Buy IIFL Wealth; target of Rs 1240: Motilal Oswal

Motilal Oswal 's research report on IIFL Wealth

IIFLWAM’s 1QFY21 PAT grew 33% YoY to INR819m (63% beat), driven by 8%/7% beat on core revenues/opex. Stronger-than-expected top line was largely due to higher transaction (TBR) revenue (INR710m v/s est. INR500m). Operating expenses were down 20% QoQ (up 2% YoY) to INR1.3b (7% beat), driven largely by lower employee cost. As the company pruned salaries, fixed cost declined ~10% QoQ. In addition, ESOP cost more than halved QoQ to INR140m. Management is targeting to reduce the C/I ratio to 50% over the next 18 months (~64% in 1QFY21). IIFLWAM acquired L&T Wealth during the quarter stood for INR2.96b, which has led to Goodwill accretion of INR2.44b. The business has contributed 5.4%/7.2% /4.5% of the overall/ARR/TBR AUM in 1QFY21. Total Goodwill on the balance sheet now stands at INR5.2b (17% of net worth). Overall core performance was in line with expectation – both on the AUM and earnings front. Traction on ARR assets is a key monitorable for the ensuing quarters. Our earnings estimates remain largely unchanged for FY21/22E. Reiterate Buy.

Outlook

We largely maintain our FY21/22E EPS estimates. Buy with TP of INR1,240 (25x FY22E EPS).