Jefferies predicts there might be a 25% increase in the price of IIFL Finance shares and starts covering with a "Buy" recommendation

 Jefferies predicts there might be a 25% increase in the price of IIFL Finance shares and starts covering with a "Buy" recommendation

Analysts predict robust profits growth, stable asset quality, and healthy net interest income (NII) growth for diversified non-banking financial corporation (NBFC) IIFL Finance.

According to international stockbroker Jefferies, the business has reinforced its retail franchise by adding branches twice in three years. This is expected to propel asset under management (AUM) CAGR of 23% and NII CAGR of 26% during FY23–26.

Additionally, according to Jefferies, a greater proportion of home loans and gold should control credit costs, and the company's emphasis on an off-balance-sheet approach would maximize capital consumption and increase ROA.

With a "Buy" rating and a target price of ₹760 per share, the global brokerage began covering IIFL Finance, suggesting a 25% increase from Friday's closing price.

IIFL Finance's margins have increased over the last several quarters, but a probable 30–40 bps increase in cost of funds (CoF) is likely to cause them to soften from their highs in Q2. According to Jefferies, a portion of the damage should be mitigated by rising lending rates on gold and MFI loans.

It projects a solid net interest margin (NIM) (% of AUM) to remain at 7.5-7.8% and a 26% compound annual growth rate (CAGR) for NII between FY23 and FY26.

Additionally, the company's asset quality improved as of Q2FY24, when gross non-performing assets (GNPA) dropped to 1.8% from a high of 3.2% and wholesale GNPA to 0.4%. 

"We think a manageable assortment of digital/unsecured business loans (6-7% of loans) as well as a balanced mix of lower-risk housing/gold financial assistance (53% of loans), along with a lower mix of wholesale/capital market advances (5% of AUM versus 20% in FY18), will maintain credit costs in investigate at 2-2.2% of loans over FY23-26E," according to Jefferies.

Strong topline growth, improved operational efficiency, and IIFL Finance's off-balance-sheet strategy should support a 24% compound annual growth rate (CAGR) in earnings per share (EPS) and higher returns on assets (ROA and ROE) of 3.4% and 20%+ during FY24–26E, according to the global brokerage. 

A slowdown in GDP, a reduction in co-lending, changes in regulations, and a decline in asset quality are some of the dangers. 

For the second quarter of FY24, IIFL Finance recorded a consolidated net profit of ₹525.52 crore, up 32.35% from ₹397.06 crore in the same time the previous year. In Q2FY24, the total income from operations climbed 22.17% year over year to ₹2,475.7 crore.

The share price of IIFL Finance has increased by more than 7% over the last three months, and the company has gained more than 27% year to date (YTD). The shares of IIFL Finance have increased by more than 49% in the last year.

IIFL Finance shares were up 0.60% at ₹610.50 per share on the BSE at 12:45 p.m.