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Healthy profitability aided by NIM expansion

AUM rises 34% YoY; PAT up 30% YoY despite lower non-interest income

IIFL’s NII grew 45% YoY to ~INR15.7b. Non-interest income stood at INR1.1b (down ~40% QoQ/~55% YoY) due to lower assignment and fee income. 

Opex grew 28% YoY to INR7.3b, with the cost-income ratio at 43%. PPoP stood at INR9.6b and it grew ~25% YoY. 

IIFL’s 3QFY24 PAT (post-NCI) grew 30% YoY/3% QoQ to ~INR4.9b, while its 9MFY24 PAT grew ~28% YoY to INR13.8b. RoA/RoE stood at 3.8%/19.7%. 

IIFL (Standalone) CRAR stood at ~20% (Tier 1: ~12.5%) and the company has declared an interim dividend of INR4/share.

Business momentum continues to remain strong

Consol. AUM jumped 34% YoY and ~6% QoQ to INR774b. On-book loans grew ~30% YoY. Off-book formed ~39% of the AUM mix including colending, which contributed ~15% of the AUM mix. 

Sequential AUM growth was driven by Home Loans (+6%), Gold Loans (+4%), Microfinance (+7%), LAP (+9%) and Digital Loans (+10%). Wholesale CRE book also grew 2% QoQ. 

Total disbursements (core products) rose ~27% YoY/5% QoQ. However, MFI disbursements grew only ~8% YoY.

Expansion in spreads aided by healthy improvement in gold loan yields

Consolidated yields rose ~20bp QoQ to 17.2% (aided by ~50bp QoQ rise in gold loan yields). Consol. borrowing costs rose ~5bp QoQ. This resulted in average interest spreads of 8.2% (1HFY24: 8.1%).

Asset quality continues to strengthen; NNPA now below 1%

GS3 declined ~10bp QoQ to 1.7% while NS3 declined ~15bp QoQ to 0.9%. 

Annualized credit costs declined to ~2.1% (PQ and PY: 2.4%). The company has also taken a charge of ~INR1.6b on the capital of the HFC subsidiary (as an impact of the RBI AIF circular). 

The full impact of the RBI RWA circular and the RBI AIF circular has been accounted for in 3QFY24. The company had earlier shared that these are performing exposures in the AIF and it expects a full recovery as and when the recoveries accrue in the AIF.

Valuation & View

IIFL has morphed into a franchise, which enjoys distribution strength, strong presence in co-lending, and superior digital loan origination and underwriting capabilities, and can effectively leverage fin-tech partnerships to deliver ~25% AUM CAGR over FY23-FY26E. We believe the company can sustainably deliver an RoE of 20%+ in the medium term. 

The stock trades at 1.9x FY25E P/BV and ~10x P/E. IIFL can see further rerating as investors get more confidence in its core retail business. We might revise our estimates after the earnings call on 18th Jan’24.

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SEBI Registration number is INH000000412