Non-Banking Financial Company Five Star Business Finance gets Sebi’s go-ahead to float its Rs 2752 crore IPO

TPG, Matrix Partners, Norwest Ventures backed Five Star Business Finance Limited (FSBFL) has received approval from markets regulator Securities and Exchange Board of India (SEBI) to raise Rs 2,752 crore through an initial public offering (IPO).

Chennai-headquartered NBFC, Five Star Business Finance, provides secured business loans to micro-entrepreneurs and self-employed individuals, each of whom are largely excluded by traditional financing institutions.

The initial public offer (IPO) is an complete offer for sale up to Rs 257.10 crore by SCI Investments V, up to Rs 568.92 crore by Matrix Partners India Investment Holdings II, LLC, up to Rs 9.56 crore by Matrix Partners India Investments II Extension, LLC, up to Rs 385.65 crore by Norwest Venture Partners X – Mauritius, up to Rs 1349.78 crore by TPG Asia VII SF Pte. Ltd., up to Rs 141.98 crore by Deenadayalan Rangasamy and up to Rs 38.95 crore by Varalakshmi Deenadayalan, according to draft red herring prospectus (DRHP).

The company will not receive any proceeds from the offer.

Currently, TPG Asia VII SF Pte. Ltd. holds 20.99 per cent, Matrix Partners India Investments Holdings II, LLC, holds 14.09 per cent, Lakshmipathy Deenadayalan and Norwest Venture Partners X – Mauritius own 13.01 per cent and 10.22 per cent stake in the company, respectively.

FSBFL was set up by V.K Ranganathan and commenced operations in 1984, with a focus on consumer loans and vehicle finance. The current Chairman and Managing Director Lakshmipathy Deenadayalan has been associated with the company for the past 20 years, with a deep understanding of customer behaviour and business and operations, which is critical to developing and enhancing the business model and driving total income and profitability, having a strong presence in south India.

It has grown from 173 branches in 2019 to almost 268 branches as on September 30, 2021 across 126 districts in eight states and one union territory. Its AUM grew 86% CAGR over fiscal 2016-21, third fastest among compared peers. In terms of absolute size of portfolio, AU Small Finance Bank, Shriram City Union Finance and Five-Star are the largest players in small business loans segment. Live accounts grew from 15,803 in fiscal 2017 to 1,92,270 as of September 30, 2021. In addition, it also has a business and collections team of 2,827 employees including 2,258 Relationship Officers.

Target customers of Five Star Business Finance are mostly everyday cash and carry businesses with a focus on services, it also provides secured loans to small business owners and self-employed individuals, as well as small mortgage loans to meet certain personal needs of the customers, in urban and semi-urban locations, as well as rural markets.

Asset Under Management (AUM) stood at Rs. 4,445 crores as of March 31, 2021, compared to Rs. 3,892 crores as of March 31, 2020. As of March 2021, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana accounted for 95% of the overall portfolio. The NBFC posted a 34 per cent growth in total income at Rs 1051 crore in FY21 from Rs 787 crore in FY20, while its net profit jumped 37 per cent to Rs 359 crore in FY21 from Rs 262 crore in FY20.

ICICI Securities Limited, Kotak Mahindra Capital Company Limited, Edelweiss Financial Services Limited and Nomura Financial Advisory and Securities (India) Private Limited are the book running lead managers to the issue.