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On Monday, Jefferies analyst Bhaskar Basu revised the price target for IIFL Finance Ltd (IIFL:IN) to INR425 from the previous INR595, while maintaining a Buy rating on the stock. The adjustment follows IIFL's third-quarter financial results for the fiscal year 2025, which showed a significant decline in profit after tax (PAT). The company reported a PAT of Rs0.4 billion, a 91% decrease from the previous quarter, primarily due to narrower net interest margins (NIMs) and increased provisions.
The report highlighted that while IIFL's assets under management (AUM) for gold loans have seen healthy growth, the expansion in other segments has decelerated. The analyst pointed out that the reduction in gold loan yields and changes in the loan mix are expected to impact NIMs negatively. Additionally, there is a persistent high level of stress in the microfinance institution (MFI) sector, and signs of stress are emerging within the micro, small, and medium enterprise (MSME) loan segment.
In response to these challenges, Jefferies has reduced its earnings per share (EPS) estimates for IIFL for the fiscal years 2025 to 2027 by 6-18%. Despite the near-term earnings being projected to remain subdued, the analyst anticipates a recovery in profitability over the span of FY25-27e.
The report concluded by noting that at one times the estimated book value for FY26, IIFL's valuation appears reasonable. The Buy rating has been retained based on this assessment.
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