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AUM grows ~23% YoY; minor deterioration in asset quality

Earnings in line; NIMs (calc.) contracted ~15bp QoQ

* FIVESTAR’s 4QFY25 PAT grew 18% YoY to INR2.8b (in line). FY25 PAT grew ~28% YoY to INR10.7b. NII in 4QFY25 grew ~21% YoY to INR5.6b (in line), while PPoP rose ~19% YoY to INR4b (in line). Other income grew 26% YoY to INR250m, primarily due to higher fee income. Opex grew 26% YoY to INR1.9b (in line).

* Credit costs stood at INR254m (~9% lower than MOFSLe). Annualized credit costs were largely stable QoQ at ~73bp (PY: ~85bp and PQ: ~71bp).

* The Board of Directors declared a dividend of INR2/share.

Reported spreads driven by moderation in yields

* Reported yield declined ~30bp QoQ to 23.7%, while CoB was stable QoQ at 9.6%. Reported spreads declined ~30bp QoQ to 14.1%. Reported NIM expanded ~30bp QoQ to ~16.85%.

* Incremental CoF declined ~25bp QoQ to ~9.3%.

Deterioration in asset quality; cash component in collections declines

* GS3/NS3 rose ~15bp/5bp QoQ to ~1.8% and 0.9%, respectively. PCR rose ~1pp QoQ to ~51.3%.

* The current portfolio declined to 84.3% (PQ: 84.9%). Stage 2 rose ~30bp QoQ to ~7.9%. 30+ dpd rose ~50bp QoQ to 9.65% and 1+dpd increased ~65bp QoQ to 15.7% Cash proportion in collections declined to ~20% (PQ: ~24% and PY: ~53%) due to strong efforts made by the company to reduce cash collections.

* Overall Collection Efficiency (CE) stood at 97.7% (PQ: 98%). Unique loan collections (due one, collect one) stood at 96.2% (PQ: 96.7%).

Disbursements grow ~9% YoY; AUM growth moderates to 23%

* Disbursements rose ~9% YoY to ~INR14.6b; AUM grew 23% YoY/6% QoQ to ~INR119b.

* 4QFY25 RoA/RoE stood at 8%/18.4%, respectively. Capital adequacy stood at ~50% as of Mar’25.

Valuation and view

* FIVESTAR delivered a subdued performance in 4QFY25. While there was an improvement in disbursements, AUM growth was slightly below the management guidance of ~25%. Asset quality continues to exhibit deterioration, leading to a sequential rise in GS2 and GS3, but credit costs remained broadly stable on a sequential basis.

* The stock currently trades at 2.5x FY27E P/BV. Even though the company is navigating a relatively tough phase, we believe that FIVESTAR’s premium valuations will sustain, given its niche market position, strong growth potential, superior underwriting practices, and high return metrics. We will review our estimates after the earnings call on 30th Apr’25.

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