Buy IIFL Finance; target of Rs 550: Motilal Oswal

Motilal Oswal's research report on IIFL Finance

IIFL Finance (IIFL)’s 1QFY26 NII was down 10% YoY and ~1% QoQ to ~INR12.9b (~10% miss), potentially due to higher interest income reversals. Other income stood at ~INR3.8b (PQ: INR810b). This included assignment income of ~INR2.3b (which was absent for the last six quarters). Net total income grew ~17% YoY to ~INR16.7b. Opex grew ~7% YoY to INR8b (~8% higher than MOFSLe), with the cost-to-income ratio declining to ~48% (PQ: 53% and PY: 52%). PPoP stood at INR8.7b and grew ~26% YoY (~7% miss). Consol. PAT (post-NCI) declined ~19% YoY to INR2.3b. Credit costs were slightly lower than our estimates and stood at INR5.1b. This translated into annualized credit costs of ~3.65% (PQ: ~2.7%/PY: ~2.1%). Credit costs were elevated in MFI, unsecured lending, and small-ticket LAP.

Outlook

We cut our FY26 EPS estimates by ~5% to factor in higher credit costs during the year. The stock trades at 1.3x FY27E P/BV and ~9x P/E for an estimated RoA/RoE of 3%/16% in FY27. We have a BUY rating on the stock with a TP of INR550 (based on SoTP valuation; refer to the table below).