Pig­gy­bank Five Star Treat as An­gels Put ₹ 333 cr in this NBFC

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The Economic Times - - Disruption: Startups & Tech - Supraja.Srini­vasan @times­group.com

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.

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