IIFL Finance - Expanded Footprint, Diverse Portfolio To Drive >20% RoE In Near-Term: ICICI Securities

ICICI Securities Report

We initiate coverage on IIFL Finance Ltd. with a 'Buy' rating and a target price of Rs 760.

We believe IIFL Finance is a direct play on ‘increasing financial formalisation’ with its presence in high-growth segments. Its diversified product portfolio, along with strong more than 4,000 physical branches, focus on scaling high-margin products like gold loans, micro finance, digital loans etc., end-to-end digital process, tight control on asset quality and capital optimisation via co-lending could help it sustain more than 20% growth and 20% return on equity in the near term.

IIFL Finance has transitioned itself into a diversified retail-focused non-banking financial company, with more than 60% of asset under management generating 17-23% yields.

Its transformation journey began in FY19 with it selling its highly cyclical commercial vehicle business, and strategic move to reduce its reliance on wholesale business. As a result, the combined share of CV / construction equipment / construction / capital market fell to ~5% by FY23 from more than 30% in FY17.

IIFL Finance aims to deliver 20-25% AUM growth in the near term with return on asset of more than 3.5% and RoE of more than 20%.

We believe its redefined business model with a retail focus would help it in executing the strategies as per the plan.

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