IIFL Finance adds 8% in three days

IIFL Finance rose 2.98% to Rs 83, extending gains for the third day in a row.

The stock has added 7.7% in three sessions while the benchmark S&P BSE Sensex has advanced 4.5% during the same period.

Currently, the stock is trading 61% below its 52-week high of Rs 212.80 hit on 14 February 2020. It has gained 42.7% from its 52-week low of Rs 58.15 recorded on 3 June 2020.

Meanwhile, the credit ratings agency Moody's Investors Service has downgraded IIFL Finance's corporate family rating (CFR) to B2 from B1, senior secured debt rating to B2 from B1, and senior secured medium-term note (MTN) program rating to (P) B2 from (P) B1. The rating outlook has been changed to stable from rating under review.

The downgrade of IIFL Finance's ratings reflects Moody's expectation that the company's asset quality and profitability will deteriorate as loan delinquencies and defaults increase. This weakening will be driven by declining earnings and cash flow at its customers due to the deep coronavirus-led economic contraction.

Loans to small and medium-sized enterprises (SMEs), real estate developers and micro-finance companies - segments that represent about 40% of its assets under management - are at the greatest risk of a deterioration in asset quality, given the disruption to their business activities and their limited balance sheet liquidity. At the end of June 2020, about 50% of these loans were subject to repayment moratoriums, compared to about 30% for IIFL Finance's total loan book.

In line with its industry peers, Moody's expects IIFL Finance will restructure loans to borrowers whose businesses and earnings have been affected by the coronavirus outbreak.

IIFL Finance's capital remains stable as the company has slowed loan growth in response to the contraction in economic activity and to conserve liquidity.

The stable outlook reflects Moody's expectation that IIFL Finance will continue to perform in line with that of its B2 CFR peers over the next 12-18 months, with its stable capitalization providing resilience against weakening profitability and asset risk.

In addition, Moody's expects ongoing deleveraging due to lower originations to result in reduced refinancing needs.

The ratings agency said that given the stable outlook, IIFL Finance's ratings are unlikely to be upgraded over the next 12-18 months. Nevertheless, Moody's could revise the rating outlook to positive if the company strengthens its liquidity by refinancing or raising new funding, strengths its loss-absorbing buffers by raising equity capital or if the operating environment improves, supporting strengthening of the asset quality.

IIFL Finance offers a wide spectrum of products such as home loan, gold loan, business loan, microfinance, capital market finance and developer & construction finance.

The company's consolidated net profit tumbled 81.8% to Rs 31.84 crore on 5.7% increase in total income to Rs 1,276.55 crore in Q1 June 2020 over Q1 June 2019.

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