IIFL Finance jumps 10% after 2-day losses on Fairfax fund's infusion plan
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Shares of IIFL Finance rose 10 per cent on BSE to Rs 421 in Thursday’s intra-day trade, recovering from a 36 per cent slump seen in past two days. The gains came a day after Fairfax India Holdings Corp (Fairfax India) committed to give up to $200 million liquidity support to the NBFC.
Fairfax India is a Canada-based investment holding company, which holds 15.12 per cent stake in IIFL Finance through its Mauritius-based wholly owned subsidiary, FIH Mauritius Investments (FIH Mauritius).
IIFL Finance, in an exchange filing, on Wednesday said Fairfax India, which is a longstanding investor in the company, has committed to provide it liquidity support amid the recent RBI embargo on its gold loan disbursements.
In two trading days of March 4 and March 6, the stock price of IIFL Finance had tanked 36 per cent to hit a 52-week low of Rs 382.80 on Wednesday after the RBI barred the NBFC from giving gold loans.
At 10:03 am, IIFL Finance was trading 9.7 per cent higher at Rs 419.70 as compared to 0.03 per cent decline in the S&P BSE Sensex. The average trading volumes on the counter jumped over 15-fold. A combined 12.16 million shares changed hands on the NSE and BSE.
IIFL Finance is among India’s top two NBFCs in the gold loan business. It has a gold loan portfolio of Rs 24,692 crore, which was a sizable 32 per cent of its total loans of Rs 77,444 crore at the end of the third quarter of FY24.
The RBI's embargo has raised liquidity concerns amongst the company’s investors and lenders. In response to these concerns, 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, IIFL Finance said.
IIFL Finance is one of the leading RBI-regulated NBFCs engaged in retail credit.
Along with its subsidiaries, IIFL is a key player in small ticket gold, home, and business loans, with loan assets of about Rs 78,000 crore, net-worth of over Rs 10,000 crore, serviced by 4,681 branches and about 40,000 employees.
IIFL management, in its call with investors, conveyed that majority of the concerns are operational in nature and not an outcome of any unethical practices by the company.
The management conveyed that it will take prompt action to address the concerns and is hopeful of the issue getting resolved post the audit.
However, analysts at Emkay Global Financial Services said they believe that given the shorter tenure of such loans (7-8 months), the impact of embargo could be material on the company’s financials.
Notably, DCB (5 per cent of its AUM) was one of the key partners for IIFL in the gold loan business and has witnessed higher NPAs in the past, while clarity on residual portfolio quality is yet to emerge, the brokerage said in a sector report.
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