Five Star Business Finance Ipo Today: Five Star Business Finance IPO opens today: Here’s what brokerages are saying

New Delhi: The initial public offering (IPO) of Five Star Business Finance opened for subscription on Wednesday, November 9. The company has fixed the price band of Rs 450-474 apiece.

Incorporated in 1984, Five Star Business Finance is a non-banking finance company (NBFC) which provides secured business loans to micro-entrepreneurs and self-employed individuals.

The issue is entirely an offer for sale (OFS) by the promoters and existing shareholders of the company, aggregating to Rs 1,960 crore. The South-India-based shadow lender has trimmed its issue size from Rs 2,752 crore earlier.

SCI Investments, Matrix Partners India Investment Holdings and Norwest Venture Partners are the key shareholders participating in the OFS of the company.

Investors can make a bid for a minimum of 31 equity shares and then in multiples thereof. The issue of the Chennai-based NBFC will close for subscription on Friday, November 11.

The company will not receive any proceeds from the issue and all such proceeds will go to the selling shareholders, who will get a partial or complete exit after this IPO.

Five Star Business Finance has created a business model based on identifying an appropriate risk framework and the ideal instalment-to-income ratio to make sure that customers have the resources to repay the loan.

The company has an extensive network of 311 branches, spread across eight states and one union territory and about 150 districts across India, with Tamil Nadu, Andhra Pradesh, Telangana and Karnataka being the key states.

With more than Rs 3,000 crore in assets under management (AUM), the company has the fastest AUM growth among peers.

Not more than 50% of the allocation has been fixed for qualified institutional buyers, whereas non-institutional buyers will get 15% of shares. The remaining 35% of shares have been allocated to retail bidders.

, , Capital Company and Nomura Financial Advisory and Securities are the managers to the issue, whereas KFin Technologies has been appointed as the registrar to the issue.

Five Star Business Finance raised Rs 588 crore from 16 anchor investors ahead of its IPO. The NBFC said it had allocated 12.4 million shares at Rs 474 apiece to anchor investors, including Capital Research, Fidelity Investments, ADIA, Norges Bank, Carmignac Gestion, White Oak, Malabar Investments, Bay Capital and Segantii, Enam and

among others.

Brokerage firms remain mixed over the issue. Some have suggested subscribing to it with a word of caution but the majority of them find the valuations expensive. Further, they have flagged the complete OFS nature of the issue as a concern.

Here is what a host of brokerages said about the IPO of Five Star Business Finance:

Rating: Subscribe with caution
At the higher price band of Rs 474, the issue is valued at P/BV 3.6x which seems expensive. It has the fastest gross term loan growth among its compared peers, said Choice Broking.

“Considering the business profile of the company, intense competition and mounting risk around the microfinance sector, we assign a ‘Subscribe with Caution’ rating to the issue,” it added.

Rating: Avoid
The NBFC has a strong NII and PAT growth CAGR of 31% and 32%, respectively, coupled with healthy advance growth CAGR of 15% over two years along with ROE and ROA metrics, said Angel One. The post-issue P/B works out to be 3.7 times.

Strong tailwinds in the banking sector, uptick in credit cycle and strong Q1FY23 results of the company are the near-term positives that are factored in the valuations and the issue is reasonably priced, it said. “We recommend a ‘neutral’ rating.”

Rating: Avoid
It has the fastest gross term loan growth among the compared peers and a continuous track record of financial growth with increasing revenue and profit. The issue is reasonably priced at a P/B valuation of 3.6 when compared to its peers, said Swastika Investmart.

“High competition and rising interest rates are big threats. The company has a presence in the

region only. However, management is confident about maintaining its growth pattern. Finally, the issue is a complete offer for sale, and some of its peers are available at a better price in the secondary market,” it said with an Avoid rating.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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