Motilal Oswal Maintains 'Buy' Rating on Five Star Business Finance, Targets Rs 600

Motilal Oswal Maintains 'BUY' Rating on Five Star Business Finance

Five-Star Business Finance (FIVESTAR) reported a decline in profit after tax (PAT) for the fourth quarter of fiscal year 2026 (4QFY26) by 4% year-over-year (YoY) and 3% quarter-over-quarter (QoQ) to INR2.7 billion, which aligns with expectations. The company's PAT for the fiscal year 2026 (FY26) grew approximately 2% YoY to INR11 billion.

The net interest income (NII) of Five-Star Business Finance grew approximately 10% YoY to INR6.1 billion, meeting expectations. Other income rose 22% YoY to INR306 million, also in line with expectations. Operating expenses (Opex) increased 21% YoY to INR2.3 billion, meeting expectations. Profit before provisions and tax (PPoP) rose approximately 5% YoY to INR4.2 billion, meeting expectations. For the fiscal year 2026 (FY26), PPoP grew 11% YoY to INR16.8 billion.

Credit costs for the company stood at INR604 million, meeting expectations. The annualized credit cost was approximately 1.55% (previous quarter: 1.5% and previous year: 0.75%).

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Key Highlights:

The stock currently trades at 1.7x the estimated price-to-book value (P/BV) for fiscal year 2027 (FY27E). Motilal Oswal estimates Five-Star Business Finance to post a compound annual growth rate (CAGR) of approximately 21%/12% in assets under management (AUM)/PAT over fiscal years 2026-2028E, with return on assets (RoA) and return on equity (RoE) of 6.6/15% in fiscal year 2028E. The research firm maintains a 'BUY' rating on the stock with a revised target price of INR600, based on a price of 1.8x the estimated book value for March 2028 (Mar'28E BV).