After witnessing a major drawdown on Thursday, shares of IIFL Finance Ltd. have gained sharply on Friday as investor sentiment improved following the management's clarification on the Income Tax Department's special tax audit on the company.
The stock is trading at Rs 561.5, accounting for gains of more than 4% compared to Thursday's closing price of Rs 528.25. It must be remembered that the stock fell more than 15% on Thursday, with the special tax audit dampening investor mood even as the company reported relatively strong third-quarter results.
That being said, Friday's upmove can be linked to the management's clarification on special tax audit, with Nirmal Jain, founder of the IIFL Group, stating that the audit is completely procedural.
"It's a procedural, it's not an allegation, and it's not uncommon for companies with such complex operations to undergo this type of audit," Nirmal Jain said in an earnings call.
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.
Shares of IIFL have gained more than 45% on a year-on-year basis and are currently trading with a relative strength index of 43, which suggests neutral market sentiment.
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