Midcap NBFC Stock Jumps 21.09% In 1 Month, Trading Near 52 Week High, Buy, Says ICICI Securities

Broking firm ICICI Securities has assigns buy on the stock of Five-Star Business Finance Ltd. (Five-Star). The brokerage assigned a Target price of Rs. 765 apiece, claiming a 20% upside potential from its current level. The stock operates in the Financial sector as a Non-Banking Financial Company (NBFC). It is a midcap NBFC with a market capitalisation of Rs. 18,683.85 crore.

The stars are aligned!

Five-Star Business Finance (Five-Star) is a direct play on the increasing formalisation of credit, especially in the small-ticket business loan segment (total lending opportunity: Rs22trn). Peers include SCUF, Aavas, Aptus, HomeFirst, Equitas, AU, Repco, Can Fin, Veritas, Vistaar, etc. Barring SCUF and Repco, key players in similar ticket-size SME loans reported >30% AUM CAGR during FY18-FY23 while Five-Star delivered an industry-leading 47% during the same period. Notably, gross stage-3 assets and credit cost remaining at 2 decades of experience in the segment in urban and semi-urban locations.

Buy for a Target Price of Rs. 765 apiece

While its low leverage ('debt to equity' ratio at an average of 1.2x during FY15-FY23) has aided NIM at >17% since FY15, stable asset yield at ~24% (given ~30% new-tocredit customers imparting high pricing power) and ~135bps reduction in average cost of borrowing, even during rising rate cycle, improves visibility on it sustaining spread at 12-13% going ahead. "We expect >25% AUM CAGR for Five-Star over FY23- FY25E on the back of: 1) one of the most extensive branch network of ~370 vs 7% and deliver RoE of >15% over FY23-FY25E. Initiate with BUY and a target price of Rs765, valuing the stock at 4x on Sep'24E BVPS," the brokerage has said.

Stock Outlook

On Tuesday, the share price of Five-Star closed 1.38% down at Rs. 641.25 apiece. The stock is trading 7.75% down from its 52 week high. It traded the 52 week high on 7 December 2022 at Rs. 687.70 apiece, While the 52 week low was traded on 21 November 2022 at Rs. 448.20 apiece.

The stock was listed last year on 21st November 2022. Since its listing, its share price jumped 30.87%. The shares surged 76.1% In 1 week. The share jumped 21.09% in 1 month, 28.33% in 3 months and 7.69% in 6 months, respectively.

Disclaimer - The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.