IIFL FInance - A Strong NBFC Set For Future Growth

Summary

IIFL Finance - Operationally Strong and Financially Capable of Further Expansion and Growth

IIFL Finance Limited (‘our Company’ or ‘IIFL Finance’ ‘We’), formerly known as IIFL Holdings Limited, is a prominent and well-respected financial services institution in India. Founded in 1995 as a research firm, we consistently innovated and reinvented ourselves to meet the evolving needs of the financial services industry. Along with our subsidiaries, IIFL Home Finance Limited, IIFL Samasta Finance Limited and IIFL Open Fintech Private Limited, our Company offers a diverse range of financial services, including Gold, Home, Loan Against Property, Digital loans and Microfinance loans, through an extensive network of branches across India. We utilize a hybrid model of physical and digital distribution to deliver financial services, with 4,200+ branches as well as a robust online infrastructure and innovative mobile platforms. We serve over 8 Million customers across various business segments. Our Company is led by first-generation entrepreneurs Mr. Nirmal Jain and Mr. R. Venkataraman and is supported by reputable institutional investors, like Fairfax Group. Honesty and transparency are core values of our Company, as we aim to keep our loan products simple, ensure transparency, and demonstrate unwavering commitment to our customers. Our management team comprises highly skilled and experienced professionals, committed to fostering a growth culture, entrepreneurship, and innovation among our vast talent pool.

The company entered into a joint venture with Open Financial Technologies Private Limited, which is the 100th unicorn of India and the largest SMB (Small and Mid-sized Business) Neo-bank. Open has integrated with 17 large banks and has an existing customer base of 2 Million+ merchants. Our Company’s existing lending book and infrastructure will be used by Open to offer innovative lending solutions to these merchants on their platform. This joint venture will also give access to users’ business transactions leading to better insights for underwriting decisions and it will lead to growth in IIFL Finance’s lending book by offering credit solutions to Open’s existing merchant base.


IIFL Finance: Structure and Ownership Analysis

• Shareholding Pattern: The presentation begins with an overview of IIFL Finance's shareholding pattern, showing a mix of promoters (24.8%), institutional investors (56.0%), and public & others (19.2%).
• Key Financials: As of September 30, 2023, IIFL Finance reports a Loan AUM of ₹73,066 Cr, a PAT of ₹998 Cr for H1FY24, over 8 million customers, and a net worth of ₹9,640 Cr. The ROA and ROE stand at 3.7% and 19.5% respectively.
• Subsidiaries: IIFL Finance's ownership in subsidiaries includes IIFL Home Finance (80%), IIFL Samasta Finance (99%), and IIFL Open Fintech (51%).
  

Historical Milestones and Shareholding Pattern

Management Team

Key management personnel, including Nirmal Jain (Managing Director), R Venkataraman (Joint Managing Director), and other business and support leaders, are introduced. Their experience and expertise form the backbone of IIFL Finance's leadership

Strategic Shifts in the Last Five Years

IIFL Finance has seen significant changes in its branch numbers, active customers, and strategic focus areas like acquisition, the Phygital model, brand partnerships, balance sheet structure, core products, and conservative Asset-Liability Management (ALM).

Business Strategy

• Phygital Model: IIFL Finance's business is built on a mix of physical and digital (Phygital) models, focusing on retail lending with strong collateral or cash flow-backed loans.
• Partnerships: The company partners with banks and fintechs, leveraging its network of 4,596 branches for loan origination, collection, and physical storage of gold.
• Digital Solutions: IIFL Finance uses innovative digital solutions for cost optimization, cross-selling, and superior underwriting.
  

India’s Credit Market Opportunity

IIFL Finance identifies a significant opportunity in India's credit market, especially in the growing yet underpenetrated income segments. The presentation includes data on India's GDP, overall system credit, and the distribution of corporate and retail credit.

Total Addressable Market

The addressable market for various financial products like Home Loan, Loan Against Property (LAP), Microfinance, Business Loan, and Gold Loan is analyzed, providing a comprehensive view of the potential market landscape

Core Product Portfolio

A detailed overview of IIFL Finance's product portfolio, including Home Loan, LAP, Gold Loan, Digital Loan, and Microfinance, is provided. It covers customer base, yield percentages, loan features, and AUM distribution across products.

