Five-Star Business Finance: High ROA Compounder with Organic Growth

Rajeev Agrawal of DoorDarshi Advisors presented his in-depth investment thesis on Five-Star Business Finance (India: FIVESTAR) at Asian Investing Summit 2026. Rajeev’s son Rishi participated in this session.

Thesis summary:

Five-Star is an NBFC providing secured loans to small business owners and self-employed individuals in India. The company targets a customer segment lacking formal income, relying on in-house sourcing and surrogate appraisal methods such as lifestyle and asset checks. Loans average 0.4 million rupees and are 100% backed by property collateral, with 95% secured against self-occupied residential property. This focus on underserved borrowers in tier 4-6 towns allows the firm to generate yields near 23% and net interest margins around 16%.

The company has demonstrated a robust financial profile, delivering an ROE of 16.4% and an ROA of 7.3%. AUM grew at a 33% CAGR between FY19 and FY25. Five-Star maintains a CAR of 51.6%, well above the regulatory requirement of 15%, alongside a low D:E ratio of 1.2x. This capital structure positions the firm to fund future growth organically without the need for shareholder dilution. Management plans to drive further expansion by increasing the branch network into adjacent states and gradually raising the average ticket size.

Recently, management purposefully decelerated loan book growth and disbursals to address rising stress and over-leverage in the broader borrower ecosystem. This macro environment caused GNPA to reach 3.2% and NNPA to hit 1.9% in FY26. Rajeev expects these asset quality issues to resolve over the coming quarters, supported by conservative 40% LTV ratios on residential properties. As the macro stress subsides, the firm is prepared to re-accelerate growth, having continued to invest in new branches and personnel.

The shares recently traded at 357 rupees, giving the company a market capitalization of roughly 1.13 billion dollars. At this level, the stock trades at 9.5x trailing earnings and 1.5x book value, which represents a discount to its historical median P/E of 25x and P/B of 4x since its November 2022 listing. Rajeev models a 20% or higher AUM CAGR going forward as asset quality normalizes. Assuming a 13x multiple on FY28 earnings, the valuation could approach 210 billion rupees, suggesting a 37% CAGR over a 2.2-year horizon.

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About the instructor:

Rajeev Agrawal, CFA, is the Founder and Managing Partner at DoorDarshi India Fund. DoorDarshi India Fund is a US-domiciled fund that invests in listed Indian equities. Rajeev looks for compelling opportunities with a growth kicker and run by trustworthy management. Since its inception in April 2021, the fund has outperformed both the S&P 500 and the Indian indices by more than 10%. Prior to starting DoorDarshi, Rajeev was a Technology executive focusing on the Financial Industry. Rajeev has worked with Goldman Sachs, S&P Global, JP Morgan, Bank of America, and Dresdner Bank. Rajeev holds a B.Tech from IIT Bombay and an MBA from IIM Calcutta.