BoB Capital Markets Suggests 'Buy' This Small Cap IIFL Group Stock For Aggressive 44% Gains

BoB Capital Market has recently published a report on IIFL Wealth Management Ltd that suggests buying for a target price of Rs 2,277. IIFL Wealth Management is a leading financial service company with a market capitalisation of Rs 14,0077 crore, it is a small cal stock. The company has a sustainable model with diverse product offerings in HNI/UHNI category and focuses on expanding trail-based recurring revenue streams.

Stock Outlook

The stock of the company closed at Rs 1,585.95 per share after falling 1.23% on July 06. It was opened at Rs 1,610.15 per share, while the previous close was Rs 1,595.80 per share. The stock hit the 52-week low on July 12, 2021, at Rs 1,208.95 per share. The 52-week high was recorded on April 19 2022 at Rs 1,908.30 per share. ROE is 19.27%. PE ratio is 24.37. PB ratio is 4.98. TTM EPS is Rs 65.09. The dividend yield is 3.47%.

Investors buying the stock at the Current market price i.e. Rs 1,585.95 per share could expect potential gains of 44% considering the estimated target price of Rs 2,2,77 per share by the brokerage.

The stock has performed well in terms of return in past 1 week as it has gained 3.48%. In the past 1 month, it gained 8.98%, whereas, in the past 3 months it has given a negative return of 11.45%. The stock in the past 1 year has given a positive return of 28.34%. The stock was listed on the exchange im 2019, and since then it has given a positive return of 24.83%.

Sustainable business model

IIFL Wealth's model of offering wealth solutions to high- and ultra-high-net-worth individuals (HNI/UHNI) is based on driving a larger share of recurring revenue streams (ARR), with its commission structures migrating to trail vs. upfront earlier. Thus, recurring revenue is independent of transaction volumes. At the end-FY22, 55% of AUM and 65% of revenue was based on ARR, which we expect will grow to 61% and 81% respectively by FY25. The company managed 6,833 relevant families at end-FY22 (17% CAGR, FY17-FY22) with low attrition levels.

Expect 20% AUM CAGR and 18% earnings CAGR by FY25

The company's AUM grew 22% over FY17-FY22 to Rs 2.6tn (excluding custody assets).

The brokerage said, "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. Similarly, we forecast a net profit CAGR of 18% over FY22-FY25 to Rs 9.6bn based on strong AUM growth coupled with operating leverage."

Decent AMC yields; on track to cross Rs 1tn in AUM by FY25

The AMC business (PMS, AIF and MFs, albeit AIF-heavy) continues to be one of IIFL Wealth's strongest segments, where AUM grew at a 44% CAGR over FY17-FY22 to Rs 556bn.

The brokerage said, "We believe aggressive growth plans coupled with senior hires should take AUM past the Rs 1tn mark by FY25 (25% CAGR, FY22-FY25). The company expects to earn carry income in FY23/FY24, and we model for steady average yields of 79bps over FY23-FY25."

Margins on the rise

ROAE, which declined to 7% in FY20, grew to 20% at endFY22 and ROAA, which declined to 1.8% in FY20, grew to 6%. "We expect ~28% ROAE and ~7% ROAA by FY25 based on higher total income (14% CAGR over FY17-FY22) coupled with a projected decline in cost-to-income ratio to 44% in FY25 vs. 51% in FY22," the brokerage has said.

BoB Capital markets Initiate with buy call for a target price of Rs 2,277

Bob Capital markets in its report has said, "IIFL Wealth is trading at 18x FY24E EPS and appears undervalued, in our view. We assign the stock a BUY rating with a Target Price of Rs 2,277 (43% upside) based on 25x FY24E EPS - a 10% premium to the 3Y average given a robust model, strong fundamentals and supportive macro factors."

IIFL Wealth Management Ltd

IIFL Wealth Management Limited is one of the fastest-growing private wealth management firms in India. The company is primarily engaged in wealth and asset management services, including financial asset distribution, broking, lending, credit and investment solutions, and asset and portfolio management. It serves 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. The Company's segments include Wealth Management and Asset Management.

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.