Five Star Business Finance reported a strong set of numbers for the quarter ended September. The non-banking financial company’s profit after tax (PAT) reached ₹199 crore, marking a significant 38% year-on-year (Y-o-Y) increase and a 9% growth in comparison to the previous quarter.

During the quarter, disbursements amounted to ₹1,204 crore, reflecting a substantial 50% Y-o-Y increase and a 6% quarter-on-quarter (Q-o-Q) growth. The company’s assets under management (AUM) also demonstrated strong growth, with a 44% increase, reaching ₹8,264 crore as of September 30, 2023, compared to ₹5,372 crore on September 30, 2022.

We caught up with the company’s CFO Srikanth Gopalakrishnan to gain more insights on the company’s quarterly results and the outlook for the coming quarters.

Q2 In Rearview

“It’s been a very good quarter for us, across the various aspects of quality, profitability and growth, I think we have stacked up very well,” is how Gopalakrishnan described the company’s performance in the September quarter.

“We have actually crossed ₹1,200 crores of disbursals in a quarter and we did more than ₹500 crores of disbursals in September. So all in all, we see it as a very strong quarter. In terms of the numbers that you’re seeing, profitability also has been extremely good.”

He also emphasised that the company has achieved robust growth and profitability while maintaining good asset quality. “Asset quality continues to be robust. the 30-plus DPD (days past due), which has actually dropped by about 110 basis points from, I think around 9.68% to 8.59% and even on the NPS from last quarter’s number of 1.41% we have dropped by about six basis points.”

Gopalakrishnan also talked about the company’s robust expansion, opening 70 branches during the July-September period. The numbers surpassed the company’s own guidance of around 50-60 branch openings in a year.

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Drivers For Growth 

The company’s performance not only beat its own guidance but also beat consensus estimates. So we asked Gopalakrishnan what led to the robust results.

He attributed the strong results in large part to the pent-up demand in the market after the two years of COVID-19. “See FY21 and FY22 were lost to the pandemic and lockdowns, so there was a lot of pent-up demand. We did manage to meet some of the pent-up demand in FY23, but there was been steady growth in terms of the borrowers wanting more credit and their income becoming better, their businesses becoming a lot more vibrant and robust, that is something that we were able to see on the ground in this quarter.”

The Outlook

The company has been showcasing robust growth for the past few quarters, backed by the demand in the market, but are things going to slow down going forward? Gopalakrishnan does not think so.

“We are very clear that in the next 12 to 18 months we are going to have some good amount of demand coming through, which is why we have put up 70 branches. Most of those branches have actually come in our existing geography, which is the south market. So, Andhra Pradesh, Telangana, Tamil Nadu, Karnataka. These are four big states of the country, right? So there is a huge amount of demand.”

The company has been guiding for 35% growth and Gopalakrishnan reiterated that. “We are cautiously optimistic that we should be able to reach the numbers that we have guided the street with and maybe overachieve on some of the numbers.”

Expansion

The company has a strong base in the southern market but has been trying to penetrate other geographies in the country as well. We asked Gopalakrishnan how the geographical expansion is panning out and what are the initial outcomes that the company has observed.

“We are putting up branches in the newer geographies, be it Rajasthan, where we have put about four branches. We have four branches in Uttar Pradesh. Maharashtra has about six odd branches. Once we have a very clear perspective that we have understood the state across the various perspectives and across the various parameters, I think these are the states that will probably be the torchbearers for growth post-FY26”

Gopalakrishnan added that while these states have shown that there is demand, the company wants to understand all the aspects before ramping up the expansion. “Ours is a property-backed lending, right? So there are also legal nuances that will have to be taken into account. We probably don’t understand Uttar Pradesh as much as we understand Tamil Nadu, but the demand in Uttar Pradesh is absolutely unquestionable.”

“So green shoots are definitely there in the newer geographies, but we will be a little gradual in the initial period rather than significantly ramping up and then having the need to sort of pull back for whatever reason.”

Risks Management

The economy in the past few years has been filled with volatility and while the recovery has been underway there are still some uncertainties. So, we asked Gopalakrishnan whether the company was worried about the macroeconomic challenges that could crop up.

“I think the customer profile that we are operating in is largely insulated from all those macroeconomic down cycles as well as upcycles. So let us say tomorrow the economy has a great period. Will my borrowers become extremely lendable? No. For example, a tea shop guy will not have that much impact on business, let’s say in a good time, we probably be drinking tea four times, but in a bad time we are probably going to end up drinking three times tea also. So from that perspective, it is not really going to change things big time and that is where our focus has always been.”

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