Non-banking finance company Five Star Business Finance has raised $50 million in a new funding round led by private equity major TPG Capital, valuing the Chennai-based lender at $950 million.
The company, which was founded way back in 1984, has been on a strong growth trajectory since 2014, creating a book size of Rs 2,500 crore this year and aims to take it up to Rs 4,000 crore by March 2020.
Five Star Business Finance is backed by Matrix Partners, which first invested $3 million in 2014. After that, the company raised equity rounds from multiple prominent investors such as Morgan Stanley, Sequoia Capital, Norwest Venture Partners and others.
Investors hold a 70% stake, while promoter D Lakshmipathy has a 21% shareholding, with the rest being distributed among the management and other individual investors.
“Till date, we have raised a total equity of less than $200 million and have achieved a near unicorn status,” said Rangarajan Krishnan, chief executive officer, Five Star Business Finance. “We are currently present across eight states, predominantly in the south of India and steadily expanding to Maharashtra, Madhya Pradesh and Chhattisgarh.”
The company extends business loans to micro-merchants, mostly small kirana stores and street corner shops, but takes property as security against the loan. It has managed to maintain a sub 1% gross non-performing asset level, said Ranagarajan.
This is the second time that TPG has invested in the company. Last year, too, the growth fund had participated in a $100 million equity round in Five Star Finance.
“We have maintained a physical presence in the areas we operate in and have created a 2,250 member team spread across our more than 200 branches,” he said. “Even over the last six months, when times (for the NBFC business) have been challenging, we have raised $100 million in debt from Franklin Templeton, showing the confidence of external investors in the company.”
Vikram Vaidyanathan, MD at Matrix Partners, said, “Five Star’s product approach, critical underwriting process, profitability focus and relentless execution has made them the market leader in their segment. We believe in their vision of creating a financial services institution with IPO scale.”
Going ahead the NBFC will face competition from digital payment companies like Paytm and new-age fintech lenders like Capital Float and others which target small kirana stores based on cash flows. Rangarajan said the latest fundraising ensures that Five Star can expand its presence across India while retaining its leadership position in the southern states.
“We are optimistic about opportunities in the small finance banking space and are waiting eagerly for regulations in the sector, while nothing about applying for a licence has been finalised yet,” he said.
