IIFL Finance shares in focus after strong Q4; check price target revisions

Shares of IIFL Finance Ltd. will be in focus on Thursday, April 30, after the company reported a strong set of Q4FY26 earnings.

Net interest income (NII) came in at ₹1,163.8 crore, rising 13% year-on-year and 6% sequentially. Pre-provision operating profit (PPOP) surged 80% YoY to ₹1,172.7 crore, while net profit jumped 148% YoY to ₹623.2 crore, with a 24% QoQ increase.

The company's return on assets (ROA) stood at 3.0% versus 2.5% in the previous quarter, and return on equity (ROE) at 17.9% versus 14.4%.

Asset quality strengthened, with gross NPA declining to 1.46% from 1.60% QoQ and net NPA easing to 0.73% from 0.75%. The provision coverage ratio stood strong at 93%.

The company maintained a healthy capital position, with a CRAR of 25.3% and net gearing at 3.8x. Cost of borrowing improved to 8.97%, lower than the FY25 average.

Gold loans continued to drive growth, with AUM at ₹52,581 crore, up 150% YoY and 21% QoQ. Home finance remained steady at ₹32,125 crore, while MSME loans grew 11% YoY to ₹10,349 crore.

Microfinance AUM declined 7% YoY but saw a 9% sequential uptick to ₹9,143 crore.

How brokerages reacted to IIFL Fin Q4

HSBC has maintained a ‘Buy’ rating on IIFL Finance and raised its price target to ₹550, citing a robust Q4 performance, healthy AUM growth, improving asset quality, and a strong RoE.

The brokerage said the company is entering a favourable earnings upcycle, supported by MFI cyclicality and a recovery in housing finance growth.

HSBC has also raised its FY27-FY28 earnings estimates by 9.0% and 1.5%, respectively, driven by expectations of lower credit costs.

Nomura, which has a ‘Hold’ rating on the stock, has cut its price target to ₹500. It expects AUM growth to moderate as gold loan growth normalises, but sees further easing in credit costs supporting a 26% profit CAGR and improvement in RoE over FY26-FY28.

The brokerage added that valuations at 1.1x FY27 estimated book value appear reasonable, although uncertainty around the outcome of the special tax audit remains a near-term overhang.

FY27 guidance and outlook

Management remains optimistic on growth, particularly in secured segments. Gold loan AUM is expected to grow 20-25%, assuming stable gold prices, while the housing finance book is guided to expand 18-20%.

Disbursements in housing finance are projected to grow 25-27%.

The microfinance segment is expected to grow around 20%, albeit with a cautious approach. Consolidated credit costs are likely to improve sharply to 1.5%-1.7% in FY27.

The company expects ROA to sustain above 3% over time, supported by lower credit costs. It is also targeting an increase in the off-book or co-lending mix from 35-36% currently to 40-45%, which should enhance capital efficiency.

Following the easing of RBI norms, IIFL Finance plans to expand its branch network in gold loans. The focus remains on secured lending, cross-selling opportunities, and tapping underserved Bharat and MSME segments.

Management also expects incremental gains from AI-led cost efficiencies and productivity improvements.

Management commentary

The company indicated that a tax assessment order is expected soon, but does not anticipate any material adverse impact. Any potential tax demand will be legally contested.

A rating upgrade remains a medium-term goal, driven by stronger profitability, scale, and asset quality, which could also help reduce borrowing costs further.

IIFL Finance shares settled 2.50% higher on Wednesday at ₹449. The stock is down 28% so far this year.

Note To Readers

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.