Gold Loans And Digital Adoption Will Empower Indian Lending

Key Takeaways

• Gold loan growth and digital innovation are driving higher margins and expanding the customer base, positioning the company for strong future momentum.
  
• Diversification beyond gold loans and supportive policies are reducing risk and enhancing stability of earnings and asset quality.
  
• Reliance on gold loans, rising credit and operating costs, and declining non-lending income threaten growth, profitability, and asset quality while limiting future market expansion.

Catalysts

A non-banking financial company, provides financial services in India and internationally.

• Strong rebound and continued momentum in gold loans supported by India's rising middle class, increasing gold prices, and demand from previously underserved customer segments, suggesting significant loan book and revenue growth potential in upcoming quarters.
  
• Scale-up in digital origination, AI-driven collections, and cost-effective servicing is expected to lower cost-to-income ratios and expand margins, especially as broader digital adoption accelerates customer acquisition in new geographies.
  
• Positive structural changes in the Indian credit landscape-with more small business owners and individuals moving from informal to formal lending-are enlarging IIFL Finance's addressable market, setting up a multi-year runway for sustained AUM and earnings growth.
  
• Ongoing diversification into home loans, MSME secured lending, and co-lending partnerships is reducing risk concentration in gold loans, stabilizing net interest margins and protecting earnings during sector-specific downturns.
  
• Regulatory and policy support for credit inclusion and NBFCs, such as government loan guarantee schemes and housing subsidies, are actively cushioning near-term asset quality pressures while fueling volume growth, thus improving the outlook for future net margins and earnings.

IIFL Finance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IIFL Finance's revenue will grow by 23.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 30.8% in 3 years time.
• Analysts expect earnings to reach ₹33.7 billion (and earnings per share of ₹55.98) by about August 2028, up from ₹3.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 61.8x today. This future PE is lower than the current PE for the IN Diversified Financial industry at 25.1x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.42%, as per the Simply Wall St company report.

IIFL Finance Future Earnings Per Share Growth

Risks

• Persistently elevated credit costs, particularly in MSME and microfinance segments (guidance potentially 3%+ for FY26, with microfinance credit costs reported in the 6–7% range), signal worsening asset quality and higher provisioning requirements, posing a significant risk to net margins and earnings growth if stress does not abate as projected.
  
• Over-reliance on gold loans for growth and profitability (gold AUM +85% YoY) exposes IIFL Finance to concentration risk, as any regulator-driven tightening, price volatility in gold, or increased competition could dampen revenue momentum and compress net interest margins.
  
• Declining "other income" streams from prior cross-selling and insurance partnerships (now reduced to single-digit crores per quarter) represent a structural shift in revenue mix, increasing dependence on core lending operations and limiting non-interest income growth, thereby reducing support for net profit.
  
• Operating and funding costs remain elevated (cost of borrowing at 9.45%, and operating expenses up due to salary increments and branch scaling), which-without a commensurate decline-may limit improvement in cost-to-income ratio and pressure return on equity and net margins.
  
• Difficulty penetrating higher-quality home loan and salaried borrower segments (majority of new home loans in B/C category companies with modest incomes), coupled with continued asset quality issues in select geographies (notably Andhra Pradesh and rural Maharashtra), could cap addressable market expansion and restrain sustainable long-term AUM and earnings growth.

Valuation

• The analysts have a consensus price target of ₹526.25 for IIFL Finance based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹550.0, and the most bearish reporting a price target of just ₹465.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹109.4 billion, earnings will come to ₹33.7 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 14.4%.
• Given the current share price of ₹471.5, the analyst price target of ₹526.25 is 10.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.