Money & Banking

Norwest Partners, Sequoia pump ₹270 cr into niche NBFC Five Star

| Updated on: Jan 09, 2018

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Existing investors too pitch in with ₹63 cr for company that lends to small businesses

Five Star Business Finance, a Chennai-based non-banking finance company that offers secured loans in the sub-₹10 lakh segment, has raised $50 million (about ₹333 crore) in equity from new and existing investors to fuel growth.

In this latest round of fund-raising, Five Star received money from Norwest Venture Partners and Sequoia Capital, as also its existing investors — Matrix Partners and a fund managed by Morgan Stanley Private Equity Asia.

The latest transaction includes ₹318 crore of primary infusion and ₹15 crore of secondary sale of shares. Norwest Venture Partners and Sequoia Capital have invested ₹135 crore each. The balance has been infused by the existing investors.

“The new investors will be taking about 10 per cent stake each. The valuation was about ₹1,300 crore. This money will largely be used to fund our business growth plans,” D Lakshmipathy, Chairman and Managing Director, Five Star, told BusinessLine .

He said Five Star was a pioneer in addressing small enterprises, a segment that has been largely ignored by the mainstream banking segment.

“We have developed knowledge in assessing their cash flows and underwriting their credit. We have seen many economic cycles and maintained one of the best asset quality models. This is a key attraction factor for the investors in a niche NBFC like ours,” he added.

It has set a target to grow its loan book to ₹1,000 crore by the end of this fiscal from about ₹500 crore now. Five Star has a target of growing the loan assets to ₹3,000 crore by 2020.

“We also started our housing finance entity, which is a subsidiary of Five Star, just two quarters ago and have built a loan book of ₹15-20 crore. While we have already secured a licence from the NHB, we are in need of capital infusion. So, this fresh capital will also be used for the same,” said K Rangarajan, Chief Operating Officer, Five Star Business Finance.

As part of its business plan, the company will increase the number of branches to 140-145 by the end of this fiscal from 110 now. “We are on track in our branch expansion,” said Rangarajan.

The housing business will focus on ₹5-10 lakh loans, while its average small business loan size is₹3.5-4 lakh. With the latest equity infusion, the company’s net worth stands at about ₹550 crore.

Published on August 09, 2017
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