HSBC Initiates Coverage on IIFL Finance with a Buy Recommendation and Target Price of ₹790

HSBC Initiates Coverage on IIFL Finance with a Buy Recommendation and Target Price of ₹790

VoM News Desk | September 20, 2023 | 06:29 AM IST | Breaking News | Follow on Google News

HSBC Initiates Coverage on IIFL Finance with a Buy Recommendation and Target Price of ₹790

IIFL Finance’s share price rose by over 1% in morning trade following global financial firm HSBC initiating coverage on the stock with a buy recommendation and a target price of ₹790. This target price implies an upside potential of as much as 35% from the stock’s previous session’s closing price of ₹586.35 on BSE.

Key Highlights from HSBC’s Report on IIFL Finance:

1. Strategic Pivots: IIFL Finance has made several strategic pivots to strengthen its business, including improved liability management, stronger risk management, aggressive investments in distribution, technology, and partnerships, and the adoption of the co-lending model.
2. Improved Liability Management: The company has reduced its dependence on short-term borrowings and maintains a liquid balance sheet.
3. Stronger Risk Management: IIFL has shifted its focus towards granular, largely secured, retail assets under management (AUM) by reducing exposure to loans in commercial real estate, capital markets, and commercial vehicles.
4. Growth Drivers: HSBC identifies affordable housing loans, microfinance, digital loans, and co-lending as key drivers for AUM growth.
5. Margins and Returns: The bank expects steady margins and anticipates improvements when interest rates decline. Nearly 50% of IIFL’s loan book has fixed rates.
6. Forecasted Performance: HSBC forecasts strong returns for IIFL Finance over the period of FY23-26, including a 25% AUM compound annual growth rate (CAGR), 3.5-3.8% return on assets (RoA), 21-22% return on equity (RoE), and about 28% earnings per share (EPS) CAGR.

Risks to the Assessment:

HSBC acknowledges several downside risks to its assessment, including cyclicality in businesses and asset quality, regulatory changes in co-lending, risk related to new businesses like digital loans, liquidity tightness, and any increase in the repo rate affecting sentiment for non-banking financial companies (NBFCs).

The re-rating of IIFL Finance’s stock potential is driven by strong retail AUM growth, potentially lower volatility in asset quality, and RoA expansion. Investors should consider these factors and potential risks when evaluating their investment decisions regarding IIFL Finance.

Please note that investment decisions should be made based on comprehensive research and analysis, taking into account your individual financial goals and risk tolerance.

VoM News Desk

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