FIVESTAR Q2 FY27 Earnings Call: Record Disbursements Hit Rs. 2,078 Cr, To Comfortably Cross Growth Guidance

FIVESTAR held its Q2 FY27 earnings call on October 26, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Best Quarter in Years: Record Disbursements, Improving Quality

• Record disbursements of Rs.2,078 Cr — a historical best, up 39% QoQ and 74% YoY; AUM ended at Rs.14,640 Cr (+6.7% QoQ, +14% YoY) with active loans at 5.1 lakh (+5% YoY).
• PAT of Rs.299 Cr — up 10% QoQ and 5% YoY, including a one-time tax benefit of Rs.19 Cr pertaining to previous years; excluding this, PAT of ~Rs.281 Cr was up 3% QoQ. H1 FY 2026-2027 PAT at Rs.571 Cr, up 3% YoY.
• Return ratios improved — ROA up 28 bps QoQ to 8.39% and ROE up 79 bps to 15.25%; net worth at ~Rs.7,903 Cr, within touching distance of Rs.8,000 Cr.
• NIM broadly stable at 19.87% — vs 19.97% in Q1 and 16 bps higher YoY; yields marginally lower at 22.26%. Cost-to-income (inclusive of credit costs) remained slightly elevated at a little over 47%.
• Management called it the best quarter in the last couple of years — metrics stacked up well after a period beset with multiple challenges facing the company and the industry, with several metrics (disbursements, collections) at historical bests.

Collections at Historical Bests; GNPA Sticky Near Term

• Collection efficiency improved to 98.2% — from 97.7% in Q1 FY 2026-2027; X-bucket collections at 99.4% (vs 99.2% in Q1), described as historically the best current-bucket collection. D1C1 was ~98% in September 2026, with October 2026 expected very close to 98%.
• Asset quality improved — current bucket rose to 84.78% of AUM (from 83.3%), 30+ DPD fell to 11.5% (from 12.38%), slippages eased to 0.68% (from 0.70%), and stage 2 assets fell in absolute terms to Rs.1,173 Cr from Rs.1,225 Cr.
• Gross stage 3 broadly stable at 3.48% — though Stage 3 rose ~7-8% in absolute terms in Q2 FY 2026-2027; credit cost improved to 1.80% of average AUM from 1.85% in Q1. PCR at ~40% on stage 3 and ~1.73% of overall AUM.
• GNPA expected to remain sticky for Q3–Q4 FY 2026-2027 — CFO Srikanth Gopalkrishnan explained GNPA curing requires collecting three additional installments to bring borrowers current; management is working towards improving GNPA ratios in FY28, with a better perspective towards end of FY 2026-2027.
• Core states face no drought risk — CMD Lakshmipathy Deenadayalan said Tamil Nadu, Andhra Pradesh and Telangana contribute 80%+ of AUM with no drought-like situation; collections holding up even in drought-flagged parts of North Karnataka, MP and Maharashtra, with Tamil Nadu consistently the strongest collector.
• Karnataka fully recovered — 18 months after the Karnataka government's ordinance, collections are back to usual and the company has resumed disbursing more pronouncedly, with gradual improvement expected.

Yield Hike Cushions, But Compression Is Coming

• ~1% lending rate hike executed in Q2 FY 2026-2027 — incremental yields moved from ~21.5-23% to ~22.5-23.9%; the CFO agreed yields have bottomed out and will inch up on incremental disbursements, with the 100 bps uplift reflecting in the book over the next 2-3 years (by FY 2029-2030).
• Margins will compress in H2 FY 2026-2027 — no margin expansion expected as the repo increase flows through external benchmark-linked and MCLR-linked borrowings; the 1% yield hike cushions but applies only to incremental disbursements. CFO affirmed 8-10 bps of net spread moderation for H1 FY 2026-2027, translating to a post-tax hit of roughly 8 bps on ROA/PAT for FY 2026-2027.
• Cost of funds guided higher — book cost at ~875 bps in Q2 FY 2026-2027, expected to exit FY 2026-2027 at ~890 bps (+12-15 bps); incremental borrowing cost guided at 870-875 bps for H2 FY 2026-2027, up another 20-25 bps vs Q2, driven by sizable planned borrowings and the pending second ADB tranche with higher hedging costs.
• Repo sensitivity — a 25 bps repo increase would otherwise have meant at least a 20 bps impact on cost of funds, now expected at 10-15 bps in FY 2026-2027 due to the yield cushion; further 25 bps or 50 bps repo increases would add to cost of funds depending on the central bank's December 2026 policy action or thereafter.
• Funding executed well despite tightening — availed Rs.825 Cr of incremental debt at an all-in 8.43% in Q2 FY 2026-2027; bank borrowings rose to 69% of total (from 67%); ~70% of borrowings are variable rate (~25% MCLR-linked, ~30-35% repo/T-bill linked, ~15-18% SOFR and other external benchmarks). Liquidity of ~Rs.1,300 Cr plus Rs.1,100 Cr unavailed sanctions is more than sufficient for Q3 FY 2026-2027.
• OpEx ratio at ~7.5% in Q2 — FY 2026-2027 tracking at ~7.35-7.40%; management expects a 50-75 bps decline over the next couple of years (through FY 2028-2029) to 6.75-7% via operating leverage, explicitly correcting the analyst's framing of a couple of quarters. Q2 "other expenses" rose on legal expenses and CSR spend based on the last three years' average profits.