Branch Network and Geographic Presence

The presentation shows the growth in branch numbers over the years and the geographic distribution of AUM across products like Home Loan, Gold Loan, LAP, MFI, and Digital Loan in various regions of India.

Housing Finance

• Home Loan: Insights into the home loan segment include product portfolio, customer profiles, and performance metrics like asset under management, portfolio yield, disbursement, and Gross NPA.
• Customer Profile: The customer profile for home loans is detailed, highlighting segments, loan features, average age, priority sector lending, women borrowers, and the income profile of customers.
  

Loan Against Property (LAP)

• Business Snapshot: A comprehensive look at the LAP segment, covering AUM, portfolio yield, disbursement, and Gross NPA.
• Customer Profile: The presentation provides an analysis of the LAP customer profile, detailing segments, loan features, and priority sector lending.
  

Gold Loans

• Business Snapshot: The gold loan segment is explored in depth, with data on AUM, tonnage, branches, portfolio yield, and Gross NPA.
• Competitive Advantage: IIFL Finance's competitive advantages in the gold loan segment are outlined, including network, people, digital technology, brand visibility, security controls, and customer centricity.

Digital Loans

• Business Snapshot: The digital loan segment is analyzed, including AUM, portfolio yield, onboarding average ticket size (ATS), and Gross NPA.
• Key Focus Segments: Business Loan and Supply Chain Finance are highlighted as key segments, with details on loan nature, customer profile, and underwriting.

Microfinance

• Business Snapshot: IIFL Finance's microfinance segment is detailed, including AUM, portfolio yield, AUM mix, and Gross NPA.
• Key Competitive Advantages: The company's advantages in microfinance are discussed, focusing on portfolio growth, technology implementation, asset quality, and geographic reach.

Financials & Ratios

FY25 Guidance

The company's guidance for FY25 is provided, including targets for Loan AUM CAGR, Net Profit, and Capital Adequacy.

Analysis - The company is giving guidance 25% CAGR growth in profitability and AUM which gives strong visibility for the future.

Major Milestones

Milestones

• 1995: Commenced operations as an Equity Research firm
• 1997: Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies. 
• 1999: Launched www.indiainfoline.com 
• 2000: Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund 
• 2003: Launched proprietary trading platform Trader Terminal for retail customers 
• 2004: Acquired commodities broking license
• 2004: Launched Portfolio Management Service 
• 2005: Maiden IPO and listed on NSE, BSE
• 2006: Acquired membership of DGCX
• 2006: Commenced the lending business
• 2007: Commenced institutional equities business under IIFL
• 2007: Formed Singapore subsidiary, IIFL (Asia) Pte Ltd
• 2008: Launched IIFL Wealth
• 2008: Transitioned to insurance broking model  
• 2009: Acquired registration for Housing Finance
• 2009: SEBI in-principle approval for Mutual Fund
• 2009: Obtained Venture Capital license
• 2010: Received in-principle approval for membership of the Singapore Stock Exchange
• 2010: Received membership of the Colombo Stock Exchange
• 2011: Carlyle Group increased its stake in India Infoline Group to 9 percent through secondary-market purchases
• 2012: India Infoline Finance, the NBFC arm of India Infoline Group, India’s leading financial services provider, received registration from Pension Fund Regulatory and Development Authority (PFRDA) to act as Aggregator under National Pension System (NPS).
• 2014: IIFL Wealth acquires India Alternatives
• 2014: The Company has changed its name from India Infoline Ltd. to IIFL Holdings Ltd.
• 2014: Set up advisory services for succession and estate planning in IIFL Wealth Management
• 2015: Launched mobile trading platform
• 2016: Fairfax Group belonging to the reputed global investor Mr. Prem Watsa of Canada invested Rs. 13,414 million (US$ 202 million) by a secondary purchase of IIFL Holdings shares through an open offer.-
• 2016: CDC Group plc, the United Kingdom’s development finance institution, invested Rs. 10,050 million (US$ 150 million) in the NBFC subsidiary, India Infoline Finance Ltd.
• 2016: General Atlantic, leading global growth equity firm, invested Rs. 9,038 million (US$ 134 million) in IIFL Wealth Management Ltd through fresh issue of equity shares and additionally Rs. 1,591 million (US$ 23 million) for the acquisition of shares from employees of IIFL Wealth.
• 2018: Launched IIFL Collection mobile app for collection officers
• 2019: Enhanced the in house new Loan Origination System for salaried persons, which can be accessed on tablets, enhancing the digital on-boarding process
• 2020: Digital personal/working capital loans scheme launched in the period of pandemic to support existing customers
• 2020: IIFL Finance collaborates with CSB Bank
• 2020: 430 new branches added
  
  
  Managment Guidance 

  1. Macroeconomic Environment:

  • Favorable macro environment in India with healthy trends in inflation, growth, and credit demand.

