IIFL Finance Expected to Witness Strong Growth and Stabilizing Asset Quality

IIFL Finance Expected to Witness Strong Growth and Stabilizing Asset Quality

VoM News Desk | October 30, 2023 | 03:56 PM IST | Breaking News | Follow on Google News

IIFL Finance Expected to Witness Strong Growth and Stabilizing Asset Quality

Analysts Predict Positive Outlook for IIFL Finance

IIFL Finance, the diversified non-banking financial company (NBFC), is poised for substantial growth in net interest income (NII), with an outlook of stabilizing asset quality and robust earnings expansion, according to analysts.

Expanding Retail Franchise Fuels Growth

The company’s strategic expansion of its retail franchise, doubling the number of branches in three years, is anticipated to drive a 23% asset under management (AUM) compound annual growth rate (CAGR) and a 26% NII CAGR over the period from FY23 to FY26, as per foreign brokerage Jefferies. Additionally, an increased focus on gold and housing loans is expected to help manage credit costs, while an off-balance-sheet strategy is set to enhance return on assets (ROA) and optimize capital consumption.

Jefferies Initiates Coverage with a ‘Buy’ Rating

Jefferies initiated its coverage of IIFL Finance with a ‘Buy’ rating and a target price of ₹760 per share, suggesting a 25% upside from the closing price on the preceding Friday. The company’s margins have shown expansion in recent quarters, and although a potential 30-40 basis points increase in the cost of funds (CoF) is expected to ease them from Q2 highs, lending rate hikes in gold and microfinance loans are anticipated to partially offset this impact. The net interest margin (NIM) (% of AUM) is projected to remain healthy at 7.5-7.8%, with NII expected to achieve a 26% CAGR from FY23 to FY26.

Improvement in Asset Quality and Robust Earnings Growth

IIFL Finance has witnessed improvement in asset quality, with a reduction in gross non-performing assets (GNPA) to 1.8% from a peak of 3.2% and a decrease in wholesale GNPA to 0.4% as of Q2FY24. A diversified loan portfolio and a balanced mix of lower-risk housing and gold loans are expected to maintain credit costs at 2-2.2% of loans over FY23-26E.

According to Jefferies, strong topline growth, enhanced operating efficiencies, and IIFL Finance’s off-balance-sheet strategy should support a 24% earnings per share (EPS) CAGR and elevate return on assets (ROA) and return on equity (ROE) to 3.4% and 20%+, respectively, over the period from FY24 to FY26E.

However, potential risks include a slowdown in growth, regulatory changes, and asset quality deterioration. IIFL Finance reported a consolidated net profit of ₹525.52 crore for the second quarter of FY24, reflecting a 32.35% growth from the previous year. The company’s share price has exhibited a positive trend in recent months, with a year-to-date increase of over 27% and a one-year rally exceeding 49%. At 12:45 pm, IIFL Finance shares were trading at ₹610.50 apiece on the BSE, marking a 0.60% increase.

Disclaimer: The opinions and suggestions provided in this article are those of individual analysts and do not reflect the viewpoints of VoM News. We encourage investors to consult with certified experts before making any investment choices.

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