Comfortable Guidance Cross; 25/50/25 Ticket-Size Target

• Management will "very comfortably" cross its FY 2026-2027 growth guidance — Chairman Lakshmipathy Deenadayalan declined to comment on whether AUM growth could reach ~25% in FY 2026-2027; the CFO added a revised guidance may possibly be issued after Q3 FY 2026-2027.
• October 2026 disbursements muted at ~Rs.550 Cr — with momentum expected to pick up in November-December 2026 (Q3 FY 2026-2027) to deliver good growth over Q2 FY 2026-2027.
• Steady-state ticket mix target of ~25/50/25 — ~25% sub-Rs.3 lakh, ~50% Rs.3-5 lakh (the core), ~25% Rs.5 lakh+ (period unspecified); Q2 FY 2026-2027 AUM mix was ~26-27% / ~51-52% / ~22-23%. CMD corrected the premise: "We are not moving away from smaller ticket size to bigger ticket size."
• Top-up loans at 10-15% of disbursements — roughly Rs.200-300 Cr of the ~Rs.2,000 Cr disbursed in Q2 FY 2026-2027; incremental disbursal runs at ~50% of outstanding. Guardrails: minimum 12-18 months vintage, no DPD threshold breaches, no credit score deterioration; no top-ups to stage-two customers, positioned to the regulator as underwritten on demonstrated repayment capability rather than evergreening.
• Repayment rate at 36-37% is on the higher side and expected to come down — driven by the revised internal top-up feature (outstanding adjusted at disbursal, not BT-out driven); behavioral tenor now expected closer to 4 years versus the earlier indication of 4+ years; analysts should bake in an additional 1-2% repayments (period unspecified).
• New product line "inching" closer — same interest as communicated in Q1 FY 2026-2027, with more details expected in Q3 FY 2026-2027. 19 branches added in Q2 FY 2026-2027 (75 over the trailing one year), focused on core geographies.

Large Written-Off Pool, Slow Legal Recourse

• Analyst Manan flagged a persistent five-year gap — FY26 write-offs of ~Rs.166 Cr against only ~Rs.16 Cr of recoveries; management attributed the lag to lack of SARFAESI recourse since loans are below Rs.20 lakhs, making recovery dependent on a time-consuming court/legal process.
• Written-off loans take 18-24 months to recover — per the CFO, recoveries on FY 2025-2026 and FY 2026-2027 write-offs will become visible mainly from FY28 and FY29 onwards; the CMD added recovery numbers should trend up from here.
• Analyst Chirag (MS Capital) sized the pool — write-offs of about Rs.300 Cr over the last 8 quarters (through Q2 FY 2026-2027) versus roughly Rs.150 Cr over the five years till FY 2024-2025; he requested presentation-level disclosures on the written-off pool's size and curing behavior, and the CFO said the team will think about it and come back.
• Recoveries improving — written-off account recoveries of ~Rs.13 Cr in Q2 FY 2026-2027 (vs Rs.8 Cr in Q1), ~Rs.20 Cr in H1 FY 2026-2027, largely from pre-FY26 vintages; combined NPA and written-off recoveries totaled ~Rs.35 Cr in Q2. NPA resolutions (including write-offs) improved to Rs.35 Cr in Q2 from Rs.25 Cr in Q1, and management expects full-year FY 2026-2027 resolutions to cross Rs.100 Cr.
• Collateral strength demonstrated — on FY24 and FY25 write-offs, the company is currently able to collect the entire principal plus roughly ~12% IRR even on deep delinquent loans, albeit at a slightly higher IRR discount; a dedicated legal recovery vertical was set up ~18 months ago.

Flattish Near Term, Better FY28-FY29 Possible

• Slippages and credit cost guided flattish for Q3–Q4 FY 2026-2027 — possibly around 70 bps, citing a sizable stock in the 61-90 day bucket; management hopes slippages trend down in FY 2027-2028 and concurred credit cost should not go higher than current levels despite the transient Stage 3 increase.
• Prolonged credit cycle explained — the CFO distinguished COVID (a factual disruption with no behavioral impact, brought under 1% credit cost in a shorter span) from the current stress, which altered borrower behavior after borrowers saw microfinance institutions writing off large amounts even in normal times, making this cycle more prolonged to set right.
• 61-90 and 90+ day buckets "slightly sticky" — improvement expected ("should," per management) around Q4 FY 2026-2027 to Q1 FY 2027-2028; Stage 1 and the 31-60 day bucket seen improving.
• No FY 2027-2028 numbers spelled out — management affirmed growth and credit-cost outcomes for FY28 and FY29 could be better, with guidance possibly shared after the Q3 or Q4 FY 2026-2027 results.
• Competitive context: Mudra overlap seen as minimal — on PSU banks being allowed Mudra loans up to Rs.20 lakhs (unsecured), management noted the CGT/MSC credit guarantee scheme is not new and that Mudra requires proper GST registration and returns, which Five-Star does not insist on; demand for Five-Star's loans remains healthy with a large addressable market.
• Closing tone confident — the CFO expressed confidence the trajectory of the last couple of quarters will continue across growth, quality and profitability, with strong "green shoots" and one or two parameters likely flattish for the rest of FY 2026-2027; no specific numeric targets were quantified. Next interaction: the Q3 FY 2026-2027 earnings call.