India Ratings said that the rating reflects Five-Star's sizeable franchise in the southern India geography, stable and experienced management, comfortable leverage, diversified funding profile and superior profitability ratios. The rating however is constrained by the company's geographically concentrated loan book.

The agency further stated that significant growth in the scale of operations, geographical diversification, diversification of funding avenues and significant deepening of funding relationships with existing and new lenders, and a demonstrated ability to manage its asset quality could lead to a positive rating action.

However, significant deterioration in the asset quality, funding challenges and dilution of liquidity buffers, leverage (debt/equity) exceeding 3.5x on a sustained basis could lead to a rating downgrade.

Five-Star Business Finance is a Chennai-based systemically important non-bank financial institution with presence across eight states and 342 branches as on 30 September 2022. The company was also backed by marquee private equity players such as Matrix Partners, Sequoia Capital, Norwest Venture Partners, TPG, KKR & TVS Capital Funds, before becoming a listed entity in November 2022.

The NBFC reported 22.35% rise in net profit to Rs 144.18 crore on a 17.29% increase in total income to Rs 361.86 crore in Q2 FY23 over Q2 FY22.

The scrip jumped 4.27% to end at Rs 609.95 on the BSE on Friday.