Five-Star Business Finance Limited — Q4 FY26 earnings call

Call held 29 Apr 2026

Management summary

Five-Star Business Finance Limited reported a strong Q4 FY26, demonstrating significant improvement in asset quality metrics with collection efficiency at 98.1% and slippage ratio dropping to 0.7%. Despite a challenging year, the company achieved 2% PAT growth for FY26 and secured substantial funding from ADB. Management expressed confidence in a robust growth trajectory for FY27, targeting 20% AUM growth, supported by strengthened collection infrastructure and strategic branch expansion.

Highlights

  • Unique customer collection efficiency of 98.1% in Q4 FY26, one of the best in history.

  • Slippage ratio dropped from 1.9% in Q3 to 0.7% in Q4 FY26.

  • NPA remained largely stable between quarters at 3.37%.

  • Disbursement for Q4 FY26 came in at INR 1,213 crores, an increase of 24% over the previous quarter.

  • Secured $100 million from Asian Development Bank (ADB), reinforcing lender confidence.

Concerns

  • Q4 PAT of INR 269 crores was 3% lower QoQ due to higher personal expense.

  • Senior management exit during the year, though management stated no impact on performance.

  • Higher hedging cost on ADB transaction contributed to a slightly higher all-inclusive cost of debt for Q4.

Key financials

  1. Collection Efficiency 98.1%
  2. Slippage Ratio 0.7% -63.2%QoQ
  3. NPA 3.4%
  4. Disbursement Q4 ₹1,213 Cr +24%QoQ
  5. PAT Q4 ₹269 Cr -3%QoQ
  6. PAT FY26 ₹1,099 Cr +2%YoY
  7. Cost of Funds Q4 8.9% -1.9%QoQ
  8. Return on Average AUM FY26 8.7%
  9. ROE FY26 16%

What they filed

Q1 FY27: revenue up 5.3%, net profit up 1.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue702 727 752 787 799 +14%815 +12%817 +9%829 +5%
Net profit268 274 279 266 286 +7%277 +1%269 −4%271 +2%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Debt Debt disclosed Cost 8.9%
    • New borrowing Incremental debt availed at an all-inclusive cost of 8.53%. Includes $50 million drawn from ADB's $100 million line. ₹928 Cr
    Our cost of funds for the quarter dropped from 9.12% in Q3 to 8.95% in Q4 and for the full year, we saw a drop in our cost of funds from 9.64% in last year to 9.21% this year.
  • Liquidity Undrawn $50 Mn Another $50 million from ADB is available for draw anytime over the next financial year. Strong liquidity position currently.
    Like Mr. Pathy said, ADB has given a $100 million line to us, out of which we have drawn $50 million during this quarter, and another $50 million is available for us to draw anytime over the next financial year... We will get to know, obviously, in April we have not borrowed any money, given the strong liquidity position that we are in.

Guidance & targets

AUM Growth

  • AUM Growth AUM Growth · FY27 · High confidence around 20%
    Now, as we stepped into a new financial year, we are geared up to get back on the track of growth and well-poised to achieve AUM growth of around 20% for the financial year 2027.

    — Lakshmipathy D

  • AUM Growth AUM Growth · next two to three years · High confidence around 20%
    So, we still remain confident that at least for the next two to three years, we should be able to clock a growth of around 20%.

    — Srikanth Gopalakrishnan

Credit Cost

  • Credit Cost Credit Cost · next financial year [FY27] · High confidence 1.7% to 1.75%
    I think for FY27... our guidance will be about 1.7% to 1.75%.

    — Srikanth Gopalakrishnan

  • Steady-state Credit Cost Credit Cost · next couple of years · High confidence 1.5% to 1.6%

    Previously 0.8% to 1% (total assets) / 1.3% to 1.35% (AUM) → 1.5% to 1.6%

    So maybe 1.5% to 1.6% would be the steady-state cost for the next couple of years.

    — Srikanth Gopalakrishnan

ROA

  • ROA ROA · this year [FY27] · High confidence 8.25% to 8.5%
    from an ROA perspective, I think, we believe that we should be able to operate at about 8.25% to 8.5% for this year.

    — Srikanth Gopalakrishnan

  • Steady-state ROA ROA · High confidence 8% to 8.25%
    And on a fairly steady-state, also about 8% to 8.25% levels, we should be able to operate.

    — Srikanth Gopalakrishnan

Cost of Funds

  • Cost of Funds Impact Cost of Funds · next three to four quarters · Medium confidence 30-40 basis points
    I would probably say about 30-40 basis points of further impact that may come in over the next three to four quarters.

