Five-Star Business Finance Nov-24

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Questions and Answers

What impact is expected on costs after initial transactions?

Costs will initially decrease and then increase.

Costs will remain high indefinitely.

Costs will fluctuate unpredictably.

Costs may decrease over time. (correct)

What does the expansion of NIMs by 20 basis points indicate?

Leverage has increased considerably.

There have been significant yield increases.

Cost of borrowings has decreased significantly.

Net worth growth is outpacing borrowing growth. (correct)

What is the reported change in the debt-equity ratio?

Remained stable at 1.23.

Fluctuated without a clear trend.

Increased from 1.23 to 1.30.

Decreased from 1.23 to 1.20. (correct)

What has been noted about the pace of net worth growth compared to borrowings?

Net worth growth is higher than borrowing growth. Signup and view all the answers

What was the response regarding the findings of the RBI audit?

No outcomes from the RBI audit were disclosed. Signup and view all the answers

Why is a premium paid for diversification impact?

To balance risks associated with portfolios. Signup and view all the answers

What proportion of the overall salary in OPEX is fixed according to Srikanth Gopalakrishnan?

70% Signup and view all the answers

What observation did Abhijit Tibrewal make regarding NIM expansion?

It was linked to stable cost of borrowings. Signup and view all the answers

If disbursements slow down, what effect is anticipated on OPEX?

OPEX will not change significantly. Signup and view all the answers

What does the term 'leverage' refer to in this context?

The ratio of borrowed funds to equity. Signup and view all the answers

What is the current OPEX percentage mentioned by Srikanth Gopalakrishnan?

5.1% Signup and view all the answers

Which of the following statements about the OPEX's variable component is true?

The variable component is around 35%. Signup and view all the answers

What historical Loss Given Default (LGD) percentage is mentioned?

10% Signup and view all the answers

In the context of credit cost, what does Srikanth imply about the buffer?

There is a buffer built into the credit cost. Signup and view all the answers

What could potentially prevent scale benefits in OPEX according to Srikanth?

A slowdown in disbursals. Signup and view all the answers

What is the potential OPEX assumption if the disbursement continues to remain slow?

Assumed slightly higher. Signup and view all the answers

What has been the company's approach regarding interest rates?

They are reducing interest rates by 200 basis points. Signup and view all the answers

What does Dinesh highlight as a challenge in the market?

Expectations of worsening market conditions. Signup and view all the answers

What does Rangarajan Krishnan confirm about the company's financial books?

There are no signs of stress scenarios at this point. Signup and view all the answers

What is the primary reason provided for reducing interest rates?

The company enjoyed lower borrowing costs in the past. Signup and view all the answers

What is indicated about the company's growth targets?

They are reducing growth targets due to current market conditions. Signup and view all the answers

How does the company plan to communicate its interest rate changes?

With a well-articulated strategy that has been discussed in previous quarters. Signup and view all the answers

Which aspect of the market does Dinesh not express concern about?

Employee additions. Signup and view all the answers

What was the board's recent decision regarding interest rates?

Pass on a 200 basis points benefit to customers. Signup and view all the answers

What is the average time for a branch to reach its breakeven point?

7 to 9 months Signup and view all the answers

At what amount of AUM does a branch typically break even?

2.5 crores Signup and view all the answers

How many disbursements can each officer typically manage per month?

3 to 4 disbursements Signup and view all the answers

When do disbursements start to ramp up significantly in a branch?

After the third month Signup and view all the answers

What is the expected monthly disbursement level for a branch with five to six officers?

50 to 60 lakhs Signup and view all the answers

What cost is not covered once a branch reaches its breakeven point?

Head office costs Signup and view all the answers

What is the average disbursement amount per transaction made by an officer?

10 lakhs Signup and view all the answers

What was the suggestion made regarding the publication of a fact sheet?

To provide it for historical data reference Signup and view all the answers

What is the primary reason for the sharper rate cut decision mentioned?

To achieve a target spread of 12% more quickly. Signup and view all the answers

What was the previous expectation for the rate cut mentioned by Aditya?

50 to 75 bps. Signup and view all the answers

What is the current spread level mentioned by Srikanth Gopalakrishnan?

14% Signup and view all the answers

What has previously influenced the company's decision-making according to Srikanth Gopalakrishnan?

