Five-Star Business Finance reported a 40% increase in its profit after tax for the January-March quarter, reaching ₹236 crore compared to ₹169 crore in the corresponding quarter of the previous year. Total disbursements during the quarter also saw a growth of 20%, reaching ₹1,336 crore compared to ₹1,110 crore in the same period last year.

We sat down with the company’s CFO Srikanth Gopalakrishnan to gain more insights on the company’s quarterly results and the outlook for the year ahead.

Q4 In Review

“It was a very good quarter. It was a very good year. Progressively, what we’ve been seeing is that there is a great demand that’s getting picked up in the market,” said Gopalakrishnan as he started describing the company’s latest results.

“I think the demand was robust during this quarter and during the entire year as well, we started with about you know, ₹1,100 crores of disbursals in the 1st quarter and the 2nd and 3rd, we did about ₹1,200 crores each. And in the last quarter, we have done about ₹1,300 crore disbursals.”

He added that apart from the demand perspective collections have also been great. He also added that the company’s DPD buckets saw a very sharp improvement. “Our DPD buckets were at about 87% close to 87.5% of current customers, which means zero DPD customers as of March. This is an all-time high for Five Star. I think all in all, it’s been a great year across the three aspects of quality, profitability and growth,” he added.

Outlook For FY25

After a strong year, we asked the CFO what were the company’s expectations going forward and whether the company was confident of sustaining the growth going forward.

“We are guiding for above 30% growth for the last couple of years, we have done 37% and 39% growth in the past years. So, I think more than 30% growth is going to come in this year as well,” said Gopalakrishnan.

However, he mentioned that the regulator has been consistently advising financial services entities to be a bit more moderate in their guidance. “See, we are not seeing any stress in our portfolio. Our portfolio continues to be robust. As I said, the demand is there, so growing is not going to be a challenge. But if there is a macroeconomic condition, that is sort of not very conducive to a high growth, I think we will also be a little more measured. But we still see about 30% growth.”

Talking about the company’s net interest margin which was at around 17.19% lower from the 18.47% reported in the same quarter last year, Gopalakrishnan said that they would moderate further in the coming year. “NIMs will certainly moderate. One good point that also happened during this year is the strengthening of the liability franchise that we did. So both across diversifying the lender base as well as getting the money at the appropriate cost, I think we were very successful during FY24. The cost has continued to drop if you compare the cost of funds for FY24 vis a vis FY23, FY23 was at about 10.12%, FY24 is at around 9.7%. But having said that the leverage is kicking in so with leverage, obviously, there will be some compression in NIMs.”

He also added that the company has been looking to pass on some of the cost-of-funds benefits to its customers and the diversifying lender base efforts could also have a marginal impact on the NIMs. So considering all this Gopalakrishnan said that he expects NIMs to be at around 15%-16%.

See Also: Ending FY24 On A High, Chola Finance CFO Expects 20-25% Growth In FY25

How Is The Expansion Going?

The lender has a stronghold in the south but has been working towards expanding to other regions. One such expansion that has been doing well is Madhya Pradesh. The company now has around 63 branches in the state and an AUM of around ₹506.9 crore. So we asked the CFO about the company’s expansion plans this year and also the things that worked for them in Madhya Pradesh.

“Madhya Pradesh was a state that we entered into in 2018. And you know, generally what we have been telling you is that it will take about 18-24 months for us to understand the geography, understand the culture and then sort of expand into that particular geography. When we got comfort around Madhya Pradesh and we wanted to expand, that was the time when COVID struck. So two years, Madhya Pradesh was sort of in a little bit of a fluid condition, but the last two years have been very good. In fact, we have almost 60 odd branches in Madhya Pradesh and it is contributing very well, asset quality is also holding up very well in line with, you know, all other mature geographies as well. The good part of Madhya Pradesh is it can be the focal point from where we can actually expand to the western, northern and eastern parts of the country.”

Talking about other states Gopalakrishnan said that the company faced some challenges initially expanding into Maharashtra due to COVID, flood issues and also some internal staff-related issues. But he added that a lot of those have now been addressed. “So this year, we have actually added more branches in Maharashtra and we will continue to keep evaluating that state and if that also, you know, goes in the same trajectory as Madhya Pradesh, I think that can be another state that can now help us grow in the next few years,” he explained further.

However, he reiterated that the company expects growth to be led by the South for the next 2-3 years. “But we are also making, Maharashtra, Uttar Pradesh and Rajasthan ready to lead the next phase of growth,” he added.

Is A Rate Cut Coming?

The anticipation of a rate cut by the RBI for the fiscal year ending March 2025 had been circulating widely, but it seems those expectations have waned recently. We asked Gopalakrishnan what he thought about the potential rate cuts.

“At this point of time, I’m of the personal view and you know, we also have a little bit of a company view that I don’t think the rate cut is gonna happen any time soon. The most pessimistic view would be that the rate cuts will not happen during this year. The optimistic view will be, they’ll happen in the last quarter of the year. So I don’t think there is going to be an impact, if there is, it will be marginal at least for FY25.

And once the rate cuts come in, for the banks to transfer it to, you know, their borrowers like us, it’s also going to take a little bit of time. So I don’t really see any big impact of rate cuts, you know, bringing our cost of funds down during this year. Definitely, FY26 is a year where we would see some benefit of rate cuts that will come in. But FY25 at this point in time, we are not building, you know, any big hopes on rate cuts translating to us in the form of lower costs.”

Read Next: RVNL Shares Extend Losses To 3rd Day: Here’s What Technical Analysts Are Saying