IIFL Finance Q2 Results: Standalone Net Profit Falls 38% On Lower Income From Sale of Loan Portfolio

IIFL Finance Ltd.'s standalone second quarter profit fell 38% year-on-year to Rs 136.7 crore in the September quarter.

However, its consolidated bottomline after adjusting for non-controlling interest grew 25% on year to Rs 474.3 crore during the reporting quarter. Analysts polled by Bloomberg had estimated IIFL Finance's consolidated net profit at Rs 500 crore for the quarter.

Non-controlling interest, or minority interest, on account of a 20% stake buy by Abu Dhabi Investment Authority last year in IIFL Home Finance led to carving out that much profit for ADIA. NCI represents a share of the net income of the subsidiary company attributable to the investors who own less than 50% of outstanding shares.

The disparity between the both the numbers is attributed to the lower income generated from sale of loan portfolio to banks, Kapish Jain, chief financial officer of IIFL Finance told BQ Prime in an interview. The rise in MCLR, the rate at which banks bought loan assets from IIFL Finance, rose faster than the rise in NBFC's portfolio yield, Jain said. A 250-basis-point cumulative rate hike by the RBI in the last year has translated into higher lending rate on marginal cost basis by the banks.

IIFL Finance's portfolio yield, a measure of income generated from a loan portfolio as well as the average interest rate charged to borrowers, rose to 17% in the reporting quarter, compared with 15.5% a year ago. In the previous quarter, this number stood at 16.6%. .

"A marginal increase in NPA in gold loan business, which is resulting in some reversal of income. This is causing a marginal dip in overall income for standalone financials" Jain added.

A rise in finance costs during the quarter and higher recognition of finance costs dragged the standalone net profit. The finance cost rose 15% to Rs 407.5 crore in the second quarter, due to base effect, Jain said. Net loss on derecognition of financial instruments under amortised cost spiked to Rs 82.2 crore, as compared with Rs 58.2 crore a year ago.

The consolidated total income of the non-banking financial company stood at Rs 1,599.3 crore, 33% higher than the previous year's figures. Under this, income generated from co-lending products marked a growth of 350%, followed by other income that rose 149% during the quarter.

The net interest income was 38% higher at Rs 1,001 crore as of Sept. 30.

IIFL Finance's loan assets under management also saw a 32% on-year growth to Rs 73,066 crore as of Sept. 30, driven primarily by microfinance loans and digital loans. "The microfinance customer base stood at 27.1 lakh customers... The company successfully transitioned to a risk-based pricing model for new customers and improved its portfolio yield by 200 bps YoY," it said in a press release.

The asset quality remained stable, with the gross non-performing ratio at 1.8%, and the net non-performing ratio at 1.0% sequentially. With implementation of Expected Credit Loss framework, the NBFC's provision coverage ratio stood at 159%.

The capital adequacy ratio was at 20% as of Sep. 30. The fundraise by IIFL Finance up to Rs 3,000 crore through equity and convertible instruments is aimed at boosting growth, which would improve the standalone capital adequacy "significantly," Jain said. The standalone CRAR is expected to rise to above 30%, going ahead, he added.

Jain expects the total assets under management to grow 25% annually for next couple of years.