second line of management across all functions, ensuring continuity and stability. (D. Lakshmipathy, Chairman and Managing Director)

Q: How is the company managing its credit costs, and what is the guidance for the future? A: The credit cost guidance for the full year is revised to 1.20% to 1.25%. The company is confident that credit costs will not increase in the second quarter and expects them to stabilize or decrease in the second half of the year. (G. Srikanth, CFO and Joint Managing Director)

Q: What is the company’s strategy for growth and managing asset quality in the coming quarters? A: Five-Star plans to stabilize its operations in the current quarter and expects growth, improved collections, and better asset quality in the second half of the year. The company maintains its growth and profit guidance of 25% growth and 12% to 15% profit for FY26. (D. Lakshmipathy, Chairman and Managing Director)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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