Mumbai: Motilal Oswal has initiated coverage on IIFL Wealth Management with a buy rating and target price of Rs 1,525 as it believes that the company’s migration to a complete advisory model could be a game changer as its business model will be less prone to cyclicality.
IIFL Wealth, the demerged entity of IIFL Holding, became the first standalone wealth management company to list in India in September last year. The stock got listed at Rs 1,200 on September 19 and has gained 9.7 per cent since then. The stock ended up 2 per cent at Rs 1,316 on Thursday.
The brokerage sees strong potential in India’s wealth management industry as the number of ultra high net worth individuals are rising at a pace of 17 per cent on a compounded basis and only 9 per cent of their combined wealth is being managed by wealth managers.
“From a transaction-oriented revenue model (based on flows), IIFLWAM (IIFL Wealth) is focusing on raising the share of stable and granular revenue by aggressively expanding the advisory platform, and scaling up the AMC/lending businesses (credit solutions provided to own clients). The new business model intends to drive earnings through AUM rather than gross flows in the business,” said Motilal Oswal.
The wealth management firm is likely to post 20 per cent compounded growth in revenue and 30 per cent compounded growth in profit over the FY20-FY23 period, said Motilal Oswal.
IIFL Wealth reported a consolidated net profit of Rs 74.16 crore for the quarter ended December against Rs 81.13 crore in the same period a year ago. The company had reported a consolidated net profit of Rs 68.42 crore. Total income from operations grew 38 per cent to Rs 492 crore. The brokerage added that annual free cash flows of IIFL Wealth are strong, which is likely to drive a dividend payout ratio of over 80 per cent.
Motilal Oswal said IIFL Wealth is moving from a distributor- commission-led income model to a client advisory fee-led model under its flagship program IIFL ONE, which increases transparency for clients and mitigates mis-selling by aligning the incentives of the company with those of the client. The rising share of AMC and the cross-sell of lending products to existing clients will likely provide more stability/granularity to revenues, said Motilal Oswal.
Source: Economic Times
