IIFL Finance Q3 Review — Lower NIMs, Elevated Credit Cost Dent Earnings; Systematix Maintains 'Buy', Lowers TP

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Systematix Research Report

IIFL Finance Ltd. reported a weak set of numbers. Net interest income/operating profit came in at Rs 12.4 billion / Rs 7.1 billion (versus estimate of Rs 13.6 billion / Rs 8.2 billion) registering a de-growth of 22% YoY / 28% YoY due to sharp contraction of 70 bps QoQ in net interest margins (due to lower yields in Gold book) and higher than expected AUM contraction at -7% YoY.

Credit cost increased to 3.5% from 2.4% in Q2, primarily due to stress in MFI and MSME segments. Thus, PAT for the quarter came in at just Rs 817 million, registering a degrowth of 85% YoY (-188% QoQ). Consolidated AUM declined by 8% YoY (+7% QoQ) due to decline in gold and MFI segment.

Gold loan segment declined by 39% YoY (+39% QoQ), while MFI segment reported a de-growth of 14% YoY / 9% QoQ. Gross stage 3 asset ratio was stable at 2.4%, while net stage 3 asset ratio declined by 8bps QoQ.

Management aims to reach Rs 200-220 billion mark in gold AUM by Q4 FY25 and expect the MFI book to grow by Q1 FY26. We expect consolidated AUM to grow by ~11% over FY24-FY27.

Maintain Buy rating on the stock with a revised price target of Rs 475 (earlier Rs 560).

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