Why IIFL Finance Share Price is Falling

Share price of IIFL Finance crashed 20% in early trade today.

This comes after the firm received a major blow last night from India's central bank.

That made us wonder whether a kneejerk reaction to such extent was justified.

Let's dig a little deeper into the details and understand what lies ahead for the finance company.

RBI's Surprise Move

Late last night, the Reserve Bank of India (RBI) asked IIFL Finance to stop the sanctioning and disbursement of gold loans, citing "material supervisory concerns" observed in the non-bank financier's gold loan portfolio.

The central bank said the lapses, which comprised regulatory violations, adversely impact the interest of the customers.

The RBI had carried out an inspection of the company regarding its financial position as on 31 March 2023.

In a statement, the central bank noted violations in the maximum allowed loan-to-value ratio and found that IIFL Finance exceeded permitted cash collections, failed to adhere to the standard auction process, and lacked transparency in the fees charged by the company.

Providing some relief, the RBI said IIFL can continue to service its existing gold loan portfolio through usual collection and recovery processes.

As of December 2023, IIFL Finance's gold loan book stood at Rs 246.9 billion (bn), which is approximately 30% of its total portfolio.

What IIFL Finance Had to Say About these Allegations

Whenever something big like this happens, companies immediately come out with circulars explaining reasons behind the same.

While we'll get to the crux of the matter over time as more details come out, IIFL Finance MD Nirmal Jain had this to say on the recent event...

• While the directive from RBI appears a little harsh, would like to express utmost gratitude to the regulator.

He added that the firm will comply with RBI circular and mentioned that the company has adequate liquidity at group level and will continue to collect money via repayment.

Reportedly, IIFL Finance is already approaching RBI for an urgent meeting.

The key thing to note is that the RBI took this action due to 'operational issues', and not due to governance or ethical problems.

What Next?

In its Q3 results, IIFL Finance reported growth across segments with the microfinance segment witnessing a 54% surge to Rs 120.9 bn while digital loans almost doubled to Rs 39.1 bn.

The company is hoping for an even better Q4, given the positive lending environment.

Demand for affordable home loans and affordable housing is picking up.

IIFL has already brought down its net NPAs to 0.9% in Q3 and the asset quality could even improve further in the last quarter of FY24.

Keeping aside the current allegations, IIFL Finance has been a consistent performer.

It's among the top two entities in the gold finance segment and among the top three non-bank players in microfinance.

With its extensive branch network and a diversified revenue profile, the company's revenue and profit has grown in the past five years.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	49,778	47,385	55,384	62,877	75,978
Growth (%)	-21%	-5%	17%	14%	21%
Operating Profit	36,502	32,438	37,488	46,690	55,101
OPM (%)	73%	68%	68%	74%	73%
Net Profit	7,946	5,018	7,601	11,879	15,003
Net Margin (%)	16%	11%	14%	19%	20%
ROE (%)	17.6	11.1	15.0	20.1	20.8
ROCE (%)	10.7	9.9	10.4	11.4	11.8
Dividend (Rs)	5.0	2.3	3.0	3.5	4.0
Debt to Equity (x)	6.1	5.8	6.0	5.5	4.4

Data Source: Ace Equity

The company recently raised funds through term loans, bonds, refinance, and direct assignment of loans.

As the company said in response, the RBI's move is due to 'operational issues', and not due to governance or ethical problems. The financials remain intact.

It will be interesting to see how the events fold in the coming days. Watch this space for more as we discuss what happens after IIFL Finance's meeting with the RBI.

How IIFL Finance Share Price has Performed Recently

In early trade today, IIFL Finance shares crashed 20% following the RBI's surprise move.

The fall was not only limited to IIFL Finance, but one of its group companies IIFL Securities also plunged over 11%.

IIFL Finance has a 52-week high of Rs 704 touched on 16 October 2023 and a 52-week low of Rs 408 touched on 14 March 2023.

In the past one year, IIFL Finance share price has gained 6%.

Here's a table comparing IIFL Finance with its peers -

Comparative Analysis

Company	IIFL Finance	Cholamandalam	JM Financial	Kama Holdings	Paul Merchants
ROE (%)	20.8	40.3	9.1	44.1	9.0
ROCE (%)	11.8	10.6	9.5	34.7	11.3
Latest EPS (Rs)	47.3	88.8	7.3	234.1	174.2
TTM PE (x)	12.7	12.1	13.4	11.2	5.3
TTM Price to book (x)	2.2	2.1	1.1	1.3	0.5
Dividend yield (%)	0.7	0.1	1.9	6.4	0.0
Industry PE	9.9
Industry PB	2.2

Data Source: Ace Equity

About IIFL Finance

IIFL Finance Ltd is a diversified NBFC in India engaged in the business of loans and mortgages along with its subsidiaries.

In FY20, the company demerged its Securities and Wealth business undertakings into 2 separate companies i.e. IIFL Securities Ltd and IIFL Wealth Management Ltd.

To know more, check out IIFL Finance financial factsheet and its latest quarterly results.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...