The IPO of Five Star Business Finance, which provides small business loans and mortgages to micro-entrepreneurs and self-employed, will open on November 9. The last day to subscribe is Friday, November 11.

The price range for the IPO has been fixed at Rs 450 to 474 per equity share. The offer is by company promoters and existing shareholders to sell 4.1 crore shares for a total price of Rs 1,960 crore.

The offering includes stakes totalling Rs 166.74 crore in SCI Investments V, Rs 719.4 crore in Matrix Partners India Investment Holdings II, LLC, Rs 12.08 crore in Matrix Partners India Investments II Extension, LLC and Rs 361.4 crore in Norwest Venture Partners X – Mauritius, TPG Asia VII SF Pte Ltd contributed Rs 700.3 crore.

According to the Red Herring prospectus, the selling shareholders will be entitled to their respective portion of the proceeds from OFS after deducting related fees and related taxes. The company will not receive any revenue from OFS.

The minimum lot size that investors can bid is 31 shares and their multiples. The minimum investment for retail investors is Rs 14,694, and the price range is capped at 31 shares.

Based in Chennai, the company provides secured business loans to micro-entrepreneurs and self-employed individuals who are largely excluded from traditional financial institutions. All its loans are secured by the borrower’s property (SORP or owner-occupied residential property).

As of June 30, 2022, it has a network of 311 branches across 150 districts in 8 states, with Tamil Nadu, Andhra Pradesh, Telangana and Karnataka being the key markets. More than 95% of its loan portfolio has principals between Rs 1 lakh and Rs 10 lakh, with an average par value of Rs 2.9 lakh.

Total revenue for the three months ended June 30, 2022, increased by 12.74% to Rs 339.05 crore from Rs 300.75 crore in the three months ended June 30, 2021. Profit after tax for the same period rose 37.28% to Rs 139.43 crore.
Assets under management as of March 31, 2022, stood at Rs 5,100 crore compared to Rs 4,400 crore as of March 31, 2021. According to CRISIL, compared to the 2018-22 financial year, it has grown AUM by 50% and ranks fourth among its peers.

Analysts at Choice Broking said Five Star’s ability to expand into new underpenetrated regions successfully, strong on-the-ground collections infrastructure, internal procurement, robust risk management and good asset quality are its strengths.

At the same time, a significant problem for the company is that it operates in a highly competitive space. Shriram City Union Finance, Vistaar Financial Services, Veritas Financial and Management Services, Lendingkart Technologies, Digikredit Finance, AU Small Finance Bank, Aavas Financiers and Aptus Value Housing Finance are its competitors.

Lakshmipathy Deenadayalan is the company’s chairman and managing director. Rangarajan Krishnan is the CEO and holds a postgraduate degree in Management from the Indian School of Business, Hyderabad. He has previously been associated with the World Bank, HDFC Bank, Spark Capital and Standard Chartered India. He joined Five Stars in August 2015.

Srikanth Gopalakrishnan is Chief Financial Officer and joined in October 2015. He previously worked at Citibank India and Asirvad Microfinance.

Today’s IPO grey market premium (GMP) stands at Rs 12 per share, which is Rs 2 higher than Tuesday’s GMP of Rs 10 per share. The tentative date for the share allotment is November 16 and the listing date is November 21.