IIFL - IIFL FINANCE LIMITED Share Price

Management's outlook indicates a positive trajectory for IIFL Finance following a significant turnaround in Q4 FY25. The consolidated profit after tax reached INR 251 crores, reflecting a 208% increase quarter-over-quarter. The aggregate AUM rose to INR 78,341 crores, marking a 10% sequential growth. The management expects continued acceleration in profits and asset growth in FY26, reaching pre-RBI embargo levels.

Key highlights from management include:

1. Growth Segmentation: Gold loans demonstrated robust growth with a 40% increase sequentially. MSME loans, a strategic focus moving forward, grew 18% year-over-year, potentiating a target growth range of 25-30%. Home loans maintained momentum, especially in the affordable housing segment.

2. Asset Quality Improvement: Gross NPA improved to 2.2% from 2.4%, indicating enhanced asset quality. The capital adequacy ratio stands at a solid 29%, well above regulatory requirements.

3. Funding and Liquidity: Management plans to leverage a liquidity buffer exceeding INR 5,200 crores and mobilized nearly INR 8,500 crores in funding during the quarter, including a successful dollar bond issuance of USD 425 million and domestic NCD placements totaling INR 1,500 crores.

4. Regulatory Compliance: The focus remains on enhancing compliance frameworks in line with RBI's scale-based regulations, alongside significant investments in technology and digital strategies aimed at accelerating loan disbursement and improving operational efficiency.

5. Forward Guidance: The outlook for FY26 suggests maintaining an interest spread of 6.9% to 7% compared to 6.7% in FY25, driven by an improved loan mix and a peak in interest rates. The expectation for ROA is set around 3%, with credit costs anticipated between 2.5% and 2.7%.

Overall, management is optimistic, aiming for sustainable growth while focusing on governance and technological advancements to enhance servicing in the financial sector.

Here are the major questions from the Q&A section of the earnings transcript, along with detailed answers:

1. Question: "What sort of MSME is taking these loans and why?" Answer: "These loans are primarily MUDRA loans aimed at small shopkeepers and ancillary units who typically get ignored by banks. They borrow at higher working capital levels, with tenures ranging from 12 to 24 months, mainly for working capital or expansion."

2. Question: "What would be the focus in the MSME sector, growth or credit quality?" Answer: "Our focus is on credit quality while also growing the gold loans. We're regaining lost business, and as our distribution capability is higher, we expect to see significant growth in the MSME segment that will be sustainable beyond just recovery."

3. Question: "What is the expected ROE for the MSME book?" Answer: "While we haven't allocated ROE separately due to shared infrastructure costs, our overall ROE guidance includes co-lending and remains optimistic. We aim for steady improvements as we scale."

4. Question: "What is our expected ROA for FY26?" Answer: "We anticipate an ROA closer to 3%, with improvements driven by NIM expansion, volume growth, and continued partnerships with banks affecting co-lending."

5. Question: "How is the gold loan business expected to grow over the next two years?" Answer: "Gold loan growth looks strong, with pricing favorable and economic conditions beneficial. We expect to return to 24,000 crores as economic conditions normalize and maintain higher operational efficiency."

6. Question: "What are the implications of the new RBI LTV guidelines for gold loans?" Answer: "If LTVs are adjusted, we'll recalibrate loan values, but current gold prices should mitigate the impact. We're closely monitoring guidelines as we remain compliant with ongoing changes in regulation."

7. Question: "How are credit costs anticipated for the microfinance business in FY26?" Answer: "We expect credit costs to stabilize around 5%. Post-implementation of guardrails, asset quality has shown improvement, positioning us for better performance than in the previous fiscal."

8. Question: "What percentage of our housing loan portfolio comprises micro-lap?" Answer: "The micro-lap constitutes about 2,400 crores of our total housing finance book. It's been monitored closely due to past performance trends but remains a smaller portion of our secure lending."

These answers convey key insights regarding strategy, financial outlook, and risk management within IIFL Finance Limited.