Shares of IIFL Finance, a prominent NBFC specialising in retail credit, plunged 6% in intraday trade on February 14, touching a 10-month low of ₹312.20 per share. The decline came after the company’s December quarter performance fell short of Street estimates, impacted by elevated credit costs and a slight deterioration in asset quality due to a cyclical economic slowdown.
The company faced asset quality stress in its microfinance (MFI), unsecured personal/business loans, and small-ticket loan against property (LAP) segments during the quarter, reflecting weak macroeconomic trends.
For the quarter ended December, the company reported a profit after tax (PAT) of ₹82 crore, down 85% year-on-year (YoY). Among its core products, home loan assets under management (AUM) grew by 19%, while MSME loan AUM grew by 31%. Meanwhile, the microfinance segment declined by 14% YoY, and gold loans contracted by 39% YoY. Overall, the loan AUM declined by 8% YoY to ₹71,410 crore.
Net interest income (NII) declined 14% YoY to ₹947 crore. Operating expenses (opex) grew 3% YoY to ₹747 crore, with the cost-to-income ratio at 56%. Pre-provision operating profit (PPOP) declined 38% YoY to ₹534 crore for the quarter, a 45% drop on a YoY basis.
Credit costs rose to 4.2%, primarily due to higher stress in the MFI and MSME segments. The management indicated that the share of MFI in the AUM mix will fall below 10% within the next two years, and it aims to reduce its unsecured loan portfolio to below 15% of total assets.
The microfinance sector is facing challenging conditions amid concerns over over-leveraging. However, inflows into the zero-bucket category have been gradually declining since late November and December 2024, with improvements sustaining into January 2025. The company has guided MFI credit costs at 8.0-8.5% for FY25.
On the asset quality front, the gross non-performing assets (GNPA) ratio stood at 2.4%, up 70 basis points (bps) YoY, while the net NPA (NNPA) ratio stood at 1.0%, up 14 bps YoY as of December 31, 2024. With the implementation of Expected Credit Loss (ECL) under Ind AS, overall provision coverage on NPAs stands at 114%.
Following the company’s December quarter performance, Motilal Oswal estimates that IIFL Finance’s return on assets (RoA) and return on equity (RoE) will decline to 0.8% and 2%, respectively, in FY25 but recover to 3.4% and 17% in FY27. The brokerage retains its ‘Buy’ rating on the stock with a price target of ₹415 per share.
Stock price history
The company’s shares came under pressure in March 2024 after the RBI imposed restrictions on its gold loan disbursements. Although these restrictions were lifted in September 2024, the stock continued to face selling pressure amid concerns over asset quality and elevated credit costs. Despite some recovery attempts, investor sentiment remained weak due to the company’s declining profitability and macroeconomic headwinds.
Over the last 13 months, the stock has lost 49% of its value, declining from ₹605 per share to the current trading price of ₹312. Despite this steep drop, the stock is still up by 321% since April 2020.
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