Target: ₹790

CMP: ₹584.70

IIFL Finance is a non-banking financial company (NBFC) with assets under management (AUM) of $8.3 billion as of Q1-FY24.

The company has a wide branch network across most states. After experiencing high levels of disruption from a series of industry and national crises in recent years – demonetisation (2016), the bankruptcy of IL&FS in 2018 which rattled the financial system and squeezed liquidity, and Covid-19 (2020-21) – IIFL has strengthened its business by making four strategic pivots - Improved liability management; Stronger risk management; Aggressive investments in distribution, technology, and partnerships to drive growth; and co-lending model, which sells down a proportion of loans to banks.

We think IIFL’s potential re-rating will be driven by strong retail AUM growth, potentially lower volatility in asset quality in the next cycle, and RoA expansion. We value IIFL at 2.3x FY25 consolidated BVPS using a Gordon growth model, translating into a TP of ₹790.

Downside risks include cyclicality in businesses and asset quality, regulatory changes in co-lending, risk of adverse selection in new business like digital loans, liquidity tightness, and any increase in repo rate souring sentiment for NBFCs.