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Five-Star Business Finance Limited Q1 FY25 Earnings Conference Call Summary
Key Achievements • Record Performance: • AUM exceeded ₹10,000 crores (36% YoY growth). • PAT reached ₹252 crores (37% increase). • ROE at an all-time high of 18.95%.
Financial Highlights • Loan and Asset Metrics: • Active loans up by 29% YoY. • Average ticket size stable at ₹3.5 lakhs. • Yields around 24%; NIMs decreased to 16.72%. • Cost-to-income ratio improved to 34.34%; ROA at 8.23%.
• Borrowing Strategy: • Reduced bank borrowings from 79% to 74%. • Maintained liquidity buffer of approximately ₹1,900 crores.
Collection and Payment Trends • Collection Efficiency: • Slight dip in collection efficiency; 52% provision coverage for Stage-3 loans. • Non-cash payments increased to 65%.
Growth Projections • Future Growth: • Projected sustainable growth rate of 18-20% for new loans. • Targeting over 30% growth for the financial year.
Regional Performance • State-Specific Insights: • Tamil Nadu growth lagging; improvements expected. • Focus on Central India and Tier-5/Tier-6 markets.
Operational Strategies • Branch Expansion: • Splitting larger branches into smaller ones to reduce costs. • 50% of new branches opened were split branches.
Credit and Risk Management • Credit Cost Guidance: • Credit cost guidance at 70 to 80 basis points. • PCR maintained around 1.63%.
• Monitoring and Adjustments: • Focus on understanding lending risks and monitoring customer leverage.
Digital Initiatives • Digital Payment Enhancements: • Mandatory UPI autopay for new disbursements. • ₹500 bounce charge for failed UPI or NACH mandates.
Conclusion • Strategic Focus: • Emphasis on secured loans and balanced asset-liability management. • Plans for further branch openings and employee additions.
Conference Call Summary
• Business Focus: • Over 95% of business from Tier-3 to Tier-6 cities due to lower competition.
• Customer Proximity: • Importance of branches in Tier-5 and Tier-6 locations highlighted.
• Share Dilution and ESOP: • 29.5 crores of diluted shares outstanding; no immediate dilution plans.
• Expansion Plans: • Growth potential in Maharashtra post-COVID-19; consistent loan-to-value ratios across states.
• Conclusion: • Call concluded with gratitude and invitation for further questions.
Five-Star Business Finance Limited Q4 Earnings Conference Call Summary
Overview • Date: May 2, 2024 • Moderated by: Renish Bhuva, ICICI Securities • Key Management: • Lakshmipathy Deenadayalan (Chairman & MD) • Rangarajan Krishnan (CEO) • Srikanth Gopalakrishnan (CFO)
Company Growth Highlights • Branch Expansion: • 147 branches opened in FY24, 40 in Q4 • Total branches increased from 373 to 520 • Employee Growth: • 975 new employees added • Disbursements: • Q4: INR 1,336 crores (20% YoY increase) • Full Year: INR 4,881 crores (44% growth) • Assets Under Management (AUM): • Grew to INR 9,640 crores (39% increase)
Financial Performance • Collection Efficiency: • Maintained at 99% • Reduction in 30+ accounts from 10.5% to 7.9% • Profitability: • Q4 profit: INR 236 crores (40% YoY increase) • Full Year profit after tax: INR 835 crores (30% increase) • Borrower Base: • Increased by 31% YoY to approximately 3.9 lakhs
Operational Insights • Cost Metrics: • Net Interest Margin (NIM): 17.19% • Cost-to-Income Ratio: 35.06% • Return on Assets (ROA): 8.43% • Return on Equity (ROE): 18.65% • Funding Strategy: • Secured INR 900 crores in sanctions • Liquidity buffer of INR 1,880 crores
Future Projections • Disbursal Growth: • Projected 25-27% increase for FY25 • AUM Growth Target: • Aim for INR 20,000 crores with a CAGR of over 30% • Branch Expansion Plans: • Target to double branches to around 1,000
Strategic Focus • Geographic Expansion: • Emphasis on South India, with plans for growth in Madhya Pradesh and Maharashtra • Operational Efficiency: • Transitioning to non-cash collections (55% currently) • Reducing turnaround time from 10 to 8-9 days
Q&A Highlights • Balance Transfer Rates: • 5-6% from formal lenders; higher from unorganized institutions • Credit Cost Guidance: • Stable at 70-80 basis points • Dividend Consideration: • Board is reviewing the possibility of dividends
Conclusion • Management expressed optimism about sustaining growth and improving operational efficiency while maintaining a strong focus on the South Indian market.
