Shares of IIFL Finance will be in focus heading into trade on Friday after a directive for a special tax audit overshadowed the company's third-quarter earnings, prompting Jefferies to reduce its target price for the non-banking financial company (NBFC).
In its latest note, Jefferies has maintained 'hold' rating on IIFL Finance, but has reduced its price target from Rs 625 to Rs 600, citing potential near-term headwinds.
Although the firm noted that IIFL Finance's third-quarter earnings surpassed analyst expectations, the brokerage added that regulatory scrutiny could appear as a major overhang on the stock's valuation in the near future.
IIFL Finance reported a consolidated profit of Rs 464 crore in the December quarter, representing a 23.4% sequential increase. The profit beat was primarily driven by lower-than-expected provisions and improved net interest margins (NIMs). IIFL Finance's asset quality also showed some resilience, with credit costs coming in slightly better than estimates.
Jefferies notes that growth for IIFL Finance remains heavily anchored by its gold loan segment, which saw significant momentum. The 'ex-gold' assets under management, meanwhile, continued to undergo consolidation as the firm restructures its broader lending portfolio.
What will dampen investor sentiment, though, is the Income Tax Dept's directive of a special tax audit of the company's accounts under Section 142 (2A) of the Income Tax Act. IIFL Finance management described the audit as 'procedural' and related to ongoing assessments from previous years.
"It's a procedural, it's not an allegation,n and it's not uncommon for companies with such complex operations to undergo this type of audit," Nirmal Jain, Founder of IIFL Group, said in an earnings call.
Shares of IIFL Finance plummeted as much as 15% during Thursday's trade and remain one of the closely-watched stocks heading into market open on Friday.
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