Jefferies has spotlighted IIFL Finance Ltd.'s promising recovery trajectory, following a challenging financial year. The brokerage, in its report titled '4QFY25 Results: Earnings To Recover From FY25 Trough', underscored a significant rebound in gold loans and anticipates a robust growth in assets under management over the next few years.
IIFL Finance's profit after tax for the fourth quarter of FY25 stood at Rs 200 crore, marking a 44% year-on-year decline but surpassed Jefferies' estimate of Rs 160 crore due to lower provisions. "Gold AUM has ramped up well, but growth in other segments has eased. AUM should grow at 17% compound annual growth rate and net interest margins should improve over FY25-27," it noted in the reported.
The report spots a 40% quarter-on-quarter rebound in gold AUM, now just 15% below its pre-ban peak. "Loan growth is in line; gold loans have rebounded well," Jefferies said. For FY26, IIFL Finance is guiding for 25-30% growth in gold loans, which is expected to drive overall AUM growth of 18-20%.
Despite the positive outlook, Jefferies cautions about ongoing stress in unsecured MSME loans, which could limit the reduction in credit costs. "Stress in unsecured MSME loans can continue for some more time," the report warns. However, the management expects the stress in microfinance to moderate in FY26.
Jefferies maintained a 'buy' rating on IIFL Finance, citing reasonable valuations and potential for recovery. "Profits and return on equity should recover from the FY25 trough. Valuations seem reasonable," the report said. The firm expects IIFL Finance's return on equity to improve to 12.2% in FY26 and 14.5% in FY27, driven by the scale-up of off-book income.
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