Five-Star Business Finance Limited Q3 FY '24 Earnings Conference Call Summary
Key Management • Chairman and MD: Lakshmipathy Deenadayalan • CEO: Rangarajan Krishnan • CFO: Srikanth Gopalakrishnan
Company Performance Highlights • Resilience Amid Challenges: Overcame floods in Tamil Nadu and regulatory constraints. • Branch Expansion: Opened 24 new branches, totaling 480. • Disbursement Growth: 33% year-on-year growth, totaling INR 1,210 crores. • Assets Under Management (AUM): Grew by 8% quarter-on-quarter and 43% year-on-year, reaching INR 8,931 crores. • Revenue: Increased by 9% quarter-on-quarter and 47% year-on-year to INR 570 crores. • Profitability: Profit after tax (PAT) rose to INR 217 crores, a 44% year-on-year increase. • Collection Efficiency: Strong at 99.1%, with improvements in arrears metrics.
Financial Metrics • Cost of Funds: Slight decrease, reflecting lender confidence. • Net Interest Margins (NIMs): Decreased to 16.8% due to higher leverage. • Cost-to-Income Ratio: Improved to 34.5%. • Return on Assets (ROA): 8.25%. • Return on Equity (ROE): 18%.
Regulatory and Operational Insights • Intercorporate Deposit: INR 100 crores with Bajaj Finance explained as a typical investment. • Geographical Diversification: 80% of new branches in Southern states, with cautious expansion in non-Southern regions. • Regulatory Risks: No current concerns; commitment to responsible lending.
Operational Expenses and Employee Growth • Operating Expenses (Opex): Increased by 18% year-on-year; productivity improvements noted. • Branch Expansion Plans: 120 branches planned for the year, with 80-100 annually thereafter. • Employee Growth: Expected increase of 1,500 to 1,800 employees per year.
Future Guidance and Strategic Focus • AUM Growth Guidance: 35% for the current financial year. • Funding Diversification: Focus on reducing reliance on bank funding; recent NCD issuance confirmed. • ECL Coverage: Normalizing around 1.6%, with a steady state projected at 1.4% to 1.5%.
Additional Inquiries and Responses • Super Branches: Current focus on smaller branches; proportion of super branches has decreased. • Stage 3 Provisions: Higher provisions maintained for prudence, despite lower actual loss given default (LGD). • Borrowing Composition: Approximately 29% fixed rate, 70% variable (primarily MCLR).
Conclusion • The call concluded with management expressing optimism about maintaining momentum into Q4 and addressing various inquiries from analysts.
Five-Star Business Finance Limited Q2 FY24 Earnings Conference Call Summary
Submission Details • Transcript submitted to National Stock Exchange of India and BSE Limited on November 7, 2023. • Conference call held on November 1, 2023.
Performance Highlights • Collection Efficiency: Improved from 99.6% to over 100%. • Arrears: Decreased from 9.68% to 8.59% for 30-plus days overdue loans. • Customer Status: 86.5% of customers in current status. • Non-Performing Assets: Slight improvement to 1.07%. • Branch Expansion: Opened 70 new branches. • Loan Disbursement: ₹1,204 crores, a 6% quarter-on-quarter increase and 50% year-on-year increase. • Assets Under Management (AUM): Grew by 9% sequentially and 44% year-on-year.
Financial Metrics • Stable Borrowing Costs: Cost of funds decreased from 9.8% to 9.7%. • Profit After Tax (PAT): Grew 8-9% sequentially and year-on-year, reaching ₹199 crores. • Capital Adequacy: Nearly 60%. • Cost-to-Income Ratio: Maintained around 36%.