  2. Retail Lending Focus:

  • IIFL Finance remains focused on retail lending.
  • Targeting underbanked customers and underpenetrated geographies.
    
    

  3. Investment in Technology:

  • Plans to accelerate investment in digital technology and artificial intelligence.
  • Committed to leveraging digital technology and AI to enhance operations.

  4. Assets Under Management (AUM):

  • AUM crossed Rs. 73,000 crores and on track to reach Rs. 1 lakh crores by the end of the next financial year.

  5. Loan Asset Growth:

  • Core loan assets, including gold loans, home loans, and LAP, grew by 5% to 7% quarter-on-quarter.
  • Digital loans and microfinance witnessed strong growth.

  6. Interest Yield and Cost of Funds:

  • Interest yield has improved across asset categories.
  • Cost of funds has been stable.

  7. Asset Quality:

  • Asset quality has improved across the board, except for gold loans.

  8. Capital Raise and Balance Sheet Strengthening:

  • Planning to raise capital in the next year to strengthen the balance sheet.

  9. Financial Outlook:

  • Expects to maintain a net interest margin of around 7.5%.
  • Credit cost is expected to be around 2% in the long term.

  10. Inorganic Growth Opportunities:

  • Open to inorganic growth opportunities.

  11. Growth Trajectory:

  • Growth trajectory may increase after the equity fundraise.

  12. Focus on MSME and Business Loans:

  • Focus is on MSME and business loans, rather than personal loans.

  13. Branch Network:

  • Branch network takes around 18 to 24 months to break even.

  In summary, IIFL Finance is focused on retail lending, targeting underbanked customers and underpenetrated geographies. The company plans to accelerate investment in digital technology and AI to enhance its operations. The AUM is on track to reach Rs. 1 lakh crores, and loan assets, including gold loans, home loans, and LAP, have shown growth. Interest yield has improved, asset quality has improved except for gold loans, and the cost of funds has been stable. The company plans to raise capital to strengthen its balance sheet and expects to maintain a net interest margin of around 7.5%. They are open to inorganic growth opportunities and have a focus on MSME and business loans. The branch network takes time to break even, and the company is committed to leveraging digital technology and AI.
  
  Financial Analysis
  
  Strong balance sheet with better asset liability management gives strong foundation for future growth.
  
  
  
  
  
  
  
  Opinion and Analysis
  
  

  In conclusion, IIFL Finance stands as a shining example of a leading diversified Non-Banking Financial Company (NBFC) that has not only weathered the storms of the financial landscape but has emerged as a beacon of resilience and excellence. The bedrock of its success lies in the stalwart leadership and astute management that has guided the company through the intricacies of the financial domain.

  One of the key pillars supporting IIFL Finance's formidable position is its robust financial foundation. The company's financial health reflects a judicious balance between risk management and strategic growth initiatives. With a keen eye on market dynamics, IIFL Finance has displayed a knack for adapting to changing economic landscapes, ensuring a stable financial trajectory that inspires confidence among investors.

  Operational performance is another hallmark of IIFL Finance's success story. The company's operational efficiency is a testament to its commitment to excellence in service delivery. By leveraging cutting-edge technology and embracing innovative solutions, IIFL Finance has positioned itself as a frontrunner in the NBFC sector, setting benchmarks for operational standards that others aspire to emulate.

  Looking ahead, the future appears promising for IIFL Finance. The combination of a strong management team, resilient financials, and impeccable operational performance positions the company for sustained growth. As economic landscapes evolve, IIFL Finance's adaptive approach and forward-thinking strategies are expected to propel it to new heights.

  In conclusion, IIFL Finance stands as a paragon of success in the NBFC sector, a testament to the merits of visionary leadership, sound financial principles, and operational excellence. Investors and stakeholders can confidently look to the future, anticipating continued success and growth from this leading diversified NBFC.