Company Update : IIFL Finance by Motilal Oswal Financial Services Ltd
NII & PPOP lower than est.; strong growth in gold loans
Asset quality stress in MFI, unsecured MSME, and micro-LAP
* IIFL Finance’s (IIFL) 1QFY26 NII was down 10% YoY and ~1% QoQ to ~INR12.9b (~10% miss), potentially due to higher interest income reversal on MFI loans. Other income stood at ~INR3.8b (PQ: INR810m). This included assignment income of ~INR2.3b (which was absent for the last six quarters).
* Net total income grew ~17% YoY to ~INR16.7b. Opex grew ~7% YoY to INR8b (~8% higher than MOFSLe), with the cost-income ratio declining to ~48% (PQ: 53% and PY: 52%). PPoP stood at INR8.7b and grew ~26% YoY (~7% miss).
* Credit costs were lower than our estimate and were INR5.1b. This translated into annualized credit costs of ~3.65% (PQ: ~2.7% and PY: ~2.1%). Credit costs were elevated in microfinance, unsecured lending, and small-ticket LAP.
* PAT (post-NCI) declined ~19% YoY to INR2.3b (6% beat) in 1QFY26
Consol. AUM rises ~21% YoY; strong 30% QoQ growth in gold loans
* Consol. AUM grew 21% YoY and ~7% QoQ to INR839b. On-book loans rose ~26% YoY. Off-book formed ~32% of the AUM mix, with co-lending forming ~14% of the AUM mix.
* Gold loan AUM stood at ~INR273b and rose ~30% QoQ. Sequential growth in AUM was driven by gold loans (+30%). Home loans grew only +1% QoQ, MSME loans declined ~2% QoQ, while Microfinance dipped ~10% QoQ.
NIM down ~60bp QoQ; calc. yields decline ~55bp QoQ
* Consol. yields/CoB declined ~55bp/5bp QoQ to ~12.7%/~9.7%.
* Calculated NIM contracted ~60bp QoQ.
Asset quality stress in MFI, unsecured MSME, and micro-LAP
* GS3 rose ~10bp QoQ to ~2.34%, while NS3 rose ~8bp QoQ to ~1.15%. PCR declined ~130bp QoQ to ~52.3%. NPAs during the quarter were impacted by macro trends in microfinance, unsecured lending, and small-ticket LAP.
* The company received RBI approval to open 10 new branches in Jammu & Kashmir on 23rd May’25 and 500 in locations across India on 28th Jul’25.
* IIFL’s (Standalone) CRAR stood at ~18.3%.
Other highlights from the presentation
IIFL has taken corrective actions for improving the asset quality, such as:
* MSME Loans: Discontinued small-ticket unsecured loans. No new disbursements in 1QFY26. Discontinued AUM (% of Total) is 2.4%.
* Housing Finance: Discontinued micro-LAP segment – No new disbursement in 1QFY26. Further, the company deployed a dedicated collection team of 300 for Micro LAP and Andhra BLC. Discontinued AUM (% of total) - 3.1%.
* Microfinance: Identified high-stress regions and deployed focused recovery teams. Reducing exposure to borrowers with >3 active lenders.
Valuation & View
* IIFL reported an opertionally weak quarter. Very strong growth in gold loans being the only positive. Loan growth remained tepid across all other segments. The company faced asset quality pressures in its MFI, unsecured business loans, and micro-LAP portfolios, which resulted in elevated credit costs. Additionally, NIMs declined further, potentially impacted by interest income reversals on fresh slippages in the quarter.
* The stock trades at 1.3x FY27E P/BV and ~9x P/E. We might revise our estimates after the earnings call on 31st Jul’25.
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