Note: The provided investor presentation and call are for an NBFC. The materials disclose total income, not segment-wise revenue splits. The narrative below is strictly based on disclosed figures and stated management commentary.

Five-Star Business Finance Q1 FY27: Disbursements Rebound, Collections Improve, Asset Quality Still Elevated

Five-Star Business Finance Limited closed Q1 FY27 (quarter ended June 30, 2026) with a clear operating message. The growth engine is back on. Quarterly disbursements reached a historical peak of INR 1,496.4 crore, up 23% quarter-on-quarter and 16% year-on-year. AUM rose 4% sequentially to INR 13,721.8 crore.

Financially, total income was INR 838.7 crore in Q1 FY27, up 6% year-on-year, while PAT was INR 271.4 crore, up 2% year-on-year. The company’s margin structure remained resilient: net interest margin (computed as NII over average AUM) was 19.97%, and net interest income percent was 13.66%.

The softer part of the quarter was not profitability. It was the balance between improving collections and still-elevated headline asset quality. Gross NPA stood at 3.46% in Q1 FY27 compared with 3.37% in Q4 FY26, and 2.46% in Q1 FY26. Provision coverage on GNPA was 40.14%, lower than 50.02% a year earlier.

Growth is back, and management is leaning into productivity

After a period of muted growth, Q1 FY27 marked a noticeable pickup in business activity. The management team credited this to improved execution at the branch level and structural changes in how field staff spend time.

A key internal shift has been the segregation of business sourcing from arrears-focused collections. Management stated that earlier, the same staff handled both activities, and stressed accounts hurt disbursement productivity. With a dedicated collections vertical handling arrears and business staff staying accountable for collections on current accounts for a certain vintage, management expects both traction and discipline to strengthen.

The branch network continued to expand, although at a measured pace. The company reported 856 branches across 11 States/UT as of June 30, 2026, with 12 branches added during the quarter, largely in Maharashtra per management commentary.

Collections improve, but GNPA is still above the prior-year range

The company highlighted collections as a key positive, especially because Q1 is typically seasonally weak.

Management disclosed unique customer collection efficiency (excluding NPA loans) of 97.9% and x-bucket collections of 99.2%. Early delinquency indicators improved sequentially: 1+ DPD reduced to 16.70% from 17.31% in Q4 FY26, and 30+ DPD reduced to 12.38% from 12.69%.

However, headline NPA metrics remain elevated and are not yet reflecting the same pace of improvement.

Gross NPA increased marginally to 3.46% in Q1 FY27 from 3.37% in Q4 FY26. Net NPA rose to 2.10% from 2.00%. Management stated that slippages should start trending down, and indicated that September, December, and March quarters should show improvement across slippages, credit costs, and NPLs.

The quarter’s credit cost was disclosed at 1.85% of average loan portfolio (as per the presentation’s ratio table), slightly lower than Q4 FY26 at 1.88%. For FY27, management reiterated a credit cost guidance range of 1.7% to 1.9%.

Funding costs are falling, spreads are holding

Five-Star’s margin profile continues to stand out for a secured lender, largely due to a high-yielding portfolio and disciplined liability management.

In Q1 FY27, interest income as a percent of average loan portfolio was 22.46%, while interest expense as a percent of average borrowings was 8.80%. The resulting net interest income percent was 13.66%, and net interest margin was 19.97%.

Management acknowledged modest yield compression going forward, and attributed part of it to interest reversals on NPAs rather than fresh disbursement pricing. They stated that the average yield on onboarding/disbursements is around 22.5% (range 21.5% to 23%), and expected the reported yield to settle around 22.25% after accounting for NPA reversals.

The liability side showed continued improvement. The company raised INR 450 crore of borrowings in Q1 FY27 at an all-inclusive 8.33%. Book cost of funds reduced to 8.80% from 8.95% in Q4 FY26. Management guided that incremental cost could be around 8.5% going ahead, with potential 20 to 30 bps further compression over time, assuming no repo rate hikes.

The company also disclosed liquidity strength. As of June 2026, total liquidity buffer was INR 2,297.2 crore, comprising unencumbered cash and cash equivalents of INR 1,847.2 crore and unavailed sanctions of INR 450 crore. The ALM disclosure stated there was no cumulative mismatch in any time bucket.

Financial snapshot (Q1 FY27)

Note: Income and expense items are as disclosed in the Q1 FY27 profit and loss statement table; AUM and disbursements are from the presentation’s business updates.

Strategy and the next set of investor questions

Two themes from the call will likely shape the next few quarters.

First is the company’s focus on protecting collections while re-accelerating growth. Management repeatedly said collections are more important than growth and framed the growth recovery as a function of collections returning to pre-crisis trend. They stated that disbursement momentum is being driven by productivity improvements rather than loosening credit filters.

Second is product diversification. Management said a key learning from the recent period was not to remain in a single product. They discussed plans to build two to three products, and indicated one could be launched within three to six months. They also clarified that while a housing product had been launched earlier, the company was not focusing on it while restoring the core micro LAP product.

For investors, the near-term scoreboard is straightforward.

One, does gross NPA trend down from 3.46% and move toward the sub-3% commentary that management referenced. Two, does credit cost land within the 1.7% to 1.9% FY27 range while the company continues to grow. And three, can opex pressures ease as productivity improves, given that management acknowledged a reset in employee costs and limited near-term operating leverage.

The quarter showed strong traction on disbursements and stable profitability. The next proof point is sustained improvement in asset quality and credit costs as the growth engine scales again.