This NBFC stock rose 8% amid market correction after Nomura gave buy call

Shares of NBFC Five-Star Business Finance Ltd rose 8% today after global brokerage Nomura initiated coverage on the stock with 16% upside. It assigned a buy call to the NBFC stock with a target of Rs 750 per share. The brokerage said Five-Star Business Finance is a highly profitable and among fastest-growing NBFCs in a niche market.

Subsequently, Five-Star Business Finance shares zoomed 8% to Rs 650 in early trade. The rally came amid a negative trend in the broader market today. The 30-share BSE Sensex slipped 162 points to 63,222 and Nifty lost 50 points to 18,775.

Meanwhile, the NBFC stock has been rising for two sessions. It opened 6.3% higher at Rs 639 against the previous close of Rs 601.15 on BSE. A total of 0.28 lakh shares of the firm changed hands amounting to a turnover of Rs 1.79 crore in the current trading session. Market cap of the firm rose to Rs 18,548 crore on BSE. Five-Star Business Finance shares have risen 20% in a month.

In terms of technicals, the relative strength index (RSI) of Five-Star Business Finance stands at 67.1, signaling it's neither trading in the overbought nor in the oversold territory. Shares of Five-Star Business Finance are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

“We believe Five-Star is uniquely positioned with superior growth and best-in-class profitability among financial peers. We estimate EPS CAGR of 25% during FY23-26F with RoA/RoE of 7.7%/16.6%. We value the company using residual income method with a TP of INR750, implying 3.6x FY25F BVPS and 24x FY25F EPS (current valuation- 2.9x/19x FY25F BVPS/EPS). Key risks: Inability to scale up in new states, rising competition from lenders/fintechs and worse-than-expected asset quality deterioration,” said Nomura.

Five-Star Business Finance provides secured business loans to micro-entrepreneurs and self-employed individuals (secured by self-occupied residential property) with a strong presence in South India.

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