Actions of Five-Star Business Finance Ltd. was badly beaten in Wednesday’s trading, even as profit after tax (PAT) for the September 2024 quarter rose 34% on a year-on-year (y-o-y) basis. The stock fell 13.62 per cent to hit a daily low of Rs 757.45.

The non-banking financial company’s (NBFC) profit in Q2FY25 stood at Rs 268 crore compared to Rs 199 crore in the year-ago period. During the quarter under review, assets under management (assets under management) jumped 32 per cent to Rs 10,927 crore, compared to Rs 8,264 crore in the corresponding period last year.

Today’s share price fall came after the shadow lender’s management cut its growth forecast for assets under management to 25 per cent, from 30 per cent previously. In Q2FY25, the company’s Net Interest Margin (NIM) and Return on Assets also declined by 0.75% and 0.11% (YoY), respectively.

Nuvama Research has reiterated a ‘buy’ call on Five-Star Business with a target price of Rs 1,010. “Despite lower growth forecasts and lower incremental yield, we believe Five-Star’s growth and profitability -Star will remain higher than its peers While many smaller lenders are in deep trouble, Five-Star’s earnings highlight the resilience of its business model, the brokerage said.

“Five-Star reported in-line earnings and stable asset quality in Q2 FY25. The company has slowed disbursement growth due to industry issues and regulatory measures. 32 percent YoY/6 percent QoQ. The spread remained stable quarter-on-quarter with CoF stable at 8.44 percent compared to 8.1 percent quarter-on-quarter, which fell only 10 basis points quarter-on-quarter to 98.4 percent,” Nuvama also said.

He mentioned that NBFC growth has been strong along with a stable asset basket. “Reiterate ‘BUY’ given strong growth and stable asset quality. The company has reduced its growth forecast from 30 percent to 25 percent for FY25E and will also reduce disbursement yield by 200 points base next month Since lower yield will take time to manifest through total NIM, we expect the spread to remain stable Our new TP is Rs 1,010/4x BV (old TP. Rs 950),” Nuvama said.

Five-Star Business has increased its branch presence to 660 branches. During the September 2024 quarter, the company opened 113 new branches. And it shelled out Rs 1,250 crore in Q2FY25, up 4% year-on-year.