IIFL Finance share price may see 25% upside, says Jefferies; initiates coverage with ‘Buy’ rating
- IIFL Finance has strengthened its retail franchise by expanding branches by two times in three years, which is likely to drive 23% asset under management (AUM) CAGR and 26% NII CAGR over FY23-26, according to foreign brokerage Jefferies.
IIFL Finance, the diversified non-banking financial company (NBFC), is expected to see healthy net interest income (NII) growth, stabilising asset quality and strong earnings growth, analysts said.
The company has strengthened its retail franchise by expanding branches by two times in three years, which is likely to drive 23% asset under management (AUM) CAGR and 26% NII CAGR over FY23-26, according to foreign brokerage Jefferies.
Moreover, a higher mix of gold and housing loans should keep credit costs in check, while its thrust on an off-balance-sheet strategy will boost ROA and optimize capital consumption, Jefferies said.
The global brokerage initiated its coverage on IIFL Finance with a ‘Buy’ rating and target price of ₹760 per share, implying an upside of 25% from Friday’s closing price.
IIFL Finance’s margins have expanded in the last few quarters and are expected to ease from Q2 highs due to a potential 30-40 bps rise in cost of funds (CoF). Lending rate hikes in gold and MFI loans should partly cushion the impact, as per Jefferies.
It expects net interest margin (NIM) (% of AUM) to stay healthy at 7.5-7.8% and expects NII to clock 26% CAGR over FY23-FY26.
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Moreover, asset quality of the company improved as gross non-performing assets (GNPA) fell to 1.8% from a peak of 3.2% and wholesale GNPA fell to 0.4% as of Q2FY24.
“We believe a balanced mix of lower-risk housing/ gold loans (53% of loans), lower mix of wholesale/ capital market loans (5% of AUM versus 20% in FY18) and a manageable mix of digital/ unsecured business loans (6-7% of loans) will keep credit costs in check at 2-2.2% of loans over FY23-26E,” Jefferies said.
According to the global brokerage, strong topline growth, better operating efficiencies and IIFL Finance’s off-balance-sheet strategy should support 24% earnings per share (EPS) CAGR and higher RoA and ROE of 3.4% and 20%+ over FY24-26E.
The risks include a growth slowdown, lower co-lending, regulatory changes, and deterioration in asset quality.
IIFL Finance reported a consolidated net profit of ₹525.52 crore for the second quarter of FY24, registering a growth of 32.35% from ₹397.06 crore during the year-ago period. The consolidated revenue from operations in Q2FY24 increased 22.17% YoY to ₹2,475.7 crore.
IIFL Finance share price has risen over 7% in the past three months, while the stock is up more than 27% year-to-date (YTD). In the last one year, IIFL Finance shares have rallied over 49%.
At 12:45 pm, IIFL Finance shares were trading 0.60% higher at ₹610.50 apiece on the BSE.
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.
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