Five-Star Business Finance Ltd (FIVESTAR) Q1 FY27 Earnings Call: Record Disbursements of Rs. 1,496 Cr, Guides 20% Loan Book Growth

Five-Star Business Finance Ltd held its Q1 FY27 earnings call on July 25, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Record Disbursements, Steady Profitability & Customer Milestone

• Record disbursements of Rs.1,496 Cr — Q1 FY 2026-2027 disbursements rose 23% QoQ (from Q4 FY 2025-2026) and 16% YoY (from Q1 FY 2025-2026), driven by strong demand and structural changes separating business and collection teams.
• AUM of Rs.13,722 Cr — sequential growth of 4% from Q4 FY 2025-2026, with management reaffirming the 20% loan book growth guidance for FY 2026-2027.
• PAT of Rs.271 Cr — Q1 FY 2026-2027 net profit translated to an ROA of 8.11% and ROE of 14.5%; net worth stood at Rs.7,653 Cr as of 30 June 2026.
• 500,000 active loan customers — a significant milestone achieved as of end of Q1 FY 2026-2027, with 12 branches added in the quarter (primarily in Maharashtra), bringing the total to 856.
• Collection efficiency held firm — unique customer collection efficiency at 97.9% (vs. 98.1% in Q4 FY 2025-2026) and X-bucket collections at 99.2% (vs. 99.3%), with overall collection efficiency consistently above 99% for several quarters.

Current Book Improving, Slippages Flat, Credit Cost Trending Lower

• Current book improved to 83.30% — up from 82.69% in Q4 FY 2025-2026; the 30+ days past due book reduced to 12.38% from 12.69% in the prior quarter.
• Slippages flat at 0.70% QoQ — Q1 FY 2026-2027 benefited from seasonal softness; management expects slippages to trend down in Q2, Q3, and Q4 FY 2026-2027.
• Credit cost of 1.85% in Q1 — down from 1.88% in Q4 FY 2025-2026; full-year FY 2026-2027 credit cost guidance maintained at 1.7–1.9%, with the trend expected to move toward 1.7%.
• Gross NPAs expected to fall to sub-3% — management guided for this improvement to occur during FY 2026-2027, supported by improving collections and stable customer cash flows over the past 7–8 months.
• Write-offs guided at Rs.225–250 Cr for FY 2026-2027 — Q1 FY 2026-2027 write-offs were Rs.60 Cr, expected to remain flat at Rs.55–60 Cr per quarter for the remainder of the year; recoveries on write-offs were Rs.7–8 Cr in Q1.
• Steady-state credit quality targets — management guided Stage 1 at 91–92%, Stage 2 at 6–7%, and net NPA (Stage 3) at ~2.5% (sub-3%) in the short to medium term; ECL coverage expected at 1.75–1.8% for FY 2026-2027.
• Key risks cited — rising energy costs and potential regulatory action on price hikes could impact the broader environment; a potential repo rate increase would negatively affect cost of borrowings.

Yield Compression Largely Complete, Spreads Stable, Cost of Funds Declining

• Q1 FY27 yield below 22.5% — new disbursements are being booked at an average of ~22.5% (range 21.5–23%); management expects portfolio yield to settle at ~22.25% over the next few quarters, with only 10–15 bps of further contraction from interest reversals on NPAs.
• Cost of funds declined to 8.80% — down from 8.95% in Q4 FY 2025-2026; all-inclusive cost of borrowing was 8.33% in Q1 FY 2026-2027.
• Spreads improved 3 bps QoQ — yields declined 12 bps but cost of funds dropped 15 bps, resulting in a net spread improvement; management expects spreads to remain roughly flat over the next few quarters of FY 2026-2027.
• Incremental cost of funds guided at 8.5% — CFO Mr. Srikanth stated this rate applies going forward (from Q1 FY 2026-2027 onward), higher than the current 8.3%, as the company plans to lever up the balance sheet.
• Debt-to-equity target of 2x — expected to be achieved in 6–8 quarters from Q1 FY 2026-2027 (approximately FY 2028-2029), given annual net worth accretion of Rs.1,100–1,200 Cr.
• Rs.1,850 Cr liquidity on balance sheet — the company raised Rs.450 Cr in Q1 FY 2026-2027; a further compression of 10–15 bps in cost of borrowings is possible for FY 2026-2027, subject to no repo rate increases.

Record Disbursements, New Product in Pipeline, Ticket Mix on Track

• Record disbursements driven by structural changes — management attributed the Q1 FY 2026-2027 performance to strong demand and the separation of business and collection teams, which improved branch productivity.
• New product segment planned in 3–6 months — management intends to enter a new product area within FY 2026-2027 to reduce single-product concentration risk; a separate new product is also under consideration.
• Micro-loan recovery prioritized over housing scale-up — management is focusing on returning the micro-loan business to pre-crisis levels before aggressively scaling the housing product launched two quarters ago.
• Ticket size mix trending as guided — for the period ending Q1 FY 2026-2027: <Rs.3 lakh at 25%, Rs.3–5 lakh at 50%, >Rs.5 lakh at 25%; average ticket size for new disbursements is ~Rs.5 lakhs.
• Customer addition focused on quality — management emphasized adding the right quality of customers for NPA, repayment, and cash flow performance, not on adding smaller-ticket customers; analyst-estimated new additions in the 4,000–6,500 range were not confirmed by management.
• MFI customer overlap declined — overlap with microfinance customers fell from 20–21% to 16–17% in Q1 FY 2026-2027, as stricter industry guardrails and write-offs reduced customer leverage.

Employee Cost Rebase Absorbs Near-Term Operating Leverage

• Opex as% of assets flat at ~5.75–6% for FY 2026-2027 — management guided that operating expenses will remain at this level with no near-term operating leverage, as increased employee compensation costs absorb any efficiency gains.
• Steady-state opex of 5.25–5.5% expected only from FY 2027-2028 — the improvement will materialise once the structural rebase in employee costs stabilises.
• Expense growth guided at 20–21% YoY for FY 2026-2027 — Q1 FY 2026-2027 already absorbed increments and appraisals; management described the employee cost increase as a structural rebase for branch-level staff (salaries, incentives), not an ESOP-driven one-off.
• Branch expansion at 50–60 per year — management confirmed a normal run rate, so overheads are not expected to drive up costs; operating leverage offset is primarily from employee expenses.
• 15,000 employees — Mr. Lakshmipathy emphasised that the company’s strength comes from its workforce, not a few individuals.

Guidance Reaffirmed, Steady-State Targets Set for FY28

• Full-year FY 2026-2027 guidance reaffirmed — management expressed confidence in achieving 20% loan book growth, credit cost of 1.7–1.9%, and improving asset quality metrics in the remaining quarters.
• Stage 1 target of 85% by end of FY 2026-2027 — from 83.3% currently; 30+ days past due expected to decline below 12%; management targets Stage 1 at 91–92% in the steady state.
• From FY 2027-2028, credit cost guided at 1.6–1.7% — provided current flow trends hold; steady-state net NPA expected at ~2.5% (sub-3%) with Stage 2 at 6–7%.
• Behavioural loan tenor guided at 4–4.5 years — current repayment rate (including prepayments) is ~30% in Q1 FY 2026-2027, expected to trend around 27–28% in a normal environment; 85–90% of loans are disbursed for a 7-year tenure.
• Key macro risks monitored — management cited rising energy costs, potential regulatory action on price hikes, and a possible repo rate increase as factors that could impact the broader environment and cost of borrowings.