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IIFL Finance Ltd

| Q2 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤31st Oct 25

Summary : IIFL Finance reported strong Q2 growth driven by gold loans, with improving asset quality in core segments, while addressing challenges in discontinued and MFI portfolios.

Management Perspective positive : Q2 was a quarter of renewed momentum. Our gold loan business has fully normalized. We are delighted to welcome Mr. Girish Kousgi. Our balance sheet remains strong. The worst is over for MFI.

Concall Report Analysis & Insights

Business Overview

  1. Consolidated AUM grew 35% Y-o-Y to Rs. 90,122 Cr, with 7% Q-o-Q growth.
  2. Q2 PAT before non-controlling interest was Rs. 418 crores, up 52% Q-o-Q.
  3. Gold loan business normalized post-embargo, reaching a record AUM of Rs. 34,577 Cr.
  4. Home loan and gold loan constitute 74% of total AUM, with 98% being retail.
  5. Gross NPA improved to 2.1% and Net NPA to 1.0%, down 21 and 11 bps Q-o-Q.

Future Growth Prospects

  1. Expect lower loan losses and provisions in the second half of the fiscal year.
  2. Disbursement movement expected to gather pace, especially in home loans and LAP.
  3. Home loan AUM growth trajectory is projected at 15%-18% Y-o-Y.
  4. Co-lending momentum expected to pick up from Q3 FY26 with new guidelines.
  5. Overall loan growth target is 15%-20% over the medium term.

Management Insights

  1. India stands out with strong domestic demand and disciplined policies.
  2. RBI maintained stability with manageable inflation and improved liquidity.
  3. Government focus on MSME, housing, and digital infrastructure creates opportunities.
  4. New CEO, Mr. Girish Kousgi, brings renewed leadership to IIFL Home Finance.
  5. Company maintains strong balance sheet with 28.2% capital adequacy and 90% provision coverage.

Signs of Skepticism

  1. Management refrained from giving specific gold loan growth guidance due to gold price volatility.
  2. Higher NPA percentages in discontinued micro-LAP are attributed to a shrinking denominator.
  3. Co-lending slowdown due to new guidelines and banks putting systems in place.
  4. MFI segment's asset quality is still not expected to return to normal levels this year.
  5. ROA guidance for the full year revised to 2.5%-2.8% due to unexpected higher losses in H1.

Risk Factors

  1. Globally, growth is uneven amid inflation and geopolitical tension.
  2. Discontinued micro-LAP and unsecured digital loans skew loan loss provisions.
  3. Asset quality continues to deteriorate in other LAP and unsecured business loans.
  4. MFI segment still experiencing pain, not yet returned to normal times.
  5. New co-lending guidelines caused temporary hold on transactions by banks.

Good To Know

  1. Mr. Girish Kousgi joined as MD and CEO for IIFL Home Finance.
  2. Fitch upgraded international rating outlook from stable to positive.
  3. Assigned loan book comprises 34% of overall AUM, growing 33% Y-o-Y.
  4. Co-lending book improved sharply to Rs. 11,848 Cr, up 40% Y-o-Y.
  5. Salary increments and bonuses were given to gold loan employees in Q2.

Key Drivers

  1. Gold loan business achieved record AUM.
  2. New CEO to drive home finance growth.
  3. Co-lending momentum expected post-January.
  4. Improved asset quality in core segments.

Key Analyst Discussions

Competitive Environment

  1. Gold loan competition has intensified, leading to employee poaching and higher incentives.
  2. Industry-level unsecured business loans are still facing challenges.
  3. LAP is a heterogeneous product, with varying yields and customer segments.
  4. New co-lending guidelines are impacting the industry, with banks putting systems in place.
  5. MFI segment pain is seen across the industry due to new guardrails.

Market Trends & Consumer Behavior

  1. India's domestic demand and disciplined policies support growth.
  2. Government focus on MSME, housing, and digital infrastructure creates opportunities.
  3. Microfinance customers were badly hit by new guardrails restricting loan amounts.
  4. Affordable and Emerging housing market is robust across geographies.
  5. Gold prices influence gold loan AUM growth.

Financial Highlights

  1. Gold loan momentum is strong, but specific growth guidance is difficult.
  2. Home loan AUM growth is targeted at 15%-18% Y-o-Y for the second half.
  3. Full year credit cost guidance remains 2.8%-3%, with H2 expected at 2.2%-2.4%.
  4. ROA guidance for the full year is 2.5%-2.8%, with H1 at 1.9%.
  5. Derecognition of financial instruments income is sustainable, targeting 40% off-book assets.

Product Composition

  1. Focus will be on gold loans and mortgages (home loan, LAP) as key growth areas.
  2. Unsecured business loans will be a small cross-sell component.
  3. Micro-LAP and unsecured digital loans have been discontinued.
  4. Micro-LAP was a cross-sell to microfinance customers, now a small 2% of total book.
  5. Home finance changes will focus on rigor in business, collection, and policy tweaks.

Strategic Considerations

  1. New CEO for IIFL Home Finance will bring renewed leadership and strategic direction.
  2. Co-lending guidelines (CLM-1) are being clarified, with momentum expected from January 1.
  3. Capital adequacy is closely watched; internal accruals and co-lending will support growth.
  4. Company may raise capital at an appropriate time to maintain safety margins.
  5. ARC transactions are being evaluated for digital and home loan segments.
IIFL Finance Ltd (IIFL) Concall Report Analysis & Insights | Dhanarthi