    — Srikanth Gopalakrishnan

  • Average Borrowing Rates Cost of Funds · next financial year · Medium confidence closer to 8.5%
    most likely, I think we should be borrowing at average rates of closer to 8.5% levels

    — Srikanth Gopalakrishnan

Opex to AUM

  • Opex to Average AUM Opex to AUM · this year [FY27] · High confidence 7% to 7.25%

    From slightly higher than 7% (Q4 FY26) today

    So, our sense is, I think it will largely remain around the 7% to 7.25% levels, and not show any big decline during the year despite the 20% growth that we'll achieve.

    — Srikanth Gopalakrishnan

Branches

  • New Branches Branches · this financial year [FY27] · High confidence 60 to 75
    So even for this financial year, we intend to open 60 to 75 branches.

    — Lakshmipathy D

Disbursements

  • Disbursements Disbursements · coming year [FY27] · High confidence INR 6,500 crores to INR 7,000 crores
    And we should be able to get close to about INR6,500 crores to INR7,000 crores of disbursements in the coming year.

    — Srikanth Gopalakrishnan

What to watch in Q1 FY27

NPA trajectory

Next quarter onwards
Current 3.37% (largely stable in Q4 FY26)
Target Coming down

Why it matters

Confirmation of asset quality improvement and effectiveness of collection strategies, crucial for overall financial health.

You will see the NPA slowing down from next quarter onwards.

Risks & concerns

  • Over-leveraging in MFI/unsecured loan sector impacting secured lenders

    medium

    Asset quality headwinds from MFIs and unsecured lenders had 'crept into' secured loan portfolios, but management stated 'the worst is behind us' due to actions taken.

    Management acknowledged

  • Macroeconomic/geopolitical scenario impact on collections

    low

    Management stated exposure to potentially impacted portfolios (small eateries, NRI remittances) is sub-1% and no alarm signals are seen.

    Analyst downplayed

  • Senior management exit

    low

    Management asserted that a senior management exit during the year had no impact on performance, citing team strength and depth.

    Management downplayed

Q&A highlights

8 direct
April asset quality and disbursement trends Direct
So far, April is trending quite well. I think we are largely in line with a typical April month, both in collections across various buckets. And our belief is that I think this quarter also should be fairly good from an asset quality perspective. Disbursements are looking up.

Provides immediate post-quarter update on key metrics, indicating continued positive momentum in collections and disbursements.

Asked by Renish

Steady-state credit cost and changes in customer segment Direct
I think the earlier guidance that we gave was based on total assets, which was about 0.8% to 1%. If you just convert it into an AUM, that will probably read more like a 1.3% to 1.35%. From where we are actually moving to 1.5% to 1.6%... what has changed is I think our understanding of the environment, our understanding of this customer segment, and the skews that they'll probably go through, and the necessity to be a lot more consistent in our approach towards the credit cost build-up is what we are saying.

Clarifies the revised steady-state credit cost guidance (higher than previous) and the underlying reasons, including a better understanding of the customer segment and environment.

Asked by Abhijit Tibrewal

Impact of macroeconomic/geopolitical scenario on collections Direct
The proportion of that portfolio is firstly extremely small for us, sub-1%. And even on that, we are not seeing any alarm signals at this point of time. The repayments are coming in well, in line with the other portfolio.

Addresses a potential macro risk, reassuring that the impact is minimal due to low exposure and strong collections performance in relevant portfolios.

Asked by Abhijit Tibrewal

ROA outlook given steady-state credit cost and potential margin compression Direct
from an ROA perspective, I think, we believe that we should be able to operate at about 8.25% to 8.5% for this year. And on a fairly steady-state, also about 8% to 8.25% levels, we should be able to operate.

Provides clear ROA guidance for FY27 and steady-state, linking it to leverage and cost management, indicating sustained profitability.

Asked by Suraj Das

Structural growth rates and reasons for slower growth compared to earlier anticipation Direct
when we were growing at 30% plus, our AUM size was close to INR5,000 crores to INR7,000 crores. Now we are sitting on INR13,000 crores and we are coming out from a growth of 10%, 11% for a full year. We intend to grow at 20%. So that is why if you see my earlier opening remarks, this will even go up as we move forward year-on-year.

Explains the shift in growth targets from 25% to 20% as a function of base effect and current AUM size, indicating a realistic and sustainable growth path.

Asked by Kunal Thanvi

Yield compression and impact of shifting customer segments Direct
I think the yields have largely been factored. So, if I have to put a number, maybe you have another 40 to 50 basis points of impact. So, we are today incrementally lending at around 22.5%... So, I would probably say about 30-40 basis points of further impact that may come in over the next three to four quarters.