Market Insights • Competitive Landscape: Increased competition in microfinance and larger loans; focus on loans between ₹3 to ₹5 lakhs remains less competitive. • Securitization: Aiming to keep it at 25-35% of overall borrowings.
Growth Strategy • Branch Expansion Plans: Revised guidance of 35% growth for the year; potential to exceed 120 branches. • Cautious Approach in New Markets: Focus on steady growth in states like Rajasthan and Maharashtra.
Technology and Operations • Salesforce Integration: Progressing well, expected completion by end of Q3. • Credit Rating: Recent upgrade to AA-minus; future upgrades depend on portfolio growth.
Concerns Addressed • NCD Market: Decline in share of NCDs due to market conditions; efforts to increase NCD penetration ongoing. • Asset Quality: Increase in gross Stage-3 assets explained as consistent with past performance.
Conclusion • Outlook: Confidence in growth and stability; commitment to addressing participant questions in future calls.
Five-Star Business Finance Limited Q1 FY24 Earnings Conference Call Summary
Key Management • Chairman and Managing Director: Mr. Lakshmipathy Deenadayalan • CEO: Mr. Rangarajan Krishnan • CFO: Mr. Shrikanth Gopalakrishnan
Financial Highlights • Assets Under Management (AUM): Increased by 43% YoY to ₹7,583 crores • Disbursements: Rose by 99% YoY to ₹1,132 crores • Collection Efficiency: Reached an all-time high of 85% • Profit After Tax: Increased by 32% YoY to ₹184 crores • Borrowing Cost: Slight decrease to 9.80% • Growth Guidance: Revised from 30% to 35%
Performance Metrics • Stable Yields: 24.4% with a cost of 9.8%, resulting in a spread of 14.6% • Net Interest Margins (NIMs): Improved to 17.74% • Return on Assets (ROA): 8.41% • Return on Equity (ROE): 16.62% • Liquidity: Strong at INR 1,400 crores • Credit Ratings: Upgraded to AA- by CARE
Operational Insights • Provision Coverage Ratio (PCR): 1.64% overall, 44% for Stage 3 assets • Restructured Book Performance: 90% classified as standard • Branch Expansion: Plans to open 80-85 new branches this year
Management Outlook • Growth Strategy: Aim for 35% CAGR in AUM and profitability over the next three years • Credit Cost Guidance: Stable at 75-100 basis points • NIM Compression: Attributed to increased leverage • Market Positioning: Unique approach to underwriting secured loans
Q&A Highlights • Customer Book Growth: Expected to increase from 85% to 88-89% by March 2024 • Ticket Sizes: Recovery projected from 3.35 lakhs to 4.5-5 lakhs in three years • Write-Offs: Decreased from INR 4.6 crores to INR 1.85 crores YoY • Borrowing Structure: 66% from bank term loans, 21% from securitization • Future Growth: Open to adjusting growth targets based on asset quality and market opportunities
Conclusion • Management expressed confidence in financial health and growth momentum, with a focus on collections and asset quality. They anticipate technology initiatives will enhance operational efficiencies in the long term.
Five-Star Business Finance Limited Q4 FY '23 Earnings Conference Call Summary
Key Management • Chairman and Managing Director: Lakshmipathy Deenadayalan • CEO: Rangarajan Krishnan • CFO: Srikanth Gopalakrishnan
Company Performance Highlights • Branch Expansion: Increased from 300 to 373 branches. • Employee Growth: Increased from 5,675 to 7,347 employees. • Disbursements: • 22% quarter-on-quarter increase to INR 1,110 crores. • 93% year-on-year increase to INR 3,391 crores. • Assets Under Management (AUM): • Grew by 11% in the quarter and 37% for the year, totaling INR 6,915 crores. • Asset Quality: • 90+ days past due (DPD) ratio decreased to 1.04%. • Non-performing assets (NPA) dropped to 1.36%. • Profit After Tax (PAT): • Increased by 12% quarter-on-quarter to INR 169 crores. • Increased by 33% year-on-year to INR 604 crores.
