IIFL Finance share price down 20%; Jefferies downgrades the stock ratings to Hold as gold loan ban may hurt profit

Stock Market Today: IIFL Finance saw its stock price decline 20% in morning trades on Tuesday as the ban of gold loans has dampened investor sentiments.  The share price had declined 20% on Monday also post  Reserve Bank of India barred IIFL Finance from disbursing Gold Loans. The IIFL Finance share price trading at close to ₹382.80 now in the morning trades thereby is down more than 35% compared to closing levels of around ₹596.80 on the BSE on Friday

Gold loan book forms around 32% of assets under management as per analysts. Jefferies has Downgrade stock to Hold ratings as ban ban will hurt profit.

Analysts at Jefferies India Pvt Ltd in their report said that the “RBI's restriction on disbursing gold loans due to material supervisory concerns should dent earnings due to rapid unwinding of profitable gold loan book (32% of AUM), lower co-lending income and potentially higher CoF  (cost of funding)”. 

Also read- IIFL Finance says Fairfax India to invest up to $200 million in liquidity support

Timing of lifting of the ban is also uncertain. Analysts at Jefferies assuming that ban stays for 9 months, have cut FY25-26 estimates earnings per share by 26-27% and Return on Equity estimates by 460-480bps. (100 bps make a percent)

Jefferies analysts also expect profit to fall 6% in FY26. They have downgrade IIFL to Hold ratings with price target of Rs435 based on 1.2x March 26 estimated Book value.

IIFL Finance in its release on 4th March had said that the RBI has directed the Company to cease and desist, with immediate effect, from sanctioning or disbursing gold loans or assigning/ securitising/ selling any of its gold loans.

However, IIFL Finance had highlighted that RBI in the aforesaid press release directed that the Company can continue to service its existing gold loan portfolio through usual collection and recovery processes.

Also Read- TCS, Infosys are best placed, to tap into the SAP migration cycle- Jefferies

Jefferies report post IIFL Management interaction highlighted that the RBI flagged non-compliance to standard auction process as IIFL had moved to an independent e-auction platform for auctioning gold loans, even as gold loan auction needs to be carried out at "Taluka level". Management however has indicated that  IIFL has already taken corrective measures regarding RBIs observations and will now request RBI to conduct special audit.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions