IIFL Finance, a diversified non-banking finance company (NBFC), is expected to show healthy net interest income (NII) growth, asset quality and strong revenue growth, analysts said.
The company has strengthened its retail franchise by expanding branches twice in three years, which is expected to grow 23% assets under management (AUM) CAGR and 26% NII CAGR in FY23-26, foreign brokerage Jefferies said.
What’s more, pushing for an off-balance sheet strategy with a high mix of gold and home loans while keeping borrowing costs under control can boost ROA and improve capital utilization, Jeffries said.
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The global brokerage initiated coverage on IIFL Finance with ‘Buy’ rating and target price. ₹760 per share, which represents a 25% increase from Friday’s closing price.
IIFL’s financial margins have expanded over the past few quarters and are expected to decline from Q2 highs as cost of funds (CoF) may increase by 30-40 bps. According to Jeffries, the increase in lending rates for gold and MFI loans should partially moderate the impact.
It expects net interest margin (NIM) (% of AUM) to remain healthy at 7.5-7.8% and expects NII to reach 26% CAGR over FY23-FY26.
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Additionally, the company’s asset quality improved as gross non-performing assets (GNPA) came down to 1.8% from a peak of 3.2% and gross GNPA declined to 0.4% in Q2FY24.
We believe it is a balanced mix of low-risk housing/gold loans (53% of loans), low-risk wholesale/capital market loans (5% of AUM and 20% in FY09) and manageable digital/unsecured commercial loans. (The 6-7 percent loans) expect loan costs to be 2-2.2 percent higher than the 23-26E loan,” Jeffries said.
According to a global brokerage, strong topline growth, better operational efficiency and IIFL’s off-balance sheet strategy should support 24% earnings per share (EPS) CAGR and higher RoA and ROE of 3.4% and 20%+ in fiscal 24-26E.
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The risks include a slowdown in growth, low mutual credit, regulatory changes and deterioration in asset quality.
IIFL Finance has reported a consolidated net profit ₹525.52 crore for the second quarter, registering a growth of 32.35%. ₹397.06 crores in the previous year. Consolidated revenue from operations increased by 22.17% in Q2FY24. ₹2,475.7 crores.
IIFL Finance’s share price has risen over 7 percent in the last three months, while the stock has risen over 27 percent year-to-date (YTD). Shares of IIFL Finance have risen over 49 percent in the last one year.
At 12:45 pm, IIFL Finance shares were trading 0.60% higher. ₹610.50 on the BSE.
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