IGI Logo

Strong operating performance in Q1 sets up an encouraging trend for the rest of FY24

Breaking the seasonality, Five Star has reported strong Q1FY24 operating performance, especially, on growth and asset quality fronts– AUM grew robust 10% QoQ even in a seasonally weak quarter and 30+ DPD fell to a multi-year low of 9.7%. Spread improved 20bps QoQ driven equally by an increase in asset yields (up 1obps QoQ) and a decline in the cost of funds (down 10bps QoQ). Credit rating upgrade in Q1FY24 and incremental borrowing cost at 9.2% (blended CoF at 9.8%) improve visibility on better trajectory in spread to continue in coming quarters. Given very strong growth momentum in Q1FY24, management has raised its full year FY24 growth guidance to 35% vs 30% earlier. Maintain BUY with a revised target price of INR 860 (INR 765 earlier), valuing the stock at 4.5x on Sep-24 BVPS vs 4x earlier.

Strong Q1FY24 financial performance

Five Star has reported PAT of INR 1.8bn (up 9% QoQ) driven by strong revenue growth of 7% QoQ and absence of one-off expense (in Q4FY23 CSR expense was ~INR 90-100mn) in Q1FY24. Revenue growth was supported by robust 10% QoQ AUM growth and 20bps QoQ improvement in spreads. PPoP grew 13% QoQ to INR 2.5bn during Q1FY24. Steady improvement in growth led to sustained increase in leverage, thus, driving RoE to multi-quarter high at >16% in Q1FY24. RoA remained at 8.4% during Q1FY24.

Key asset quality indicators suggesting an encouraging trend, even in a seasonally weak quarter

Sustained collections at 99.6% (including arrears) led to a sharp improvement in 30+ to 9.68% in Q1FY24 vs 10.5% in Q4FY23 vs 15.7% in Q1FY23. Similarly, current bucket moved to all-time high of 85% vs 82% pre-covid and the management expects it to improve further to 88% in FY24 and plans to reach 90% in the medium term.

Growth momentum to sustain driven by branch expansion, higher sales staff and ticket size increase

Management has raised AUM growth guidance to 35% vs 30% earlier driven by – (i) Branch expansion – it opened 70-75 branches in FY23 and plans to open 80 in FY24, (ii) average officer per branch to increase to 8.5-9 vs 8 currently and (iii) ticket size increase, in line with 6-7% inflation per annum.

Key Risks. Deceleration in AUM growth, and stress unfolding higher than anticipated.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://secure.icicidirect.com/Content/StaticData/Disclaimer.html
SEBI Registration number INZ000183631

Above views are of the author and not of the website kindly read disclaimer