Whalesbook
IIFL Finance's strong Q4 FY26 performance stems from a deliberate strategy to focus on core lending areas and exit riskier ventures. This shift has significantly improved the company's financial health and future outlook.
Profit Surge Driven by Loan Strategy
IIFL Finance's fourth-quarter fiscal year 2026 results reveal a substantial turnaround, with consolidated profit after tax soaring 148% year-on-year to ₹623 crore. This dramatic profit increase, alongside a 51% rise in total income to ₹2,090 crore, is directly attributable to the company's strategic decision to exit high-risk loan categories, such as property-backed micro-loans and personal loans. This strategic pruning has led to a marked improvement in asset quality; gross bad loans (GNPAs) improved to 1.5%, down 77 basis points year-on-year, with Net NPAs at 0.7%.
The gold loan portfolio was a standout, with assets under management (AUM) reaching ₹52,581 crore. This represents a 150% year-on-year and 21% quarter-on-quarter surge, driven by strong demand and effective execution. This segment's GNPA remained exceptionally low at 0.35%. Home finance AUM remained stable, while the microfinance segment, though still in a stabilization phase, showed signs of improvement. Operating profit before loan loss provisions (PPOP) grew substantially by 80% year-on-year to ₹1,173 crore, reflecting strong underlying business performance. The company's capital adequacy ratio (CRAR) remains strong at 25.3%. The stock, trading around ₹446 in late April 2026, is considerably below its 52-week high of ₹675, indicating potential upside.
Valuation and Industry Comparison
IIFL Finance's valuation metrics suggest an attractive proposition. The company is trading at about 1.2 times its estimated FY27 price-to-book value (P/BV) and 8 times projected FY27 earnings per share (EPS). Trailing twelve months (TTM) P/E ratios range from approximately 11.4x to 32.2x, with a forward P/E estimate around 11.8x. Compared to the Indian Diversified Financial industry average P/E of 23.7x, IIFL Finance appears undervalued.
While peers in the NBFC sector are expected to grow 15-17% in FY26, driven by retail lending and gold loans, IIFL's aggressive exit from riskier segments offers a distinct recovery path, potentially leading to cleaner growth than competitors still managing legacy issues in unsecured lending.
Lingering Risks and Analyst Views
Despite the strong turnaround, several risks remain. While Motilal Oswal maintains a 'Buy' rating with a ₹600 target, other analysts show a more varied outlook. For example, HSBC kept its 'Buy' rating but lowered its target price to ₹510 from ₹710 in April 2026. This difference in targets suggests uncertainty about the sustainability of the recent performance.
The microfinance sector, though stabilized for IIFL, still faces economic challenges and slower recovery than other segments. A key risk is the dependence on gold prices for its expanding gold loan portfolio; sharp fluctuations could affect AUM and profitability. The company has also faced regulatory oversight, and while recent results show recovery, continued attention to compliance and regulatory changes is vital. Analyst price targets range widely from ₹510 to ₹840, reflecting differing views on IIFL's recovery pace.
Analyst Outlook and Future Plans
Analysts are generally optimistic, with four rating the stock a 'Strong Buy' and an average 12-month target price of ₹620. Some estimates go as high as ₹840. Motilal Oswal raised its FY27 EPS estimate by about 6%, expecting higher other income and AUM growth. S&P Global Ratings revised its outlook on IIFL Finance to positive from stable in December 2025, affirming its 'B+/B' ratings. The agency cited strengthening market share in gold loans and robust capitalization.
IIFL Finance has also authorized fundraising of up to ₹10,000 crore through Non-Convertible Securities for FY27, showing confidence in future growth. Management guides for credit costs to fall below 2% in the coming year and targets an internal return on equity (ROE) of 18%-20% within two to three years.