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    Five-Star Business Finance Q1 FY27 earnings call

    FIVESTAR
    Financial Services·27 Jul 2026
    Management Summary

    Five-Star Business Finance reported a strong Q1 FY27, driven by record disbursements and sequential AUM growth. Asset quality metrics showed improvement with reduced 30-plus book and lower credit costs, while profitability remained healthy with an 8.11% ROA and 14.5% ROE. Management anticipates further yield contraction but expects cost of funds to also trend down, maintaining spreads and guiding for 20% loan growth and sub-3% GNPA for the full year.

    Highlights

    6

    • Disbursements reached an all-time high of ₹1,496 crores, growing 23% QoQ and 16% YoY.

    • AUM grew 4% sequentially to ₹13,722 crores, indicating a strong growth trajectory.

    • Collection efficiency remained robust at 97.9%, with x-bucket collections at 99.2%.

    • The 30-plus book reduced to 12.38% from 12.69% in the previous quarter, showing asset quality improvement.

    • Credit cost dropped sequentially to 1.85% from 1.88% in Q4 FY26.

    • Cost of funds on the book reduced to 8.80% from 8.95% in Q4, with all-inclusive cost at 8.33%.

    Concerns

    3

    • Asset yields dropped by 12 basis points this quarter, with an expected further contraction of 10-15 basis points over the next couple of quarters.

    • Operating leverage is not expected to kick in during FY27, with cost to asset remaining at 5.75-6% for the year.

    • Slippages remained flat at 0.70% compared to the previous quarter.

    Key financials

    Metrics

    13

    Periods

    2

    Headline

    11
    • Disbursements
      ₹1,496 Cr
      YoY+16%QoQ+23%
    • AUM
      ₹13,722 Cr
      QoQ+4%
    • Collection Efficiency
      97.9%
    • X-bucket Collections
      99.2%
    • 30-plus Book
      12.4%

    Q1 FY27

    2
    • Recoveries
      ₹35 Cr
    • Write-offs
      ₹60 Cr

    Capital allocation

    2
    high confidence
    CategoryHeadline
    Debt

    Debt disclosed

    Cost 8.3%

    Liquidity

    Liquidity disclosed

    Holding close to INR 1,850 crores on the balance sheet.

    Guidance & targets

    24
    CategoryTargetPriority
    Credit Growth
    Full Year Growth
    20%
    		High
    Credit Cost
    Credit Cost
    1.7% to 1.9%
    		High
    Credit Cost
    Credit Cost
    1.6% to 1.7%
    		Medium
    Asset Quality
    Gross NPAs
    sub 3%
    		High
    Asset Quality
    Current Book (0 DPD)
    85%
    		High
    Asset Quality
    30-plus Book
    less than 12%
    		High
    Asset Quality
    Stage 1 Assets
    90-91%
    		High
    Asset Quality
    Stage 2 Assets
    6-7%
    		High
    Asset Quality
    Stage 3 Assets (NPAs)
    2.5%
    		High
    Operating Expenses
    Cost to Asset Ratio
    5.75% to 6%
    		High
    Operating Expenses
    Cost to Asset Ratio
    5.25% to 5.5%
    		High
    Yields
    Asset Yield Contraction
    10-15 basis points
    		Medium
    Cost of Borrowing
    Incremental Cost of Borrowing
    8.5%
    		High
    Cost of Borrowing
    Cost of Borrowing Trend
    10-15 basis points down
    		Medium
    Spreads
    Spreads
    flat
    		High
    Write-offs
    Write-offs
    ₹225-250 crores
    		High
    ECL Coverage
    ECL Coverage
    1.75% to 1.8%
    		High
    Employee Costs
    Employee Cost Growth
    20-21%
    		High
    Debt to Equity
    Debt to Equity Ratio
    2x
    		Medium
    Product Diversification
    New Product Launch
    1 product
    		High
    ROA
    Steady-state ROA
    6-6.5%
    		High
    ROE
    ROE with 3x leverage
    18-20%
    		High
    Branch Expansion
    Branch Additions
    50-60 branches
    		High
    Disbursements
    Monthly Disbursements
    ₹600-670 crores
    		High

    What to watch in Q2 FY27

    5

    Cost to Asset Ratio

    FY28 onwards (check next quarter for confirmation of trend)
    Current~5.75-6% (FY27 guidance)
    Target~5.25-5.5% (FY28 onwards)

    Why it matters

    Indicates efficiency gains and profitability improvement, with a significant drop expected from FY28.

    I think we will stay at around 5.75% to 6% for this year. But in a steady state, this number should drop somewhere close to about 5.25% to 5.5%. But that will happen more 5.25% to 5.5% in a steady-state scenario, but that will happen more from FY28 onwards and not during this financial year.

