Falcon Edge, Bay Capital invest in Five Star Business ahead of its IPO

Private equity investors Falcon Edge Capital and Bay Capital have invested $26 million in market-bound non-bank lender Five Star Business Finance Ltd (Five Star), taking its valuation up to $3 billion, said two people privy to the development.

Chennai-headquartered Five Star, which is backed by private equity firm TPG Growth (TPG), has raised $26 million via a secondary stake sale from investors Falcon Edge Capital and Bay Capital, the people told VCCircle on the condition of anonymity.

Emails sent to the company and both the investors for confirmation remained unanswered till the publishing of this story.

In November, Five Star filed for its Rs 2,752 crore initial public offering (IPO), which will be entirely an offer-for-sale (OFS) from promoters and financial investors. VCCircle first reported about the IPO development exclusively in September.

The company’s largest shareholder TPG, which owns 20.99% stake, will sell shares worth Rs 1,349.78 crore, while Matrix Partners, which owns 14.09% stake, through its India Investment Holdings II and India Investments II Extension funds, will sell cumulative shares worth Rs 578.48 crore.

The OFS will also see sale of shares worth Rs 385.65 crore by Norwest Venture Partners X – Mauritius while the promoter group is offloading shares worth Rs 180.93 crore, as per its draft red herring prospectus (DRHP).

As on March end 2021, TPG Asia held almost 22.5% in the lender, Matrix Partners India owned over 15% while Morgan Stanley’s NHPEA Chocolate Holdings B.V.’s stake was around 13.2%. Sequoia Capital and Norwest Venture Partners owned 9.45% stake each in Five Star Finance.

The non-banking financial company (NBFC) joined the elite unicorn club (valuation of $1 billion) in March 2021 after it raised $234 million (Rs 1,700 crore) from new and existing investors at a valuation of $1.4 billion (Rs 10,300 crore). As part of the round, KKR and TVS Capital had participated in a secondary stake sale worth $20 million.

During the same time, Morgan Stanley exited Five Star with 5.4x returns in five years.

Five Star was set up in 1984 by V K Ranganathan to provide secured business loans to micro-entrepreneurs and self-employed individuals and all loans are secured by the borrowers’ property, predominantly being self-occupied residential property.

With a strong presence in south India, it has grown to 268 branches (up from 173 in 2019) as on September 2021 across 126 districts in eight states and one union territory.

Over 95% of its loan size ranges between Rs 1-10 lakh with the average loan size at Rs 2.6 lakh in FY21.

Its assets under management (AUM) grew 86% CAGR over FY16 to FY21 and stands at Rs 4,639 crore as on September end, 2021, from a loan book of Rs 100 crore in 2014.

For the first 6 months of the current financial year, the company reported a net profit of Rs 218 crore on a total income of Rs 611 crore as against a net profit of Rs 359 crore on a total income of Rs 1,051 crore for the full year ended March 31, 2021.

Excerpts from the interview have been covered here on the VCCircle website :-
https://www.vccircle.com/falcon-edge-bay-capital-invest-in-five-star-business-ahead-of-its-ipo

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  • Bay Capital Investment Managers Pvt. Ltd

    14th Floor Bakhtawar

    Nariman Point, Mumbai

    India 400021

    T: +91 22 4346 8000 / 01/ 02

    E: team@baycapindia.com

    Bay Capital Partners UK Ltd

    19 Berkeley Street

    Mayfair, London

    W1J 8ED, United Kingdom

    T: +44 20 3907 0291

    Bay Capital Partners Ltd

    Unit 1, G C, Ground Floor,

    19 Bank street, Cybercity,

    Ebene 72201, Republic of Mauritius

    T: +230 467 5665