IIFL Finance shares down 37% in 3 days. Stock price targets & more

Shares of IIFL Finance Ltd plunged 20 per cent for the straight second day amid regulatory concerns, even as Fairfax India agreed to give up to $200 million liquidity support to the company.

IIFL fell 20 per cent to hit a fresh 52-week low of Rs 382.80 on BSE. This was in addition to a 20 per cent fall in the previous session and 4 per cent drop on Monday. With this, the scrip has fallen 38.60 per cent in three sessions.

A longstanding investor in IIFL Finance, Fairfax India Holdings Corporation announced its commitment to provide liquidity support amid the recent RBI embargo effective March 5, on the company's gold loan disbursements.

Motilal Oswal Securities in a note said the key risk for IIFL Finance is a sharper run-down in the gold loan portfolio and employee attrition if the ban remains in force for longer. In addition to this, it sees reputational damage that might necessitate renewed investments in building trust in its brand. For now, the brokerage has a 'Buy' rating on the stock with a target price of Rs 560.

IIFL Finance, Kotak noted, is the fast-growing gold-loan player. IIFL Finance gained a significant share of 13 per cent in gold loans in the last few years, up 420 basis points over four years against 38 per cent for Muthoot Finance and 12 per cent for Manappuram Finance Ltd.

Kotak said the ban on gold loan disbursements by IIFL Finance provides an opportunity for peers in the interim. Muthoot Finance had opened 150 branches last year after getting the RBI’s approval. Gold prices remained strong and are up 11 per cent YoY in March 2024 and 5 per cent since December 2023. Kotak finds tailwinds to Muthoot Finance’s gold loan growth and factor in a 16 per cent loan growth in FY2024 and 15 per cent over FY2025- 26 compared with 22 per cent in 9MFY24.

IIFL Finance said the RBI's embargo has raised liquidity concerns amid the company’s investors and lenders. But it noted that Fairfax India has agreed to invest up to $200 million of liquidity support on terms to be mutually agreed and subject to applicable laws, including regulatory approvals (if any).

"We have been long-term investors in the IIFL group of companies and have full trust and confidence in the company's strong management team led by Nirmal Jain and R Venkataraman. We are confident that Nirmal and Venkat will take corrective actions to meet and exceed RBI's compliance standards,” said Prem Watsa, Chairman of Fairfax India.

Managing Director and Founder of IIFL Finance, Nirmal Jain, said: “At this crucial juncture, Fairfax India’s and Prem’s generous offer to provide liquidity support is very timely and motivating. We are committed to complying fully with RBI’s directives and growing the business under the regulator’s guidance on the strong foundation of compliance, risk management, and fair practices.”