Share price of IIFL Finance, one of the leading NBFCs in the retail credit business, rebounded in today's trade, rising 10% during the day. INRThe company on Wednesday announced that Fairfax India has agreed to invest up to USD 200 million in liquidity support amid the recent embargo by the Reserve Bank of India (RBI) on the company's financial disbursements. The total price was $420.40 per piece.
“The RBI embargo has raised liquidity concerns among the company's investors and lenders.In response to these concerns, Fairfax India We have agreed to invest up to US$200 million in liquidity support (if any), subject to legal conditions,'' the company said in a regulatory filing.
The Canadian investment firm, led by Indian-born Prem Watsa, first invested in IIFL in 2011, acquiring a 9% stake through the Hamblin Watsa Investment Advisory Fund.
Please also read:IIFL Finance stock price falls 20%.Jefferies downgrades stock rating to 'unchanged' due to potential loss of profits due to loan ban
In July 2015, Fairfax India made a voluntary offer to buy a 26% stake in IIFL. INRAcquired an additional 21.85% stake for $162.1 billion. The group also had an additional 5.15% economic interest through derivative instruments.
Fairfax's total holding in IIFL was 35.7% as of March 2016. Over the years, we have sold some of our shares in the company.
Please also read: RBI imposes immediate ban on disbursement of gold loans by IIFL Finance.Stock price is locked in a 20% lower circuit
On February 5, the Reserve Bank of India (RBI) sanctioned and prohibited IIFL Finance from disbursing gold loans, citing certain serious supervisory issues. The stock then plunged 20% in two trading sessions as the regulation evolved.
IIFL Finance issued an explanation on this action and said, “We reaffirm our commitment to revising the RBI's observations on our gold loan portfolio to comply with the RBI's findings as soon as possible, commensurate with the overall interest. We will continue our efforts to provide the best gold loan services.” Customers”.
“It is difficult to predict how long it will take to work with regulators to review and lift this ban,” said Motilal Oswal, a domestic brokerage firm. “Considering some recent episodes where we banned it.” In our base case, we assume that it could take about six months to get the RBI to conduct a special audit and then revise the findings to the RBI's satisfaction. ”
Please also read: RBI's system clean-up measures to ensure ethical business practices, analysts say
After factoring in the impact of this ban on IIFL's gold loan growth, the brokerage cut its EPS estimates for FY24, FY25 and FY26 by 2%, 14% and 15%.
IIFL needs to work with its existing customers and co-financing partners to prevent not only the immediate impact on incremental gold loans, but also damage to the gold loan brand and the trust it has built over the past years. Efforts will also be needed to retain existing customers and employees, the brokerage said.
Securities companies expect stock price fluctuations to continue in the short term. However, it reaffirmed its “buy” rating and maintained its price target. INR560 yen per share. This target is based on revised target multiples for standalone, HFC and MFI businesses in view of recent observations by RBI.
Disclaimer: We recommend checking with a certified professional before making any investment decisions.
Here is a comprehensive three-minute summary of what Finance Minister Nirmala Sitharaman said in her budget speech: Click to download!
