IIFL - IIFL FINANCE LIMITED Share Price

The management of IIFL Finance provided an optimistic outlook during the Q1 FY26 earnings conference call, highlighting a constructive macroeconomic environment in India. The key forward-looking points include a stable inflation rate, improving rural sentiment, and substantial growth in retail credit demand.

Despite some challenges in asset quality, particularly in the MSME and microfinance sectors, the company has taken proactive measures to manage risk, including curbing exposure to high-risk segments and enhancing collection strategies with AI-driven systems. Management reported a profit after tax of Rs. 274 crores, a 9% quarter-on-quarter increase but down 19% year-on-year. The pre-provision operating profit stood at Rs. 836 crores, reflecting a 28% quarter-on-quarter increase and a 31% year-on-year increase.

The consolidated loan AUM reached Rs. 83,889 crores, a 21% increase year-on-year, with significant growth driven by gold loans, which surged 30% quarter-on-quarter and 85% year-on-year to Rs. 27,274 crores. The retail segment makes up 98% of the total AUM. Management estimates a full-year consolidated AUM growth of around 20%, while home loans are projected to grow by 15%-18%.

Gross and net NPAs are aligned with the company's guidance, at 2.3% and 1.1%, respectively. For the full year, the anticipated credit cost is around 3.5%. Management emphasized strengthening governance and risk practices, with plans for ongoing investment in technology and innovation to support growth and financial inclusion. They also appointed prominent board members to enhance oversight.

Overall, the management remains confident about continued growth momentum in various segments, particularly gold loans, which are benefiting from higher demand due to a shift in funding preferences among MSMEs.

Major Questions and Answers from the Q&A Section of the Earnings Transcript

Question 1:

Chetan Gindodia: Can you explain segment-by-segment what key changes have occurred on the asset quality, and commensurately, what has been the impact for credit cost in this quarter?

Answer: Asset quality in gold loans has improved with no stress reported, while home loans show only marginal changes. The main issues lie in microfinance and unsecured MSME loans, especially micro-LAP. Despite some stress, we are managing the segments carefully. Our total loan loss provisions reached over Rs. 500 crores this quarter, surpassing previous guidance. We're expecting a credit cost of about 3.5% based on first-quarter trends.

Question 2:

Shubhranshu Mishra: What is the current onboarding LTV for gold loans, and is CLSS-2 acting as a demand driver?

Answer: For gold loans, our Loan-to-Value (LTV) is about 66% on a portfolio level, and typically it ranges from 70% to 75% at the time of lending. Regarding CLSS-2, despite its operational challenges, we have successfully facilitated subsidies for 1,600 individuals, indicating it will serve as a significant demand driver going forward.

Question 3:

Anusha Raheja: Do we anticipate that NPAs will remain on the higher side for the next two quarters? What are the expectations for asset quality?

Answer: First-quarter trends indicated elevated NPAs, but we expect improvement in the second half of the fiscal year. Although credit costs could reach around 3.5%, we anticipate better asset quality in subsequent quarters, especially as macroeconomic conditions improve.

Question 4:

Deepak Poddar: Given the credit cost outlook is now 3.5%, what ROA are we targeting for the year?

Answer: We are aiming for a ROA around 3%, reassessing based on the current quarter's higher credit costs. While we need to monitor expenses and income, the expectation is to maintain the performance despite the added costs.

Question 5:

CL Vicky: Regarding NPAs currently at 2.3%, what are your expectations for the next two to three quarters?

Answer: We aim to keep GNPA below 2% by the year-end. Our target is to bring it back to FY23 levels, as we manage our portfolio carefully, especially within the discontinued segment, adding resources for collections to mitigate potential defaults.

Question 6:

Abhishek: What factors led to the strong growth in gold loans this quarter?

Answer: Recent growth is attributed to a decline in unsecured MSD loans and a rise in gold prices, boosting loanable value. Additionally, improved macroeconomic momentum is enhancing SME traction, contributing to the demand for gold loans.

Question 7:

Sudarshan: Is the stress in the micro-ticket LAP geographical-specific?

Answer: Stress has been predominantly observed in Andhra Pradesh and upcountry Maharashtra, with these states showing significant challenges to loan repayment. However, our teams are actively managing these portfolios to secure recovery.

This summary reflects the major inquiries and responses during the earnings call, offering an insight into the company's performance and strategic outlook.