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Informist, Monday, Jul. 27, 2026

 

NEW DELHI – Five-Star Business Finance Ltd. expects operating expenses to remain high as it invests in both technology and employees to better manage competitive intensity in the sector, the lender's management told analysts in a post-earnings conference call. Operating expenses in 2026-27 (Apr-Mar) will remain similar to the previous year, with material efficiencies translating to bottom line starting only in FY28. 

 

"We are not guiding the market for any strong operating leverage to kick in. Whatever operating leverage kicks in will possibly be taken up by the increased expenses that we will have to incur," Joint Managing Director and Chief Financial Officer Srikanth Gopalakrishnan said. "So, the opex for this year will largely stay flat as compared to last year."

The executive guided for its operating expenses to remain near 6% of assets in FY27 before declining to 5.25-5.50% on a steady state. In the June quarter, higher expenses ate into the non-banking financial company's profitability. Employee benefit expenses rose 21% on year, and other expenses were up 23% on year, lifting total expenses 9.3% on year to INR 4.77 billion in the reporting quarter. 

 

The company declared its earnings late on Saturday. Its net profit rose 1.9% on year to INR 2.71 billion, marginally missing analysts' estimates, even as the revenue from operations was up 5.3% on year at INR 8.29 billion. At 1422 IST, shares of Five-Star Business Finance were off highs, up 1.2% at INR 541.45 on the National Stock Exchange. 

 

The company also guided for portfolio yields to trend lower by 10-15 basis points in the next two quarters before flattening as part of its strategy started in late 2024, where yields have been declining gradually at that pace. In the June quarter, yields fell by 12 bps to 22.46%. Gopalakrishnan said they were onboarding customers at an average yield of near 22.5% currently, with the stable aim of the portfolio yield cystallising around 22.25%.

 

As for margins, the cost of borrowing is likely to remain around 8.5%, down from 8.80% in the June quarter, the management said. The lender will also tap a loan from the Asian Development Bank, which would have to be timed carefully keeping in mind hedging costs as it was an external commercial borrowing. Even if at a slightly higher cost of borrowing, the institutional funding from the development bank would be tapped, the management said.

 

Meanwhile, the management gave a rosy outlook on asset quality, especially with collection efficiency at 97.9% in the June quarter, against 98.1% in Jan-Mar despite a usual seasonal dip. The slippage ratio was flat on quarter at 0.7% of the loan book and would trend lower in the coming quarters, the CFO said, while recoveries have risen and will likely gather steam. The lender had no plan to sell any bad loans to asset reconstruction companies at this point. Unlike some other companies, Five-Star Business accounts for a credit costs on a gross basis while write-backs are credited to the top line as other income, Gopalakrishan said. 

 

"Our collections trends are going up, so that clearly indicates the cash flows of our customers are intact," Chairman and Managing Director Lakshmipathy Deenadayalan said on the call. "...in current circumstances, we see no issue from a collections perspective." The top executive flagged risks to the collections from the rise in energy costs because of the West Asia war and the Reserve Bank of India's response, either through tightening liquidity or raising interest rates. 

 

The management guided for credit cost of 1.7-1.9% for FY27, against 1.85% in the June quarter, with a gross non-performing asset ratio under 3%, down from 3.46% as of Jun. 30. Write-offs will total INR 2.25 billion to INR 2.50 billion in FY27, with around INR 600 million done in the June quarter, it said. 

 

The company had been conservative on growth by ensuring it improved collections and asset quality, before stepping up disbursements to a record high of INR 14.96 billion despite the usually slow June quarter, with INR 6.70 billion coming in June alone. Demand had always been high from the small business owners that Five-Star Business Finance lends to but they had curbed approval rates earlier in the wake of a rise in delinquencies from the microfinance sector in 2024, Gopalakrishan said. 

 

The company put in some measures that might have lowered approval rates "and consciously slowed down on disbursements because as a company, we take a very conservative stance that asset quality comes first, followed by growth," the CFO said. "So, it is extremely important for us to put some of the challenges we faced in order before resorted to growth. So demand was never a problem." 

 

The lender was also seeing strong traction in business in the September quarter so far, with logins, sanctions and disbursement continuing at a strong pace. Employee productivity had also gone up after an internal restructuring. The growth strategy was to diversify the product offering, with one new product in the pipeline and likely to be launched in the next three to six months, the management said.

 

Five-Star Business Finance is targetting return on equity of 18-20% by increasing its leverage to three times its net worth, the management said, from 14.46% in the June quarter. Going ahead, the return on assets under management should compress to around 6.0-6.5% from around 7.0% currently, with the leverage rising from the 2.07 times in the June quarter, the CFO said.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aaryan Khanna

Edited by Avishek Dutta

 

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