Buy This Small-Cap IIFL Group Stock For 37% Potential Gains In 12 Months: BoB Capital Markets

BoB Capital markets in its recent report on IIFL Wealth Management Ltd. gets a buy call for a target price of Rs 2,277 apiece. Given the brokerage's estimated target price, the stock of the company could jump 37% in 12 months, if the stock is purchased at the current market price.

According to the brokerage the management focused on driving recurring income and net fund flows to scale the business and curb cyclicality. Phygital model planned for Rs 50mn-250mn clientele and physical meetings for Rs 250mn+ bracket; Rs 500mn+ targeted for advisory. IIFL Wealth Management is a small cap NBFC having a market cap of Rs 14,822.16 crore.

Stock Outlook & Returns

On NSE, 05 September, IIFL Wealth Management's stock closed at Rs 1,670.95 apiece, after falling 0.65%. The 52 week low of the stock is Rs 1,235.80 and 52 week high is Rs 1,908.3 apiece, respectively. 

Returns on investments

Over the past 1 week, the stock gained roughly 0.06%. Whereas, in the past 1 & 3 months, the stock gained roughly 0.77% and 8.63%, respectively. Over the past 1 year, the stock has given a positive return of 5.59%. The company was listed on the stock exchange in September 2019 and since then it has given a positive return of 31.43%. 

Focus on ARR, net flows

IIFL Wealth has successfully scaled its annual recurring revenue (ARR) business over the last three years and aims to have 80-85% of its topline from recurring streams vs. 68-72% currently. Net flows totalled ~Rs 60bn in Q1FY23, but management expects to close the year relatively higher given quarterly deviations. We forecast 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.

Cyclicity to reduce further

Cyclicity has reduced and the company aims to further smooth revenue flows by building up ARR, ensuring a favourable asset mix of both debt and equity, and garnering traction in the alternate investment space.

Thrust on mid-market category

The Rs 50mn-250mn mid-market client category is typically dominated by distribution whereas IIFL Wealth's Rs 250mn-500mn business is a mix of distribution and advisory. Those above Rs 500mn are targeted to eventually move towards advisory services. The company is entering the Rs 50mn250mn arena in Apr'23 and intends to service the space in the phygital (physical + digital) mode, thereby potentially doubling the span of control from 30 clients to 50- 60. Management believes its Rs 250mn+ client base will favour physical meetings.

Growing client awareness

Clients above Rs 250mn (potential to become Rs 500mn in three years) now have clear expectations of delivery and are moving towards advisory services. Also, investments are increasingly being directed toward direct plans.

Low attrition

Per management, attrition is low in the company's senior relationship and investment teams. The focus is on replacing departures with the right candidates so that clients stay connected to the platform. Attrition on the client side is also low.

Brokerage Maintain BUY for Target Price of Rs 2,277 apiece

IIFL Wealth is trading at 18x FY24E EPS and appears undervalued. "We retain BUY with a Target Price of Rs 2,277 set at 25x FY24E EPS - a 10% premium to the 3Y average given a robust model, strong fundamentals and supportive macro climate," the brokerage said.

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 making any investment decision.