Buy IIFL Finance; target of Rs 415: Motilal Oswal

Motilal Oswal's research report on IIFL Finance

IIFL Finance (IIFL)’s 3QFY25 PAT declined ~85% YoY to INR817m. NII declined 22% YoY and ~8% QoQ to ~INR12.4b (~7% miss). Other income stood at ~INR1.1b (PY: INR1.1b). This was lower than our estimates because of lower assignment income and lower gain on fair value changes. Opex grew 3% YoY to INR7.5b (in line) with the cost-income ratio at 56% (PY: 43%). PPoP declined ~38% YoY (~28% miss) to INR6b for the quarter. Credit costs rose to ~4.2% (PQ: ~3.6% and PY: ~2.1%) primarily because of higher stress in MFI and MSME segments. The company witnessed asset quality stress in its MFI, unsecured personal/business loans, and smallticket LAP during the quarter, which was reflective of weak macro trends.

Outlook

The stock trades at 0.9x FY27E P/BV and ~6x P/E for a PAT CAGR of ~13% over FY24-FY27E. We estimate RoA/RoE to decline to 0.8%/2% in FY25 but recover to 3.4%/17% in FY27. We have a BUY rating on the stock and a TP of INR415 (based on SoTP valuation; refer to the table below).