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IIFL Finance – Strong Execution with Diversified Product Suite: Motilal Oswal

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Article Summary

TLDR:

  • IIFL Finance has a diversified product suite including home loans, loans against property, gold loans, microfinance loans, and unsecured business and personal loans.
  • The company is focused on aggressive expansion of physical distribution and digital capabilities to sustain strong AUM growth.

In a recent report by Motilal Oswal, it is highlighted that IIFL Finance Ltd. is well-positioned for a ~25% assets under management (AUM) compound annual growth rate and a return on equity of ~20-21%. The company’s presence in various loan segments like home loans, gold loans, microfinance loans, etc., is expected to drive this growth.

Key points from the report include:

  • The company’s net interest margin is expected to improve to ~8.0% in FY24E from 6.2% in FY19, supported by an improvement in the product mix and lower cost of borrowings.
  • With a focus on branch expansion for various businesses, IIFL is expected to slow down branch expansion and improve branch productivity to achieve a better opex-to-AUM ratio of ~3.5% by FY26.
  • The company’s asset quality in gold loans and home loans, which contribute to 65% of the AUM mix, is robust, helping mitigate risks in other loan segments like MFI and digital loans.
  • The asset-light model combined with a diversified product suite is projected to drive a strong AUM CAGR of ~25% over FY23-FY26E.
  • Based on these factors, Motilal Oswal reiterates a ‘Buy’ rating for IIFL Finance with a target price of Rs 800.

Overall, the report emphasizes the company’s strong growth potential, favorable risk-reward ratio, and the importance of its diversified product suite in driving future performance.


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