    Risks & concerns

    5
    RiskSeverity

    External Liquidity Conditions

    Not so favourable liquidity conditions, though the company's cost of funds remains competitive. — Management acknowledged

    medium

    Rising Energy Costs

    Energy costs have gone up and may continue to rise, impacting customer cash flows. — Management acknowledged

    medium

    Regulatory Price Hike

    Potential regulatory decisions on price hikes could impact the business. — Management acknowledged

    medium

    Repo Rate Increases

    Any repo rate increase would negatively impact the cost of borrowings. — Management acknowledged

    high

    Customer Overleveraging

    Inherent risk of customers overleveraging, though the company has taken measures to mitigate this. — Management acknowledged

    medium

    Q&A highlights

    8

    “this year, given various conditions around us, especially with a few other competitors coming in, we have to be a little more competitive from an employee compensation perspective. So to that extent, we are not guiding the market for any strong operating leverage to kick in. ... from next year onwards, certainly you will see operating leverage starting to kick in. From the perspective of total assets, like you rightly said, we are at about 6%. ... But that will happen more 5.25% to 5.5% in a steady-state scenario, but that will happen more from FY28 onwards and not during this financial year.”

    Clarifies that operating leverage benefits are delayed due to competitive employee compensation, pushing significant efficiency gains to FY28.

    asked by Renish from ICICI

    3 min read7 chapters

    Detailed Narrative

    01

    Strong Q1 FY27 Performance and Growth Trajectory

    Five-Star Business Finance reported a robust Q1 FY27, achieving its historical best in disbursements at ₹1,496 crores, marking a 23% growth over the previous quarter and 16% year-on-year. This strong performance contributed to a sequential AUM growth of 4%, reaching ₹13,722 crores, indicating the company is firmly on a growth trajectory. Management expressed confidence in achieving full-year growth guidance comfortably based on this pace.

    02

    Robust Asset Quality and Collection Efficiency

    Despite the seasonally soft quarter, collection efficiency remained strong at 97.9%, with x-bucket collections at 99.2%. The current book (0 DPD) improved to 83.30% from 82.69% in the prior quarter, and the 30-plus book reduced to 12.38% from 12.69%. Slippages remained flat at 0.70%, and credit cost dropped sequentially to 1.85% from 1.88% in Q4 FY26, with recoveries from write-offs and NPA settlements totaling ₹35 crores.

    03

    Stable Margins and Profitability Metrics

    The company maintained a flat Net Interest Margin (NIM) for the quarter. Profit After Tax (PAT) stood at ₹271 crores, contributing to a healthy ROA of 8.11% and an ROE of 14.5%. The all-inclusive cost of borrowing was 8.33%, and the cost of funds on the book reduced to 8.80% from 8.95% in Q4 FY26, demonstrating strong franchise and effective cost management despite external liquidity conditions.

    04

    Strategic Expansion and Operational Efficiency

    Five-Star Business Finance reached a significant milestone of 500,000 active loan customers as of June 30, 2026. The company expanded its physical footprint by adding 12 new branches, primarily in Maharashtra, bringing the total to 856 branches. Management highlighted that the new organizational structure, which segregates business and collections verticals, has led to significant productivity increases, as business teams can now focus solely on incremental logins and business.

    05

    Yield and Cost of Funds Outlook

    Asset yields experienced a 12 basis points drop this quarter, primarily due to interest reversals on NPAs. Management expects further yield contraction of 10-15 basis points over the next couple of quarters, settling around 22.25%. However, the incremental cost of borrowing is projected to be around 8.5%, with an overall trend of 10-15 basis points reduction in the cost of funds for the year, which is expected to keep spreads intact.

    06

    Future Guidance and Long-Term Targets

    The company reiterated its 20% loan growth guidance for FY27 and expects credit cost to be between 1.7% and 1.9%, trending towards 1.7%. Gross NPAs are guided to fall below 3%. While operating leverage is not expected to significantly impact FY27 (cost to asset at 5.75-6%), it is projected to improve to 5.25-5.5% from FY28 onwards. The company aims for a 2x debt-to-equity ratio in 6-8 quarters and an 18-20% ROE with 3x leverage in the long term.

    07

    Product Diversification Strategy

    In addition to its existing micro LAP and housing products, Five-Star Business Finance plans to launch one new product within the next 3-6 months. This move is part of a broader strategy to diversify its offerings and avoid being a single-product company, a lesson learned from past crises. The company also aims to optimize its ticket size mix, targeting 25% for loans under ₹3 lakhs, 50% for ₹3-5 lakhs, and 25% for loans above ₹5 lakhs.

    This is an AI-generated summary of a publicly available earnings call transcript.