The NBFC sector in India plays a crucial role in financial services, contributing around 12% to the country’s GDP. With over 9,500 NBFCs registered with the RBI, the sector’s total assets exceeded ₹54 lakh crore in 2023, reflecting robust growth and increasing significance in the Indian economy.
With a market capitalization of Rs 17,248 crore, the shares of IIFL Finance Ltd were trading at Rs 407 per share, increasing around 0.28 percent as compared to the previous closing price.
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Looking into IIFL Finance’s performance, revenue increased by 14 percent from Rs 2,301 crore in Q1FY24 to Rs 2,613 crore in Q1FY25. During the same period, net profit decreased by 28 percent, from Rs 473 crore to Rs 338 crore.
Motilal Oswal, one of the well-known brokerages in India, gave a ‘Buy’ call on the NBFC stock with a target price of Rs 560, indicating a potential upside of 38 percent from Wednesday’s price of Rs 407 per share.
Here is the rationale for the potential upside of 40%:-
● Earnings Impact: IIFL’s net interest income (NII) grew 10% YoY but dropped 13% QoQ to ₹14.4 billion in Q1FY25 due to elevated provisions and lower other income. The unwinding of prior assignments led to a ₹1.6 billion loss.
● Profit Decline: Operating expenses increased 18% YoY, leading to a 15% YoY decline in pre-provision operating profit (PPoP) to ₹6.9 billion. Post-tax profit (PAT) fell 32% YoY, with RoA at 2.3% and RoE at 10.3%.
● Steady Growth in On-Book Loans: Despite challenges, IIFL’s on-book loans grew by 10% YoY, and digital loans saw a 7% QoQ increase. Home loans also showed resilience with a 2% QoQ rise, reflecting stability in key segments.
● Optimistic Future Projections: IIFL anticipates a robust recovery, with consolidated AUM expected to grow by 23% YoY in FY26. This indicates a positive long-term outlook, supported by strategic adjustments and expected improvements in market conditions.
● IIFL Finance’s operating expenses grew 18% YoY to ₹7.5 billion, with a cost-income ratio of 52%, primarily due to a decline in the gold loan business. Despite challenges, the company avoided layoffs and branch closures, and management is optimistic about the RBI lifting the gold loan embargo soon.
IIFL Finance Limited provides financial and associated services. The company operates in the financial sector. The Company provides a variety of financial products, including house loans,
mortgage loans, gold loans, loans against securities for SMEs, microfinance loans, and digital finance loans. Its home loans include a secured SME loan.
Written by:- Abhishek Singh
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