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    Five-Star Bus.Fi

    FIVESTARGood
    Financial Services·29 Oct 2025
    Management Summary

    Five-Star Business Finance characterized Q2 FY26 as a 'quarter of stabilization' following a difficult Q1. Management successfully arrested the downtrend in asset quality and improved return ratios despite a deliberate slowdown in disbursements caused by significantly tighter credit filters. The company remains committed to its 25% AUM growth guidance for FY26, banking on a much stronger performance in the second half of the year.

    Highlights

    8

    • PAT reached ₹286 crores, representing a 7% growth both sequentially and year-on-year

    • Disbursements stood at ₹1,196 crores, a slight decline from ₹1,290 crores in Q1 due to tighter credit controls

    • Return on Assets (RoA) improved to 7.49% from 7.24% in the previous quarter

    • Cost of funds dropped by 27 bps to 9.27%, with incremental debt availed at 8.56%

    • Credit rejection ratio spiked to 41% in Q2 from 25% in Q1, reflecting significant underwriting tightening

    • Overall collection efficiency improved to 96.7% from 96.3% in Q1, though unique customer collection remained flat at 95.1%

    • Credit cost was maintained at 1.34%, within the revised guidance range of 1.25% to 1.35%

    • Launched a new affordable housing loan product in October 2025, targeting ticket sizes of ₹6-8 lakhs

    Concerns

    1

    • Overleverage in sub-3 lakh ticket size segment

    What Changed2

    vs Q3 FY26

    Tone shiftNeutral → GoodGuidance items4 → 6 (+2)

    Key financials

    Single quarter

    06 metrics
    1. 01PAT₹286 Cr+7.0%YoY
    2. 02RoA7.5%+3.5%QoQ
    3. 03RoE16.9%+2.1%QoQ
    4. 04Disbursements₹1,196 Cr-7.3%QoQ
    5. 05Yield on Assets23.2%0%QoQ

    Guidance & targets

    6
    CategoryTargetPriority
    Revenue
    AUM Growth
    25%
    		High
    Revenue
    Housing Loan AUM
    ₹100-150 crores
    		Medium
    Profitability
    Credit Cost
    1.25% to 1.35%
    		High
    Profitability
    OPEX to Average Assets
    5% to 5.5%
    		Medium
    Profitability
    Combined RoA (with Housing)
    6% to 6.5%
    		Medium
    Margin
    Steady State Spreads
    13% to 13.5%
    		Medium

    Risks & concerns

    5
    RiskSeverity

    Overleverage in sub-3 lakh ticket size segment

    This segment is seeing the highest delinquencies and NPAs, leading to a strategic shift away from very small ticket loans. — Both acknowledged

    high

    Geographic stress in Karnataka

    Numbers in Karnataka are 'a little higher' due to local ordinances, though the state is only 5-6% of AUM. — Management acknowledged

    medium

    Contagion from MFI sector write-offs

    Borrowers who saw MFI loans written off initially hoped for similar treatment from secured lenders, impacting early-stage collections. — Both acknowledged

    medium

    Areas of Evasion(2)

    • Specific breakdown of the 30+ DPD pool beyond the 12% figure mentioned by the analyst.
    • Refusal to provide specific write-off guidance for the second half, preferring to take it 'offline'.

    Q&A highlights

    3

    “If you see unique customers at 95.1%, that means there will be some slippages from current to arrears... We are trying to arrest that in this quarter.”

    Confirms that while overall efficiency is up, the underlying pool of delinquent customers is still elevated, requiring focus on containment.

    asked by Renish, ICICI

    2 min read5 chapters

    Detailed Narrative

    01

    Stabilization and the Road to Q4 Recovery

    Management repeatedly labeled Q2 as a 'quarter of stabilization,' noting that the downtrend witnessed in Q1 has been arrested. They expect 'green shoots' in Q3 and a significantly stronger performance in Q4. This optimism is backed by an improvement in overall collection efficiency from 96.3% to 96.7% and a stable PAT of ₹286 crores.

    02

    Tighter Credit Filters Impacting Disbursements

    Disbursements fell to ₹1,196 crores in Q2 from ₹1,290 crores in Q1, a drop attributed to the implementation of additional controls. The rejection ratio for login files spiked from 25% in Q1 to 41% in Q2. Management believes this 'underwriting tightness' is necessary to ensure the onboarding of the right customers in a stressed environment.

    03

    Managing the Overleverage Crisis in Small Tickets

    The company identified an 'overleverage crisis' specifically within the sub-₹3 lakh ticket size segment. This has led to a permanent revision of credit cost guidance from 0.75% to a range of 1.25%-1.35%. Management noted that unlike previous crises (COVID/Demonetization), this one is driven by excessive lending by other players, particularly in the MFI space.

    04

    Strategic Pivot to Higher Ticket Sizes

    In response to small-ticket stress, Five-Star is shifting its focus toward the ₹3-5 lakh and ₹5-10 lakh segments. This move is expected to increase the average ticket size and improve asset quality, as these borrowers are perceived to be more resilient. This shift is a key component of their strategy to maintain a 25% AUM growth rate.

    05

    Launch of Affordable Housing Finance

    The company officially launched its housing loan product in October 2025 across 175-200 of its strongest branches. Targeting an average ticket size of ₹6-8 lakhs and yields of 16-18%, management expects to build an AUM of ₹100-150 crores by the end of FY26. While RoA for this product will be lower (6-6.5%), it is expected to provide a kicker to RoE through higher leverage.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.