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Five-Star Business Finance reported Q3 FY26 PAT of ₹277 crore, up 1% YoY, with stable collections but elevated slippages. Management emphasized a three-step approach: understanding the crisis, fixing problems (underwriting and collection vertical), and accelerating growth. Current proportion improved marginally to 81.77%, and unique customer collection efficiency on current book reached 99.01%. Disbursements fell 18% QoQ to ₹976 crore as the company prioritizes asset quality. Cost of funds dropped 50bps YoY to 9.12%, and a $100 million ADB loan was signed. Management expects improvement in Q4 and FY27, but declined to give specific growth guidance. Risk: behavioral crisis from lender-driven write-offs may prolong stress.
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Guidance to track
- Management declined to provide growth or disbursement guidance, stating they will share numbers after Q4 results once collection setup is fully in place.
- Incremental debt cost at 8.19% and repo rate cut transmission should reduce book cost by another 10-15bps over next 3-6 months.
- Management expects visible improvement in slippages and stage 3 assets from Q4 FY26 onwards as collection efforts bear fruit.
Risks flagged
- Management acknowledged that the crisis has shifted from over-leverage to a behavioral issue, which may take longer to resolve than anticipated.
- Despite stable early buckets, slippages into NPA remain elevated, and credit cost rose marginally to 1.44%. Analysts questioned if credit cost has bottomed.
- Management noted that rising competition may force higher employee costs, potentially offsetting benefits from lower cost of funds.
- Overlap with MFI customers remains pronounced, and write-offs by other lenders could negatively impact borrower behavior toward Five-Star.
Key quotes
- We don't subscribe to the philosophy of taking huge technical write offs to bring down our stage two or NPA asserts. We believe that this leads to a negative borrower behavior and consequently causes a breakdown in the credit culture.
- Our focus clearly is on getting our collection strategy and actions completely in place before moving over to the business acceleration.
- The only point that we need to keep in mind is how this opex is going to sort of eat into some of the benefits that we'll get either on account of the cost of funds.
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