36 Year Old NBFC firm Five-Star Finance Raises $234 Million, Valued at $1.4 Billion

• The funding round saw participation from leading investors, including Sequoia Capital India, Norwest Venture Partners, KKR, and TVS Capital.
• Five-Star Finance intends to use the funds to expand its lending business to provide financing solutions to small businesses.
• With this round, The company's valuation now stands at $1.4 billion.

Chennai-based 36-year-old Non-banking Financial Company (NBFC) Five-Star Finance has raised $234 million (about Rs 1,695 crore) in funding led by a consortium of global and domestic investment firms.

The round saw participation from US-based global investment firm KKR and TVS Capital. Existing investors --- Sequoia Capital India and Norwest Venture Partners --- also participated in the funding round. With this latest fundraise, Five-Star Finance valuation stands at $1.4 billion, making it India's fourth non-banking financing company that achieved unicorn status this year.

According to the reports, the round included both primary capital infusion and a secondary sale of shares by its existing investor Morgan Stanley Private Equity, the private equity arm of US-based Morgan Stanley.

With these funds, Five-Star Finance will continue to expand its lending business to make financing solutions easy for small businesses in the country. To date, the company has raised over $450 million in funding from various investors, including TPG Global, Matrix Partners, Epiq Capital, Morgan Stanley, Sequoia Capital India, among others.

Incepted in 1984, Five-Star Finance Limited is a registered NBFC firm under RBI, provides financing solutions to small and medium businesses (SMEs) in the country. The company initially started with a focus on providing consumer and auto loans.

Speaking on the development, D Lakshmipathy, Chairman and Managing Director, Five-Star Finance, said:

“In our mission of ‘funding the unfunded,’ we have created a niche for ourselves empowering small businesses and the self-employed across corners of India by providing them with reliable and responsible funding alternatives. We aim to achieve this social goal through grass-root efforts without compromising on the pillars of asset quality and profitability that are needed to build a sustainable institution of scale."

"The company is a true pioneer in the market having supported the growth of MSMEs for decades, playing an important role in India’s economy. It is a terrific example of the type of solutions-oriented business that KKR looks to support through its Global Impact strategy and in India, and we look forward to working with the team to build on Five Star’s long-term success," said, Gaurav Trehan, Partner at KKR.

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“Sequoia Capital India is delighted to be investors in Five Star, and is strong believers in their business model that bridges the large credit gap that exists for small and micro-enterprises," said, G V Ravishankar from Sequoia Capital India.

Currently, The company has 262 branches spread across eight states --- Maharashtra, Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka, Telangana, Chhattisgarh, Uttar Pradesh. As of December 2020, Its assets under management (AUM) stood at Rs 4,030 crore, while gross non-performing assets (GNPAs or defaults) stood at 1.29%.

For FY-20, The company had almost doubled its total income from Rs 408.9 crore in FY-19 to Rs 787.3 crore. While the net profit also increased by 68% from Rs 156.7 crore in FY-19 to Rs 261.9 crore.

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