Quantifies the remaining yield compression and clarifies that the segment shift is not expected to materially disrupt yields, providing clarity on NIM outlook.

Asked by Viral Shah

Branch expansion strategy and aggressiveness Direct
No, I think predominantly in last three years, our split branch mechanism and new branch mechanism has worked out very well. So, in Tamil Nadu, Telangana, AP where the major chunk of branches were put in a last three years have given us a right foundation and infrastructure, right in place when we want to double our growth comparing to last year. So, we think this financial year, we'll take a little smaller number and run with 60 to 75 branches.

Explains the rationale behind the planned 60-75 new branches for FY27, focusing on consolidation and strategic expansion rather than aggressive numbers, indicating a measured growth approach.

Asked by Divyansh Gupta

Digital payments and potential fintech competition Direct
Definitely whether Five-Star wishes or not, now more and more digital prints have been taken by people everywhere. So that is inevitable. But coming to the direct answer, yes, fintech can take up our customers, but you have to understand the need of our customers. See, the need of our customer is not INR25,000 or INR50,000 or a less than INR1 lakh... So, the end use is completely different. They may be giving a competition to the gold loans who are also on a similar ticket size and similar tenure, but not the loans like secured lenders like Five-Star, where our loans are close to INR4 lakh to INR5 lakh, and tenures are close to seven years.

Addresses the competitive landscape from fintechs, explaining why Five-Star's target segment and product offering (ticket size, tenure, end-use) differentiate it from fintechs, mitigating competitive concerns.

Asked by Divyansh Gupta

2 min read 6 chapters

Detailed narrative

Q4 FY26 Performance Overview

Five-Star Business Finance Limited concluded a challenging FY26 with a strong Q4 performance. The company reported a unique customer collection efficiency of 98.1% and x-bucket collections of 99.3%, indicating robust collection infrastructure. Slippage ratio significantly dropped from 1.9% in Q3 to 0.7% in Q4, contributing to a largely stable NPA of 3.37%. Disbursements for the quarter increased by 24% quarter-on-quarter to INR 1,213 crores, supporting an 11% portfolio growth for the full year.

Asset Quality & Collections Improvement

The company highlighted that the worst of the asset quality headwinds, which had impacted MFIs and unsecured lenders and crept into secured small-ticket loans, is now behind them. The proportion of customers in current buckets improved to 82.69% from 81.77% in Q3. Stage-2 proportion (61-90 DPD) also saw a slight reduction from 5.1% to 4.8%. Management attributed these improvements to effective collection strategies and a renewed focus on credit underwriting, reinforcing confidence in their business model.

Financial Performance & Funding

For Q4 FY26, PAT stood at INR 269 crores, a 3% decrease QoQ primarily due to higher personal expenses. However, full-year PAT grew 2% to INR 1,099 crores. The company maintained a healthy return on average AUM of 8.68% and an ROE of 16% for FY26. Five-Star successfully availed INR 928 crores in incremental debt during Q4, including $50 million from the Asian Development Bank, reinforcing lender confidence. The cost of funds for Q4 dropped to 8.95% from 9.12% in Q3.

Growth Outlook & Strategy for FY27

Five-Star is geared for a strong FY27, targeting an AUM growth of around 20%. This growth will be supported by planned disbursements of INR 6,500-7,000 crores for the year. The company intends to open 60 to 75 new branches, strategically focusing on areas with less competition and strong customer understanding. The core target segment remains small business owners and self-employed individuals with average ticket sizes between INR 3-5 lakhs, which is considered the company's sweet spot.

Operational Efficiency & Digital Adoption

The company has fully operationalized the separation of business and collection verticals since April 1, 2026, expecting this to pave the way for stronger disbursements and focused collection efforts. Digital collections have steadily increased, reaching 84% in Q4 FY26, up from 80% a year ago and 53% two years ago. While acknowledging the inevitability of digital footprints, management emphasized that Five-Star's larger ticket sizes (INR 4 lakhs average) and longer tenures (up to 7 years) differentiate it from fintech competitors.

Credit Cost and Profitability Guidance

Management provided a credit cost guidance of 1.7% to 1.75% for FY27, with a steady-state expectation of 1.5% to 1.6% in the medium term, reflecting a more consistent approach to credit cost build-up. ROA is targeted at 8.25% to 8.5% for FY27 and for steady-state, balancing growth objectives with credit cost management. The opex to average AUM ratio is expected to remain around 7% to 7.25% for FY27, with scale benefits offset by investments in collections and talent retention.

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