In a recent report by HSBC Global Research, IIFL Finance is expected to experience a substantial rally of 34% in its stock price. The basis for this optimistic outlook is attributed to several key factors, including robust growth in retail assets under management (AUM), the potential for reduced volatility in asset quality in the upcoming business cycle, and an expansion of return on assets (RoA).
HSBC has initiated coverage on IIFL Finance with a ‘buy’ rating and set a target price of Rs 790, indicating an impressive 33.5% upside potential from the current market price.
IIFL Finance, a non-bank financial company, boasts assets totaling $8.3 billion as of Q1 FY24. The company has diversified its portfolio to include various types of loans, such as loans against gold, unsecured personal loans, affordable housing loans, loans against property, and microfinance.
Abhishek Murarka, senior analyst at HSBC, emphasized four strategic pivots that have contributed to IIFL Finance’s success: improved liability management, stronger risk management, aggressive investments in distribution and technology, and being a pioneer in the co-lending model.
One noteworthy achievement is the company’s reduced reliance on short-term borrowings, which used to account for 16-34% of its borrowings from FY14-19. This shift has led to a more stable balance sheet.
Furthermore, IIFL Finance has embraced the co-lending model, partnering with banks to optimize capital utilization, increase return on equity, and mitigate risks.
HSBC’s projections for IIFL Finance are highly positive for the period FY23-26, including a 25% compounded annual growth rate (CAGR) in AUM, a RoA ranging from 3.5% to 3.8%, RoE between 21% and 22%, and a 28% CAGR in earnings per share (EPS).
However, HSBC acknowledges potential risks on the horizon, such as business cyclicality, regulatory changes in co-lending, challenges associated with new ventures like digital loans, liquidity constraints, and shifts in repo rates that could impact sentiment toward non-banking financial companies (NBFCs).
As of 12 pm, IIFL Finance was trading at Rs 588.65 on the NSE, representing a modest 0.35% increase from the previous close. Investors are keeping a close eye on the company’s future performance as it continues to navigate the dynamic financial landscape.
