Five-Star Business Finance Limited reported a mixed but improving operating performance in Q2 FY27, with stronger loan disbursements, rising assets under management and modest growth in net profit. The non-banking financial company specialises in secured lending to small businesses and self-employed borrowers.

For the quarter ended September 30, 2026, the company reported net profit of ₹299 crore, up 4.6% from ₹286 crore in Q2 FY26. The quarterly profit included a one-time tax benefit of ₹19 crore relating to earlier years, which investors should consider when assessing the underlying earnings trend.

Total income increased 8% year-on-year to ₹875 crore. Net interest income (NII) rose 11.5% to ₹691 crore from ₹619 crore, reflecting growth in the loan book and interest income.

Profit before tax declined 2% year-on-year to ₹375 crore. This shows that higher interest income did not translate into equivalent growth in pre-tax earnings, making operating expenses, funding costs and credit provisions important factors to monitor.

Assets under management reached ₹14,640 crore at the end of September, up 14% year-on-year and 7% sequentially. The acceleration in quarterly AUM growth compared with Q1 FY27 indicates that the company is rebuilding its lending momentum.

Loan disbursements reached a record ₹2,078 crore during the quarter, up 74% from ₹1,196 crore in Q2 FY26. Disbursements also increased 39% sequentially from ₹1,496 crore in Q1 FY27. For H1 FY27, disbursements totalled ₹3,574 crore, representing 44% year-on-year growth.

The company’s loan portfolio was distributed across approximately 0.51 million active loans. It continued expanding its distribution network, taking its presence to 875 branches across 11 states and union territories. Nineteen new branches were opened during the quarter.

Net interest margin remained broadly stable at 19.87%, compared with 19.71% in Q2 FY26 and 19.97% in Q1 FY27. The small sequential decline suggests that funding costs and lending yields need to be watched as the loan book grows.

The cost of funds on the overall borrowing book eased marginally to 8.78% from 8.80% in Q1 FY27. During the quarter, the company raised incremental debt of ₹825 crore at an all-inclusive cost of 8.43%. Continued control over borrowing costs will be important to maintaining lending spreads.

Asset quality showed a mixed trend. Gross Stage 3 assets stood at 3.48% of AUM, compared with 2.64% a year earlier and 3.46% in the previous quarter. Net Stage 3 assets were 2.14%, up from 1.46% a year earlier and 2.10% in Q1 FY27.

Collection performance improved sequentially. Unique customer collection efficiency, excluding non-performing assets, increased to 98.2% from 97.9% in Q1 FY27. X-bucket collections improved to 99.4% from 99.2%, supporting the containment of overdue accounts moving into more serious delinquency categories.

The proportion of the loan book in the current bucket increased to 84.78% from 83.30%, while the 30-plus-days-past-due ratio declined to 11.50% from 12.38%. These movements indicate improvement in some early-stage collection indicators, even as the year-on-year increase in Stage 3 assets remains a concern.

The slippage ratio eased to 0.68% from 0.70% in the previous quarter. Credit cost improved to 1.80% of average AUM from 1.85% in Q1 FY27. Management expects credit slippages and credit costs to remain broadly stable for the rest of FY27, although the outcome will depend on borrower repayment behaviour and the wider economic environment.

The company held expected credit loss provisions of ₹253 crore, excluding provisions maintained on inter-corporate deposits. This was equivalent to 1.73% of overall AUM. Stage 3 provisions stood at ₹201 crore, corresponding to a provision coverage ratio of 39.49% on Stage 3 assets.

For the first half of FY27, net profit reached ₹571 crore, up approximately 3% from ₹552 crore in H1 FY26. AUM increased 14% year-on-year to ₹14,640 crore, while disbursements rose 44% to ₹3,574 crore. Net interest margin for the first half was 19.91%, compared with 19.86% a year earlier.

Management said the company is focused on restoring its growth momentum and expects to exceed its growth guidance for FY27. It cited improving collections, controlled slippages and credit costs, and no material impact from the prevailing macroeconomic environment as supporting factors.

For investors, the main positives are the record quarterly disbursements, faster AUM growth, stable net interest margin and improvement in sequential collection indicators. These trends suggest that lending activity is recovering while the company works to protect portfolio quality.

The main risks are the higher year-on-year Stage 3 asset ratios, modest profit growth and the possibility that credit costs could rise if borrower repayment conditions weaken. The ₹19 crore one-time tax benefit also means the reported profit increase should not be treated as a pure measure of recurring earnings growth.

Overall, Five-Star Business Finance’s Q2 FY27 performance points to a recovery in lending momentum, supported by strong disbursements and improved sequential collections. The next few quarters will be important for determining whether faster loan growth can translate into stronger recurring profitability without a deterioration in asset quality.

This article is for educational and informational purposes only. It is not investment advice or a recommendation to buy or sell any security. Investors should review the company’s official filings, financial statements and earnings-call disclosures before making investment decisions.

Five-Star Business Finance Ltd — Q2 FY27 Concall Highlights

Financial Performance:
• Net Profit: ₹299 crore, up 4.6% YoY
• Total Income: ₹875 crore, up 8% YoY
• Net Interest Income: ₹691 crore, up 11.5% YoY
• Profit Before Tax: ₹375 crore, down 2% YoY
• One-time Tax Benefit: ₹19 crore relating to prior years
• H1 FY27 Net Profit: ₹571 crore, up approximately 3%

Growth & Disbursements:
• Assets Under Management: ₹14,640 crore, up 14% YoY
• Quarterly Disbursements: ₹2,078 crore, up 74% YoY
• Sequential Disbursement Growth: 39%
• H1 FY27 Disbursements: ₹3,574 crore, up 44%
• Active Loans: Approximately 0.51 million
• Branch Network: 875 branches across 11 states/UTs
• New Branches Opened in Q2: 19

Margins & Funding:
• Net Interest Margin: 19.87%
• Cost of Funds: 8.78% vs 8.80% in Q1 FY27
• Incremental Debt Raised: ₹825 crore at an all-inclusive cost of 8.43%

Asset Quality & Collections:
• Gross Stage 3 Assets: 3.48% vs 2.64% a year ago
• Net Stage 3 Assets: 2.14% vs 1.46% a year ago
• Collection Efficiency: 98.2% vs 97.9% in Q1
• X-Bucket Collections: 99.4% vs 99.2% in Q1
• 30+ Days Past Due: Improved to 11.50% from 12.38%
• Slippage Ratio: 0.68% vs 0.70% in Q1
• Credit Cost: 1.80% vs 1.85% in Q1
• Expected Credit Loss Provision: ₹253 crore

Management Outlook:
• Management expects to exceed its FY27 growth guidance
• Credit slippages and credit costs are expected to remain broadly stable for the rest of FY27
• Focus remains on restoring growth momentum while maintaining collection discipline

Key Positives:
• Record quarterly disbursements
• Faster sequential AUM growth
• Strong NII growth
• Improving sequential collection indicators
• Stable net interest margin

Key Risks:
• Gross and net Stage 3 assets remain higher year-on-year
• Profit before tax declined 2%
• Reported PAT includes a one-time tax benefit
• Future credit costs depend on borrower repayment trends

Investor Focus:
Monitor AUM growth, recurring profit growth, asset quality, credit costs, collection efficiency and funding costs.

Disclaimer: For educational purposes only. Not investment advice.