This IIFL Group Stock Zoomed 55.13% In 3 Years, Kotak Securities Recommends Buy

Kotak Securities assigned a "buy" call on IIFL Wealth Management Limited with an unchanged target price. The brokerage firm has estimated a target price of Rs 2,100 apiece for the stock with a buy rating. If we consider the given target price, the stock would likely surge up to 20% from its current level.

The brokerage recently interacted with Karan Bhagat, CEO, and Sanjay Wadhwa, CFO. Key takeaways: (1) operating trends remain strong even as the outlook for the next 12 months deserves more caution, (2) IIFL One platform is gaining adoption from both new and existing clients while also attracting suitable talent from the industry, (3) expansion in tier-2 locations and the launch of mid-market proposition are expected to be the next mid/long-term growth drivers, even as the core UHNI franchise remains quite strong.

Stock Outlook, Returns & Dividend

The stock on Friday last traded at Rs 1,761.95 apiece. Its 52 week low level is Rs 1,235.80 apiece and 52 week high level is Rs 1,945 apiece, respectively. IIFL Wealth is a midcap stock having a market capitalisation of Rs 15,615.28 crore.

It got listed on NSE on 19 September 2019. Since its listing date, it has given 38.46% positive returns. It has given a 2.05% negative return over the past 1 month. In one year, it has given 23.11% positive returns. Over the past three years, it has given a maximum 55.13% positive return.

 

Advisory model is gaining greater adoption; IIFLW remains at the forefront of this change

IIFL One, the fee-based advisory business, is emerging as a preferred engagement model for new clients as well as existing mature clients. The advisory business has more diverse elements to drive better client outcomes and recurring revenue, with the potential to improve the share of higher-yielding discretionary portfolio management services. At scale, the platform can deliver benefits of lower client churn via deeper engagement as well as higher operating leverage with in-house investment management. Management indicated that the shift to advisory is gathering pace for clients with over Rs 250 mn in assets, whereas below Rs 250 mn will continue to remain distribution-driven. While a large share of the RM force is equipped for this change, part of the team will likely get redeployed into client acquisition or the mid-market platform or get churned. IIFLW is also witnessing the positive offset of advisory shift in being able to attract superior RM talent in the market that is fit for advisory.

 

Few levers over near- to medium term

Tapping the market beyond top cities. IIFLW is tapping into the expanding addressable market for wealth management in India, which now covers top 40-45 cities (versus only top15 previously). These cities (e.g., Aurangabad, Rajkot and Kota) are witnessing wealth creation by large local businesses owners, providing a relatively fertile ground to expand the franchise. Mid-market is the next major pivot.

The mid-market proposition is likely to focus on the Rs100-250 mn segment and is set for a product launch in 1QFY24. Management believes that this segment is not being adequately serviced through priority banking channels, whereas the aspiration is closer to a private wealth service. In our view, figuring out the right organizational design and sales/RM structure without creating two separate cadres will likely be a key challenge for this segment.

 

Operating trends remain healthy while the outlook needs more caution

Other key takeaways: (1) capital markets could be challenging in the next 12 months; hence, the business needs a judicious call on balancing investments for growth versus protecting for the downside, (2) momentum in terms of flows and unlisted transactions continues to be strong, (3) while overall RM attrition remains low, the mid-lower end may see higher churn due to extra capacity unless able to deploy into new growth areas, and (4) there is a need to plug some talent gaps at senior levels, both on wealth and AMC segments.

 

Disclaimer

The stock has been picked from the brokerage report of Kotak Securities. 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 consult with certified experts before making any investment decision.