Five-Star Business Finance Reports Steady Growth in Q2FY27

Profit After Tax (PAT) stood at Rs 299.3 crore with Assets Under Management (AUM) at Rs 14,639.6 crore.

Reader Takeaway: Strong loan disbursement growth and stable asset quality drive performance, though rising borrowing costs remain a key margin risk.

What just happened

Five-Star Business Finance delivered a robust financial performance for the quarter ended September 2027. The company saw a 74% year-on-year jump in loan disbursements to Rs 2,077.8 crore. Assets Under Management grew 14% annually to reach Rs 14,639.6 crore. Profitability remained consistent, with a PAT of Rs 299.3 crore, marking a 5% increase sequentially.

Why this matters

The results underscore the lender's ability to scale operations while maintaining credit discipline. With 19 new branches opened this quarter, the company now operates 875 branches across 11 states. The shift toward digital collections—now accounting for 85% of total collections—highlights improved operational efficiency and tech adoption within its target segment of small shopkeepers.

The backstory

After a challenging period in the previous year, the company has focused on stabilizing its loan book and improving collection efficiency. Collection efficiency (excluding NPAs) rose to 98.2% from 97.9% in the previous quarter. The company successfully raised Rs 825 crore in incremental debt at a cost of 8.43%, keeping its overall cost of funds at a competitive 8.78%.

Asset Quality

Despite broader economic pressures, the company maintained stable asset quality with Gross NPA at 3.48%. Credit costs also saw a positive trend, improving to 1.80% of average AUM compared to 1.85% in Q1FY27. Management noted that slippages showed slight improvement, moving to 0.68%.

Risks to watch

Management has identified the tightening interest rate cycle as a potential headwind for future net interest margins (NIM). While current margins remain stable at 19.87%, rising borrowing costs could compress spreads. The company also operates in a segment highly sensitive to macroeconomic shocks, which requires constant vigilance regarding borrower repayment health.

What to track next

Investors should monitor how the company manages its cost of funds in the coming quarters and whether it can maintain its 19% NIM levels. Management has guided for 'flattish' credit costs for the remainder of the year, a key metric for evaluating profitability.