Why Five Star Business Finance IPO is Generating Huge Interest Among Investors
Five Star Business Finance Limited, a Chennai-based NBFC, is all set to enter the capital market with its initial public offering (IPO) on July 29, 2021. The company aims to raise Rs. 1,385 crores through this IPO, which will include fresh issue of shares worth Rs. 265 crores and an offer for sale of up to 1.46 crore shares by the existing shareholders.
The issue size and pricing reflect the robust growth potential of the company and its competitive position in the NBFC space. Let us take a closer look at why Five Star Business Finance IPO is generating huge interest among investors.
Promising growth prospects
Five Star Business Finance is primarily engaged in providing secured and unsecured loans to small and medium enterprises (SMEs) in India. The company follows a cluster-based lending approach, which enables it to assess the creditworthiness of its borrowers based on their geographical location, industry segment, and business model.
This approach has helped the company maintain a healthy asset quality with a gross non-performing asset (NPA) ratio of just 1.84% as of March 31, 2021. Moreover, the company’s loan portfolio has grown at a CAGR of 54% over the past five years, reaching Rs. 4,410 crores as of March 2021.
The company expects to leverage its existing customer base and expand its geographical presence to tap into the underserved SME lending market in India, which presents a huge growth opportunity. The total credit demand of the SME sector in India is estimated to be around Rs. 45 lakh crores, while the current credit supply is only around Rs. 25-30 lakh crores.
Attractive valuation
The issue price for Five Star Business Finance IPO is fixed at Rs. 385-386 per share, which implies a price-to-book (P/B) ratio of 4.3-4.4x based on its FY21 book value. This valuation is attractive compared to its listed peers in the NBFC sector, which are currently trading at a P/B ratio of around 5.0-5.5x.
Moreover, the company’s return on equity (ROE) for FY21 stood at 17.1%, which is higher than the industry average ROE of around 10.5%. This indicates that the company is able to generate higher returns on its equity investment, thereby creating value for its shareholders.
Strong management team
The success of any company depends largely on the quality of its management team. Five Star Business Finance is led by a strong and experienced team of professionals with a track record of creating value for stakeholders.
The company’s promoters, D. Lakshmipathy and D. Anantharaman, have a combined experience of over 40 years in the financial services industry. The board of directors also includes eminent personalities from various fields, including banking, finance, and entrepreneurship.
Conclusion
In summary, Five Star Business Finance IPO is generating huge interest among investors due to its promising growth prospects, attractive valuation, and strong management team. The company has a proven track record of maintaining healthy asset quality and growing its loan portfolio at a rapid pace. With the growth potential in the SME lending market in India, the company is well-positioned to leverage its competitive strength and create value for its stakeholders.
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