BOB Capital Markets Recommends Buy This Small Cap IIFL Group Stock For 39% Gains

BoB Capital Markets in its recent report on IIFL Wealth Management Limited has suggested buy the stocks of the company for an target price of Rs 2277 apiece. IIFL Wealth Management is a small cap NBFC. The company focused on expanding the trail-based ARR model; recurring revenue constituted 68% share in Q1 and recurring AUM 57%. Investors buying the stock at the Current Market Price could expect 39% potential returns considering the estimated target price of Rs 2277 apiece.

Stock Outlook & Returns

July 28, the stock of the company opened at Rs 1,671.85 apiece, currently trading at Rs 1,648.60 apiece, up 0.58% from its previous. The Current market price of the stock is Rs 259.7 below its 52 week high and Rs 412.8 above its 52-week low.

The stock hit the 52-week low on 20 June 2022 at Rs 1235.80 apiece and the 52-week high on 19 April 2022 at Rs 1908.30 apiece. Stock's ROE is 19.27%. 
 
 The stock performed well in terms of returns in the past 1 month, as it gained 2.93% in the past 1 week and 14.73% in the past 1 month, respectively. However, in the past 3 months, it has fallen by 3.8%. In the past 1 year, it has given positive returns of 26.28%.

In recurring mode

IIFL Wealth is focused on building a larger share of recurring revenue streams (ARR), with 57% of AUM and 68% of revenue based on ARR at end-Q1FY23, which we expect will grow to 61% and 81% respectively by FY25.

Volatility impacted Q1 but net flows encouraging

The company's AUM grew 7% YoY (but declined 4% QoQ) to Rs 2.5tn in Q1FY23. Headwinds in financial markets have had a negative MTM impact on AUM. However, the company managed to garner net flows of ~Rs 60bn during the quarter which is positive. We expect net flows/ net new money of Rs 340bn/Rs 405bn/Rs 452bn by end-FY23/FY24/FY25 with AUM reaching Rs 3.1tn/Rs 3.8tn/Rs 4.5tn.

C/I reduces as per guidance

The cost-to-income (C/I) ratio stood at 45.4% in Q1 following a 30% QoQ reduction in employee costs as one-time costs completed in FY22 were absorbed. We have baked in a 45% C/I vs. official guidance 44% for FY23. ROAE increased from 11% in Q1FY21 to 21.4%, although it declined 165bps QoQ. We expect ~28% ROAE and ~7% ROAA by FY25 based on higher total income (14% CAGR over FY17-FY22) coupled with a decline in C/I ratio to 44% in FY25 vs. 51% in FY22. Similarly, we forecast a net profit CAGR of 18% over FY22-FY25 to Rs 9.6bn.

Q1 yield at 59bps

IIFL Wealth clocked yields of 59bps on a blended basis whereas it earned 71bps on recurring business. The company earned Rs 133mn as carry income in Q1FY23. Over FY23-FY25, we expect ARR yield to sustain at >70bps and overall yield at >50bps.

Inorganic story continues

The company acquired 91% in MAVM Angels Network Private Limited (MANPL), a private investment platform for early‐stage ventures. This is in line with its strategy to grow inorganically, as seen over several years now.

Maintain BUY with a target price of Rs 2277 apiece

IIFL Wealth is trading at 18x FY24E EPS and appears undervalued, in our view. We reiterate BUY with a Target Price of Rs 2,277 (39% upside) set at 25x FY24E EPS - a 10% premium to the 3Y average given a robust model, strong fundamentals and supportive macro.

 

 

About - IIFL Wealth Management Limited

IIFL Wealth Management Ltd., incorporated in the year 2008, is a small cap company with a market capitalization of Rs 14,550.09 Crore. The company operates in the NBFC sector. IIFL Wealth Management is one of the fastest growing private wealth management firms in India with an AUM greater than USD 44 billion*. The company serve the highly specialized and sophisticated needs of high net worth and ultra-high net worth individuals, affluent families, family offices and institutional clients through a comprehensive range of tailored wealth management solutions. 

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.