Financial Metrics • Loan Base: Increased by 25% year-on-year, approximately 300,000 loans. • Average Yields: Stable at 24.2%. • Cost of Funds: 10.12%, with a net interest margin (NIM) increase to 18.04%. • Return on Assets (ROA): 8.62%. • Return on Equity (ROE): 15.03%.
Borrowing and Liquidity • Diversified Borrowing Profile: 50 lenders, with banks contributing 56% of debt. • Incremental Debt Raised: Over INR 1,400 crores at an all-in cost of 9.5%. • Liquidity Position: Strong, with over INR 1,600 crores available.
Growth Strategy • Branch Opening Plans: 50 to 60 new branches annually. • Target Growth Rate: Over 30% in the next few years. • Credit Rating Improvement: Upgraded from A to AA.
Operational Insights • Collection Efficiency: Improved to 100.5%. • Stage 3 Provision Coverage Ratio (PCR): Increased due to conservative approach. • Fraud Prevention: In-house process with multiple checks.
Market Position and Competition • Focus on Lower-Tier Markets: Differentiation from fintechs. • Customer Retention: 80% of customers stay post-loan completion.
Future Outlook • Projected ROA: 6-6.5% and ROE above 20%. • Cost Reduction Strategies: Investments in technology and management. • Yield Management: Plans to reduce yields from 24% to approximately 22.5%.
Conclusion • Management expressed confidence in the company's growth trajectory and operational performance, with a focus on maintaining asset quality and leveraging market opportunities.
Five-Star Business Finance Limited Q3 FY '23 Earnings Conference Call Summary
Key Management • Chairman and Managing Director: Mr. Lakshmipathy Deenadayalan • CEO: Mr. Rangarajan Krishnan • CFO: Mr. Srikanth Gopalakrishnan
Financial Performance Highlights • Loan Portfolio Growth: 31% YoY increase from INR 4,767 crores to INR 6,242 crores. • Disbursements: 114% YoY surge to INR 910 crores. • Branch Expansion: Added 89 branches, totaling 369. • Asset Quality: • 90-plus delinquency rate: 1.16% • NPA: 1.45% • Profit After Tax: Grew by 28% YoY to INR 151 crores. • Credit Rating Upgrade: From A+ to AA- by India Ratings.
Operational Metrics • Active Loan Base: 24% YoY growth, from INR 2.5 lakhs to INR 2.7 lakhs. • Assets Under Management (AUM): Grew by 31% YoY. • Average Yield: 24.11% with a cost of funds at 10.35%. • Net Interest Margin (NIM): 18.55%.
Growth and Strategy • Customer Base: Focus on underserved segments; 60% single shop owners, 25% self-employed, 15% informal sector. • Loan Ticket Size: Average of INR 3 lakhs, lower than competitors. • Cautious Growth Approach: Emphasis on quality over quantity in branch openings.
Collection and Risk Management • In-House Collections: 100% in-house collections with accountability for loan originators. • Collection Efficiency: Over 98% for the past six quarters. • Attrition Rates: 28-29% at officer level, higher among less experienced staff.
Future Guidance • Credit Costs: Expected to stabilize around 1% in steady-state. • Leverage Ratio: Target of 2-3x over the next three years. • Return on Equity (ROE): Projected to rise to 20-22% with increased leverage.
Technology and Operational Efficiency • Cost-to-Income Ratio: Currently at 38%, expected to improve post-IPO expenses. • Operational Expenses: Aiming for 5.5-6% relative to assets as the business scales.
Asset Quality and Provisions • Stage Two Asset Quality: Currently around 10.5-10.6%, expected to stabilize at 8-9%. • Provision Coverage: Nearly 50% for the restructured book.
Market Position and Competition • Concentration: 93% of the portfolio in southern India; substantial target market estimated at INR 22 trillion. • Competitors: Focus on disrupting unorganized money lenders.
Conclusion • Optimism for Future Performance: Management anticipates improved results in the upcoming quarter while maintaining a conservative lending philosophy.