Five-Star Business shares dive 14% despite 34% rise in Q2 FY25 profit; here's why

Shares of Five-Star Business Finance Ltd took a sharp beating in Wednesday's trade even as the company's September 2024 quarter profit after tax (PAT) grew by 34 per cent on a year-on-year (YoY) basis. The stock tumbled 13.62 per cent to hit a day low of Rs 757.45.

The non-banking financial company's (NBFC's) profit in Q2 FY25 came at Rs 268 crore as against Rs 199 crore in the year-ago period. During the quarter under review, AUM (assets under management) climbed 32 per cent to Rs 10,927 crore from Rs 8,264 crore in the corresponding period last year.

Today's fall in the share price came after the shadow lender's management trimmed its growth guidance for AUM to 25 per cent from 30 per cent earlier. In Q2 FY25, the company's net interest margin (NIM) and return on assets also slipped 0.75 per cent and 0.11 per cent (YoY), respectively.

Nuvama Research has reiterated a 'Buy' call on Five-Star Business with a target price of Rs 1,010. "Despite a cut in growth guidance and lower incremental yield, we believe Five-Star’s growth and profitability shall remain superior to peers. When many small lenders are in deep stress, Five-Star’s earnings highlight its resilient business model," the brokerage stated.

"Five-Star announced in-line earnings and stable asset quality in Q2 FY25. The company has slowed disbursal growth in view of sectoral issues and regulatory nudge. Disbursals grew 4 per cent YoY/fell 5 per cent QoQ. AUM growth stood strong at 32 per cent YoY/6 per cent QoQ. Spread remained stable QoQ with stable CoF. The 30+DPD stood at 8.44 per cent from 8.1 per cent QoQ. CE dipped only marginally by 10 bps QoQ to 98.4 per cent," Nuvama also said.

It mentioned that the NBFC's growth has been strong along with a stable asset basket. "Reiterate 'BUY' given strong growth and stable asset quality. The company has cut growth guidance to 25 per cent for FY25E from 30 per cent and shall also lower disbursement yield by 200 bps next month. Given that lower yield shall take time to flow through total NIM, we expect spread to remain stable. Our new TP is Rs 1,010/4x BV ( earlier TP Rs 950)," Nuvama said.

Five-Star Business has increased its branch presence to 660 branches. In the September 2024 quarter, the company opened 113 new branches. And, it disbursed Rs 1,250 crore in Q2 FY25, up 4 per cent YoY.