Hey folks! So, guess what? Foreign brokerage Jefferies has just initiated coverage on IIFL Finance Ltd shares and they’re pretty optimistic about it. They’ve set a target of Rs 760, which suggests a 25% upside potential. That’s not too shabby, right?
According to Jefferies, IIFL Finance has been doing some serious work to strengthen its retail franchise. In just three years, they’ve managed to double the number of branches they have. And you know what that means? It’s expected to drive a whopping 23% growth in asset under management (AUM) every year. That’s some impressive stuff!
But wait, there’s more! Jefferies also predicts a 26% compounded annual growth rate (CAGR) in net interest income (NII) for IIFL Finance over the next few years. That’s definitely something to look forward to.
Now, let’s talk about the stock price. When the news broke, the shares of IIFL Finance shot up by 4% and reached a high of Rs 631.95 in early trade on BSE. However, as the session progressed, the stock cut most of its gains and settled at a 0.77% increase at Rs 611.55. Still not too bad, right?
So, what does Jefferies have to say about all this? Well, they believe that IIFL Finance’s higher mix of gold and housing loans will help keep credit costs in check. And here’s the interesting part – their off-balance-sheet strategy is expected to boost their return on assets (ROA) by an estimated 100 basis points in the first half. That’s pretty impressive!
Jefferies is also quite optimistic about the future. They forecast a 24% earnings per share (EPS) compounded annual growth rate (CAGR) and a 20%+ return on equity (ROE) over the next few years. That’s definitely something that caught my attention.
Now, let’s talk about IIFL Finance’s franchise. Jefferies believes that they have really strengthened their position in gold, microfinance, and affordable-housing loans. In fact, they’ve expanded their distribution by 1.8 times in the last two years and are even building digital capabilities. These segments now make up a whopping 81% of their asset under management (AUM). That’s a pretty big chunk!
Jefferies also expects IIFL Finance to continue expanding and ramping up new branches, which should drive a 23% AUM compounded annual growth rate (CAGR) over the next few years. And when it comes to microfinance, digital/unsecured business loans, and gold and housing AUM, they’re expecting growth rates of 30%+ and 20% respectively. That’s some serious growth potential!
But what about margins? Well, Jefferies notes that IIFL Finance’s margins have been expanding in recent quarters. However, they do expect them to ease off a bit from the highs in the second quarter due to a potential rise in the cost of funding. But hey, it’s not all bad news. Lending rate hikes in gold and microfinance loans should help cushion the impact. And Jefferies expects the net interest margin (NIM) to stay healthy at around 7.5-7.8% and the net interest income (NII) to grow at a 26% CAGR over the next few years. That’s definitely something to be happy about!
Now, here’s something interesting. IIFL Finance plans to increase the share of co-lending loans to about 50% of its off-book loans. Currently, it’s at 36% in the second quarter. And you know what that means? It should boost their net interest income sustainably because the spread on off-book co-lending loans is included in the net interest income. So, that’s definitely a smart move!
Of course, there might be a slight downside in the near term due to a corresponding fall in upfront assignment gains. But Jefferies believes that this will be partly offset by higher fee income and operating leverage benefits. So, it’s not all doom and gloom.
Well, there you have it, folks! Jefferies is pretty bullish on IIFL Finance and they’ve given it a ‘Buy’ rating with a target of Rs 760. With the company’s strong retail franchise, expanding branches, and growth potential in various loan segments, it’s definitely something to keep an eye on. Who knows, it might just be a great investment opportunity!
Disclaimer: This article is for informational purposes only and should not be taken as investment advice. Always do your own research before making any investment decisions.
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