Introduction
IPOs are an excellent investment opportunity for institutional, non-institutional and retail investors to invest in good companies with stable business models and growth opportunities. The most recent IPO that presents an investment opportunity for investors at large is the Five Star Business Finance Limited IPO.
The Five Star Business Finance IPO was open from 9th November to 11th November 2022. The issue was subscribed up to 70% on the final day. The IPO saw low demand from retail investors as the retail portion of the issue was subscribed by 0.11 times, which is around 11% of the shares on offer. The company’s shares are seeing a discounted GMP (Grey Market Premium) of Rs. 5 as against a premium of Rs. 10 earlier.
The details of this IPO and its review are mentioned hereunder.
Read More: Effect of repo rate hike on your loans
IPO Details
The various details of the Five Star Business Finance Limited IPO are as under.
IPO Size
The size of the IPO and different categories of the issue are,
| Category | Details |
| IPO Opening Date | 9th November 2022 |
| IPO Closing Date | 11th November 2022 |
| Listing | NSE, BSE |
| Issue Type | Book Built Issue IPO |
| Face Value of shares | Re. 1 per share |
| IPO Price Band | Rs. 450 – Rs. 474 per share |
| IPO Size | Rs. 1,960 crores |
| Offer For Sale | Rs. 1,960 crores (4,13,51,266 shares of Re. 1 face value) |
IPO Dates
The important dates for the Five Star Business Finance Limited IPO are highlighted below.
| Event | Date |
| Price Band Allotment | 3rd November 2022 |
| Anchor Investors Allotment | 8th November 2022 |
| Opening date | 9th November 2022 |
| Closing Date | 11th November 2022 |
| Allotment date | 16th November 2022 |
| Refund Date | 17th November 2022 |
| Share Credit Date | 18th November 2022 |
| Listing Date | 21st November 2022 |
IPO Lot Sizes
The subscription for shares of Five Star Business Finance Limited IPO can be done in lots by different investor categories. The details of the lot sizes for this IPO are mentioned below.
| Category | Details |
| Minimum investment | 1 lot |
| Shares in each lot | 31 shares |
| Minimum amount of investment per lot | Rs. 14,694 |
| Maximum permissible investment in Lots | 13 lots |
| Maximum shares for investment | 403 shares |
| Maximum amount of investment permissible | Rs. 1,91,022 |
IPO Reservation
The categories of eligible investors and their share in the IPO are
| Category of Investor | Reservation of the IPO applicable |
| QIB (Qualified Institutional Buyers) | 50% |
| NII (Non-Institutional Bidders) | 15% |
| RII (Retail Individual Investors) | 35% |
Five Star Business Finance Limited IPO Objectives
The objectives of the Five Star Business Finance Limited IPO are mentioned hereunder.
- The IPO is an Offer for sale which implies that the proceeds of the IPO will not be received by the company.
- The company is expecting listing benefits from the IPO.
About Five Star Business Finance Limited IPO
The MSME sector has seen a huge boost in recent years especially post-covid. Five Star Business Finance Limited is an NBFC (Non Banking Finance Company) and is in the business of providing secured business loans and small mortgage loans to small and micro-entrepreneurs as well as self-employed individuals. The company also sanctions these loans for home improvement purposes to eligible borrowers. The company has its headquarters in Chennai and has approximately 85% of its network in The southern region of the country. The network of Five Star Business Finance Limited includes 268 branches as of 30th September 2021 that are spread over 126 districts, 8 states, and 1 union territory. The southern states of Andhra Pradesh, Karnataka, and Telangana are the key states for this company.
The average loan offered by Fiver Star Business is in the range of Rs. 1,00,000 to Rs. 10,00,000 with the tenure for the same being approximately 24 months to 84 months. The loans are disbursed on the basis of the company’s internal evaluation model that ascertains the future cashflows as well as secures the loan against collateral. This secures the asset quality of the company even in the cases of demonetization, GST changes, Covid, etc.
Financials of the company
The core financials of the company are tabled below.
| Year | Total Assets (Rs. In crores) | Operating Revenue (Rs. In crores) | Profit after tax (Rs. In crores) | Basic EPS | Diluted EPS | RONW |
| 2022 | 6,343 | 1,254 | 453 | 16.09 | 15.92 | 13.86% |
| 2021 | 5,793 | 1,050 | 359 | 14.01 | 13.61 | 16.85% |
| 2020 | 4,353 | 787 | 262 | 10.32 | 10.07 | 15.35% |
Strengths of the company
Some of the key strengths of the company are highlighted below.
- The company has developed a robust model to evaluate the viability of loans and maintain their asset quality.
- They also have the ability to scale their operations to areas with untapped potential and new geographies.
- Five Star has the merit of having the fastest Gross Term Loans as compared to its peers.
- The company provides good access to diversified and cost-effective long-term financing solutions.
- The management team of the company is quite professional with rich experience and qualified promoters as well as has the backing of marquee investors.
Risks of investment
The different risks that are faced by the company are highlighted below.
- The company needs substantial capital to run its business which is also derived from external sources and the business is dependent on the timely availability of funds.
- One of the crucial risks faced by a finance business is not maintaining the capital adequacy ratio.
- The business is also dependent on its credit rating and any adverse rating will negatively affect the business.
- Any default or non-repayment of loans by the borrowers will decrease the asset quality and damage the business in the long run.
- Being in the lending business, the company faces the risk of interest rate volatility.
- Non-compliance with the RBI observations and regulations prescribed by them can attract penalties and restrictions for the company.
What is the Grey Market Premium (GMP) on Five Star Business Finance Limited IPO?
As per market observers, as of November 14, 2022, the grey market premium (GMP) for the shares of Five Star Business Finance Limited IPO was Rs. 5 per share.
Should you apply for Five Star Business Finance Limited IPO?
The micro-financing business has a lot of big and small players with many strong names. The primary financing market is gaining a lot of traction in recent years and the business model of Five Star Business Finance Limited is quite robust. It is also backed by strong financial performance and confidence from the management by maintaining the growth pattern. The company can, therefore, be considered to be a good bet for a long-term portfolio.
How to apply for Five Star Business Finance Limited IPO?
Investors can invest in this IPO through the Fisdom app.
FAQs
The Five Star Business Finance Limited will open on 9th November 2022 and close on 11th November 2022.
The Registrar for Five Star Business Finance Limited IPO is KFin Technologies Limited.
The primary concentration of Five Star Business Finance Limited is in the southern region of India and their key states of operations are Karnataka, Telangana, and Andhra Pradesh.
The share of QIB investors in the Five Star Business Finance Limited IPO is up to 50% of the IPO size.
The listing date for Five Star Business Finance Limited IPO is on 21st November 2022.
