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Mumbai: Non-banking finance company Five Star Business Finance has raised ₹ 333 crore (about $50 million) in a series-C round, which was led by Norwest Venture Partners and Sequoia Capital.
Existing investors, including a fund managed by Morgan Stanley Private Equity Asia and Matrix Partners India, also participated in the round.
The round saw Five Star raising ₹ 318 crore through primary infusion with about ₹ 15 crore coming in via a secondary sale of shares. Norwest Venture Partners and Sequoia Capital led the round with investments totalling ₹ 135 crore each. Existing investors such as the fund managed by Morgan Stanley Private Equity Asia invested ₹ 61 crore with Matrix Partners putting in the balance amount.
The current round values Five Star Business Finance at ₹ 1,300 crore, the company said.
The Chennai-based small business finance company provides secured loans to micro and small enterprise customers (MSME), specifically in the area of non-technology-based B2C services.
With an average ticket size of ₹ 3-4 lakh, businesses such as vegetable vendors, tea-stall owners and fairprice shop owners form the consumer base of Five Star, which serves over 18,000 customers through 110 branches across southern India specialising in extending secured, small business and housing loans. The firm typically takes a self-oc- cupied residential property as the collateral for majority of the loans it serves.
Five Star looks at the needs of the mid-market segment of small enterprises, which are typically too big for microfinance institutions and too small for traditional banks, plugging the credit gap for loans ranging from ₹ 1-10 lakh.
“Over the years, we have developed an expertise in assessing (MSMEs’) cash flows and in underwriting their credit, while keeping the asset quality intact,” said D Lakshmipathy, the managing di- rector of the company. “(Our investors) coupled with our 15-plus bank relationships, add tremendous strength to our balance sheet and growth plans, as we aim to emerge as a leading player in the small business and small housing loans segment.”
Five Star has seen a growth of 150% in FY17 with the loan book touching ₹ 500 crore as of March from ₹ 200 crore it started the year with. “We intend to double our loan book portfolio by FY18-end to ₹ 1,000 crore and we aim to be a ₹ 3,000-crore company (by loan book) by FY20,” COO Rangarajan Krishnan told ET. “Capital is very essential at this stage of growth for us because it not only supports our ambitious growth plans but is also very important in the initial stages of the housing finance business that we have built.”
Currently, housing finance forms a very small part of its overall business, the licence for which was secured from the National Housing Bank only last year. Only ₹ 15 crore of the entire loan book comes from the new housing finance business. With average ticket sizes of ₹ 7 lakh for this segment, Five Star will use a large part of the capital raised towards building this business.
With a debt-to-burden ratio of 4045%, Five Star’s gross NPA on a 90day basis as of March 2017 stood at 2.5%. Lakshmipathy forecasts gross NPAs to remain in the 2.5-3% range for the rest of this year.
In March 2014, Matrix Partners India had invested an undisclosed amount in the company for a minority stake, which it followed up with another round in 2015.