Good Momentum seen in Asset and Wealth Management segments- IIFL Wealth

Update on Indian Equity Market:

On Thursday, markets were in the red, with Nifty declining 124 points to close at 14,906. CIPLA (2.4%), M&M (2.3%), and BPCL (2.1%) were the top gainers on the index while TATA STEEL (-5.1%), HINDALCO (-4.2%), and COALINDIA (-3.4%) were the top losers for the day. Among the sectoral indices, REALTY (1.0%), and PSU BANK (+0.4%) were the only gainers, while METAL (-3.2%), BANK (-1.0%), and PRIVATE BANK (-1.0%) lead the losers.

Excerpts of an interview with Mr. Karan Bhagat, CEO of IIFL Wealth aired on CNBC TV-18 on 19th  May 2021 :

• The revenue recognition on a trailing basis instead of upfront basis has seen a strong cyclical recovery over the past 8 quarters. The Wealth Management business is poised to grow from here on.  
• The Asset Management business has seen a stellar recovery over the past year with an increase in both listed and unlisted equity segments. 
• NBFC business is seeing a difficult recovery due to the pandemic. The Loan against Shares segment is fairly collateralized and thus the company hasn’t seen any rise in impairment costs. The stable Net Interest margins and lower operating costs are good tailwinds going ahead.  
• AUM growth is expected in the low teens with organic growth and around 20% on a Mark to Market basis.
• The company has improved its revenue mix to Annual recurring revenue contributing to around 70-80% as opposed to the brokerage-centric business model over the last 2 years. The management expects this to stabilize at these levels going forward.

Asset Multiplier Comments:

• India is in the midst of a transformation in its savings and investing habits, going forward Asset and Wealth Management are going to see manifold growth as market penetration increases.
• The company is well poised to reap the rewards of compartmentalization and operating efficiencies going ahead in both the Asset and the Wealth Management business.

Consensus Estimates (Source: market screener website): 

• The closing price of IIFL Wealth was ₹1,100/- as of 20-May-2021.  It traded at 23x/ 19x the consensus EPS estimate of ₹ 48/ ₹ 59 for FY22E/23E respectively.
• The consensus price target is ₹ 1360/- which trades at 23x the EPS estimate for FY23E of ₹ 59/-. 

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