Public commentary by the regulators. Signup and view all the answers

Why might the company be inclined to adjust their rates, as suggested by Srikanth Gopalakrishnan?

To align with external environmental factors. Signup and view all the answers

What factor did Srikanth mention that regulators have not done regarding the rate charges?

Regulators have not forced any changes. Signup and view all the answers

What time frame does Srikanth refer to as a comparison for the current spread?

Two to three years ago. Signup and view all the answers

What is the company's goal in adjusting their disbursal yield?

To quickly return to a 12% spread. Signup and view all the answers

What is the expected change in the Loss Given Default (LGD) as the portfolio seasons?

It may increase from 10% due to potential legal actions. Signup and view all the answers

What is the typical guidance range for the rate mentioned, in basis points?

75 to 100 basis points Signup and view all the answers

What was the write-off amount for the current quarter?

Rs.11 crores Signup and view all the answers

What did the bureau scrub accomplish in terms of customer insights?

Revealed stress is not limited to one geography. Signup and view all the answers

What is the status of the broader issue in customer balance sheets according to Aditya Pal?

It is expected to improve by Q4 with good monsoon. Signup and view all the answers

What was the write-off amount for the previous quarter?

Rs.7 crores Signup and view all the answers

Which aspect is NOT considered when assessing the portfolio as it seasons?

Local government regulations Signup and view all the answers

What assumption is made when putting out the 1% rate?

It may be on the higher end of the rate range. Signup and view all the answers

Study Notes

Five-Star Business Finance Limited Earnings Conference Call Transcript

Date: November 5, 2024
Earnings Conference Call: October 29, 2024, for the quarter and half year ended September 30, 2024
NSE Listing: FIVESTAR
BSE Listing: Scrip code: 543663
Management Team:
- Chairman and Managing Director: Mr. Lakshmipathy Deenadayalan
- Chief Executive Officer: Mr. Rangarajan Krishnan
- Chief Financial Officer: Mr. Srikanth Gopalakrishnan

Key Financial Highlights

Disbursements (Q2FY25): ₹1,251 crores, up 4% YoY, down 5% QoQ (compared to ₹1,204 crores in Q2FY24)
Portfolio: ₹10,927 crores, up 6% QoQ & 32% YoY (compared to ₹10,343 cr in Q1FY25 and ₹8,264 cr in Q2FY24)
Q2FY25 Collections Efficiency: 98.4% (vs 98.5% in Q1FY25) "Due One, Collect One" at 97% (vs 97.2% in Q1FY25)
Gross Stage-III Assets (NPA): 1.47% (vs 1.41% previous quarter)
Borrowing Cost: 9.65% (QoQ & YoY stable)
Provision Coverage (Stage‐III Assets): ~1.65% of AUM; 52% coverage on Stage‐III assets.
PAT: ₹268 crores, up 34% YoY and 6% QoQ (from ₹252 cr)
Networth: Over ₹5,700 crores

Growth and Strategic Initiatives

Branch Expansions: 113 new branches opened in Q2FY25 (32 new, 77 split branches); aiming to address concentration risk.
Portfolio Growth Guidance: 25% for FY25, to consider for Q3 and onward review.
Cost of Funds: Aiming for 12% spread and slowing growth to mitigate potential risks.
Diversification of borrowing sources: Increase debt from non-bank institutions.

Other Key Observations

Overleveraged Borrowers: 14% of the total 4.3 lakh borrowers have three or more active loans with other financial institutions. About 0.4% exhibit lower than average collection efficiency. Focus on stricter underwriting for overleveraged borrowers.
Credit Cost: Write-offs at ₹11 crores (Q2FY25, vs ₹7cr previous quarter). Increase in overall provisions to mitigate credit risk.
Borrower Prioritization: Borrowers are prioritizing Five-Star in repayment, mitigating potential issues.
Cost-to-income ratio: Aiming for sustained reductions in the cost-to-income ratio in the next two to three years, potentially below 30% in the future.

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Description

Test your knowledge on the impacts of costs in financial operations, including debt-equity ratios, net worth growth, and operating expenses (OPEX). This quiz also covers key concepts like NIM expansion and credit cost buffers. Challenge yourself to understand essential financial metrics and strategies!