Five-Star Business Finance Ltd (NSE:FIVESTAR), a non-bank lender focused on secured loans to small business owners and self-employed borrowers, reported largely stable earnings for the December quarter, as portfolio growth and higher income offset rising credit costs and softer profitability ratios.
The Chennai-based lender posted a profit after tax of ₹2.77 billion for the third quarter ended December 31, 2025, up 1% from a year earlier, according to its investor presentation. Net interest income rose 13% year-on-year to ₹6.34 billion, supported by growth in the loan book and steady yields.
Quarterly Performance-3Q 2026
- Five-Star’s loan portfolio stood at ₹129.6 billion at the end of the quarter, marking a 16% increase from the same period last year. Disbursements during the quarter were ₹9.76 billion, broadly in line with the prior year.
- Total income rose 12% to ₹8.22 billion, while operating expenses increased 21%, reflecting branch expansion and higher staffing levels.
- Credit costs climbed sharply, with loan losses and provisions rising to ₹571 million from ₹233 million a year earlier. As a result, return on assets declined to 7.0% from 8.1%, while return on equity eased to 15.8% from 18.5% in the year-ago quarter.
- Net interest margin moderated to 16.04%.
Nine-month Context – 9M 2026
- For the first nine months of FY2026, Five-Star reported a profit of ₹8.30 billion, up 5% year-on-year.
- Net interest income for the period increased 16% to ₹18.64 billion, while the loan portfolio expanded 16% from the previous year.
- Profitability ratios softened over the nine-month period, with return on assets at 7.26% and return on equity at 16.41%, reflecting elevated provisioning.
Business & Operations Update
Five-Star continued to scale its physical footprint, adding 35 branches during the quarter to take the total to 835 across 11 states and union territories. The company had 491,782 live loan accounts as of December 2025 and a fully secured loan book, primarily backed by self-occupied residential property.
Average loan-to-value stood at about 39.5%. Collections efficiency remained stable at 96.6% during the quarter. However, asset quality indicators showed stress, with gross Stage-3 assets rising to 3.18% from 1.62% a year earlier, while net Stage-3 assets increased to 1.94%. Stage-2 assets accounted for 9.63% of the portfolio.
Funding & Capital
The lender maintained a strong capital position, with a capital adequacy ratio of 51.63%. During the quarter, it secured incremental debt sanctions of ₹12.25 billion and availed ₹4.6 billion at a weighted average cost of about 8.1%. The company also signed a $100 million loan agreement with the Asian Development Bank, strengthening its long-term funding profile.
Investor Sentiment & Outlook
Five-Star’s shares are widely held by institutional investors, including Fidelity, HDFC Mutual Fund and Nomura Asset Management. While near-term profitability has come under pressure from higher credit costs, the company’s consistent portfolio growth, secured lending model and strong capital buffer are likely to support investor confidence.
Management said it remains focused on calibrated expansion, asset quality management and deepening penetration in under-served small business segments, positioning the lender for sustainable growth over the medium term.