Fedfina has a Mortgage AUM of roughly 6200 crores, ticket size of INR 22 lakh and yields of ~14%.
Five-star has an AUM of 9600 crores and almost 90% of the loans are sub INR 5 lakh with yields of 24%.
I presume the huge difference in yields is largely due to the nature of loans, wherein Five-star gives loans to small business owners.
However, my thought was that given the secured nature of the loans, their yields should have been much lower. At 24% yields, they are on par with microfinance companies, whose book is completely unsecured.
Posts in category All News
Five Star Business Finance – Financing Bharat! (06-07-2024)
Infollion Research Services Ltd – Moated Microcap with Differentiated business? (06-07-2024)
I was recently working on Infollion and found their business model quite niche with good unit economics and 40-50% CAGR growth.
Their margin structure has been stable. Their biggest cost item is consultancy (or expert calls), where they pay experts 50-55% of their revenues. They spend 20-25% on their employees and have been maintained 17-20% EBITDA margins over the past 4 years.
Additionally, there was an insightful note from Deltainvest explaining Infollion’s business model in detail. You can read the full note at the link below.
Writeup from Delta
- Incorporated in September 2009 by Gaurav Munjal (B.tech & M.tech IIT Mumbai)
- Marketplace in premium section of the gig economy, 100+ employees, 60,000 experts
- Does 400 projects/month
- IPO came at market cap of 80 cr. (IPO size ~21.45 cr., fresh issue ~18.2 cr., OFS ~3.2 cr. OFS was by Blume Ventures
- IPO done to expand business in USA & Western Europe
- Top 5 clients contribute ~80% of FY23 revenues (68% in FY22). 80-85% of their clients have been using their services for 5+ years
- Pre-Empaneled to Custom-Empaneled experts ratio: higher would imply higher gross margins
They have been scaling up their team as they keep growing, you can see how the number of employees have increased with time (scalup started happening from 2019).
- March 2017: 7
- March 2018: 6
- March 2019: 7
- March 2020: 11
- March 2021: 14
- March 2022: 35
- March 2023: 69
- March 2024: 90
They are now pivoting to the US, first to get more experts from USA and then to get customers from USA. Management has been sharing their scaleup plans at multiple avenues, I have captured these in my notes below.
AGM23
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Adding 1000-1200 experts monthly, one-third experts are from outside India (primarily US)
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Have a dedicated team for US
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Most clients are Indian requesting experts from US, want to build a larger clientele in US
FY24Q2
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Largest and oldest company in this segment in India
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Majority business comes from consultancy businesses, targeting private equity and tier II consulting
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Focus on engagements which are small, frequent and cross domain. Don’t engage experts with clients for longer term projects
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Expanding into US
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Competitors: Insights Alpha, Thirdbridge, GLG
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Not keen on increasing gross margins but on increasing volumes
FY24Q4
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6th or 7th year where sales growth was 40±10%
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Added 50 employees which should benefit in FY25
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Visual mapping tools of different industry value chains are becoming their USP now
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Redesigned the entire tech backend which will help them expand globally
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Expansion in US – 3 independent teams based in India (total 25-30 employees). Have been increasing expert base in US. However, most of their clients are still in India who are taking a call with an expert in US. Have not yet managed to get clients from USA
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Trying to get into longer term engagements (Pex-panel): 2-3 months stints for existing clients offering private panels to senior executives, cohort-based/individual courses and L&D programs. Looking towards reselling expert-led courses online
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FY24 calls: 12,000
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Number of experts: 80,000 (adding 1,500 experts per month)
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Client concentration: top 10 is 80-85% of revenues
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Market size from Indian clients will be few 100 crores
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90%+ of business comes from clients older than 2-3 years
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Ticket size per call has not increased in last 2-3 years, don’t want to increase it, rather focus on increasing volumes
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70-80% of their business comes from consulting industries, trying to penetrate deeper into private and public market investors
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End-user industries: IT, Healthcare, consumer retail, BFSI
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How they recruit experts: monitor annual reports for exits, monitor senior guys who are moving roles and get them onboard when they become independent
Disclosure: Invested (bought shares in last-30 days; <1% position size)
H.G. Infra Engineering Ltd : Paving the Path to Success (06-07-2024)
Did you hear back anything?
Their spree of opening subsidiaries isn’t ending. What are they cooking?
“Now clean chit is left to be given to Dawood,” says Shiv Sena UBT leader Sanjay Raut (06-07-2024)
IPO Calendar: 1 IPO, 5 listings investors need to watch out for next week (06-07-2024)
Smallcap momentum portfolio (06-07-2024)
That’s is very correct. There can be thousands of successful investment strategies, we just need to choose what suits us.
I have never been a fan of mutual funds. My whole investment in mutual funds was only ELSS, to save taxes. Lately I have taken some interests in mutual funds for specific reasons.
I took interest in Quant Momentum Fund, just to see momentum strategy in action. I am yet to see it in bear markets, though in market corrections I didn’t find anything alarming. I also subscribed to Motilal Oswal Defence Index Fund as I am not finding any defence stocks which a value investor in me can buy.
In general I am not finding any good bet in present market’s valuation. Thus looking at MF space a bit closely for some investment opportunities.
Five Star Business Finance – Financing Bharat! (06-07-2024)
A few points here.
SBFC Finance does 98% secured lending, yet their NIM’s are ~10%. Fedfina does 85% secured lending with NIM’s at 8%. Cost of funds for microfinance companies are in the range of 11-12%, whereas for Five-star Finance, it is 9.7%, so the disproportionately higher NIM’s are not due to lower cost of funds.