Buy This Small-Cap NBFC Stock For Target Price Of Rs 2,277: BoB Capital Market

In a recent report, BoB Capital Markets gave IIFL Wealth Management Ltd. a buy recommendation with a target price of Rs 2,277 per share. If the stock is bought at the present market price, the stock might increase 26% in 12 months based on the brokerage's predicted target price. IIFL Wealth Management is a small cap NBFC having a market cap of Rs 16,147.88 crore.

Annual report analysis: Recurring model bears fruit

Slew of fund launches by IIFL AMC a positive; AMC along with IIFL One remain focus segments, with the lens on up-and-coming tier-2/3 markets. Recurring income model validated as its contribution rose to 55% of AUM and 65% of revenue at end-FY22.

Stock Outlook

Friday, 16 September, IIFL Wealth Management's stock closed at Rs 1,819.15 apiece on NSE after gaining 6.59%. The 52 week low of the stock is Rs 1,235.80 recorded on 20 June 2022 and 52 week high is Rs 1,908.30 apiece recorded on 19 April 2022, respectively. 

Returns on investments

Over the past 1 week, the stock gained roughly 4%. Whereas, in the past 1 & 3 months, the stock gained roughly 9.61% and 29.26%, respectively. Over the past 1 year, the stock has given a positive return of 9.07%. Since the company's September 2019 stock market listing, it has had a 43.18% positive return.

IIFL AMC and IIFL One in focus

In FY22, IIFL AMC launched a suite of new funds and raised commitments in the AIF category, closing the year with Rs 556bn in AUM (+49% YoY) and 77bps in yield. The IIFL One business reported AUM of Rs 327bn (+17% YoY) and yield of 30bps, led by traction in discretionary PMS. 

Targeting new geographies

IIFL Wealth sees tremendous opportunity in tier-2 and 3 cities because these markets are under-serviced even as they now form a sizeable share of new wealth creation in India. The company's strong platform, expert team and broad experience bode well for capturing market share in these geographies. A focus on building digital capabilities has also enhanced its ability to expand customised wealth management solutions to untapped segments.

ARR model gaining traction

In FY20, IIFL Wealth transitioned its business model from being transaction-driven to a more sustainable annuity distribution-commission model. Although financials initially took a hit, the new annual recurring revenue (ARR) model has been steadily gaining traction. Recurring revenue grew 56% YoY to Rs 9.1bn in FY22 and recurring AUM grew 42% YoY to Rs 1.4tn. At end-FY22, 55% of the company's AUM and 65% of revenue was based on ARR, which management expects will grow further. Overall net flows stood at Rs 314bn, a bulk of which were recurring in nature. 

Stable financial parameters

Higher revenue (46% YoY) coupled with operating leverage supported expansion in ROAE from 7% in FY20 to 20% in FY22 and in ROAA from 1.8% to 6%. The cost-to-income ratio fell 300bps YoY to 51% in FY22 and is expected to decline further. Asset-liability management held strong, and contingent liabilities remained under control. Per management, the business is backed by a robust central risk management department with a well-defined policy to mitigate risks. 

BoB Capital Market Maintain BUY for target price of Rs 2,277

The stock is trading at 19x FY24E EPS and appears undervalued, in our view. We retain BUY with an unchanged TP 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. 

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.