Five Star Business Finance: A Promising Investment Opportunity

Introduction to Five Star Business Finance

Five Star Business Finance is currently focusing on portfolio stability and underwriting discipline, rather than just trying to disburse more loans. This approach may lead to slower business growth in the short term, but it will help the company build a strong foundation for the future.

A Calibrated Approach to Growth

The management team at Five Star Business Finance has adopted a cautious approach to disbursing loans, especially in the third quarter of 2026. This is to ensure that the stabilization they have observed in their business is real and not just a temporary improvement. As a result, the company may see a moderation in business volumes in the short term, but this will set the stage for significant growth in the future, starting from the fourth quarter of 2026 or the first quarter of 2027.

Strengthening Customer Profile and Technology Investments

Five Star Business Finance is also working to strengthen its customer profile and build a robust cohort of customers to support future growth without compromising on asset quality. The company is investing heavily in technology to improve the customer experience and make its underwriting process more efficient. Some of the initiatives include CKYC-based account aggregation, speech-to-text automation for field interactions, and AI-enabled calling efforts.

Investment Outlook and Stock Performance

The stock currently trades at 1.9x FY27 P/BV, which is relatively low compared to its growth potential. We estimate that Five Star Business Finance will deliver a CAGR of ~24%/17% in AUM/PAT over the next few years, along with a RoA/RoE of 6.8%/16.6% in FY28E. Based on these projections, we recommend a BUY rating on the stock with a target price of INR700, premised on 2.2x Sep’ 27E P/BV.

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