Yes Bank shares upgrade 3%, but ICICI Securities retains ‘sell’ rating on the stock; know why
Yes Bank shares rose 3.39 percent to hit an all-time high of Rs 18.25 on the BSE. The stock has declined 23 percent in the last one year.
Despite Yes Bank Ltd shares surging in Monday’s trade after a rise in third quarter earnings, ICICI Securities has retained its ‘sell’ rating on the stock, and lowered its price target to Rs 15 from Rs 16 earlier.
The brokerage said operating income as a percentage of assets improved 10 basis points sequentially in the December quarter, but is still subdued at 1.04 percent. It estimates annual compounded loans to grow by 12 per cent for FY24-26.
Yes Bank shares rose 3.39 percent to hit an all-time high of Rs 18.25 on the BSE. The stock has declined 23 percent in the last one year.
The brokerage said, “We appreciate YES’s improving operating performance and see RoA improving from 0.3 percent in FY24 to 0.9 percent in FY26E and just 1 percent in FY27E. Maintain SELL with a revised target price of Rs 15 from Rs 16 earlier, valuing the stock at 0.9 times FY26E ABV, in line with RoA.”
YES Bank reported a net profit of Rs 612 crore for the December quarter, up 2.6 times compared to the same quarter last year. Operating profit stood at Rs 1,079 crore, up 24.9 percent compared to the same quarter last year.
YES Bank said its net interest income (NII) for Q3 grew 10.2 percent to Rs 2,224 crore, but net interest margin (NIM) at 2.4 percent remained stable as compared to the same quarter last year and quarter-on-quarter.
Non-interest income in Q3 FY25 stood at Rs 1,512 crore, up 26.6 per cent from the same quarter last year. Cost-to-income ratio declined sequentially for the second consecutive quarter to 71.1 percent.
Managing Director and CEO Prashant Kumar said: “Q3 FY25 is the fifth consecutive quarter in which the Bank has demonstrated sustained sequential expansion in profitability.
The Bank’s RoA has also improved to 0.6 percent from 0.5 percent reported in the last 3 quarters. It is quite encouraging that we have started seeing expansion in our operating profitability as well.”
ICICI Securities said low-yielding RIDF investments eased to 8 percent of assets against 10 percent in the September quarter, but it is still underwhelming.
“Our estimates of NIM expansion in FY25-27E take into account further normalisation in RIDF. Retail slippages, though increased at 4.7 percent annualised, remained stable quarter-on-quarter.
We model muted credit cost at 30 bps for FY26E at a low Net SR (0.1 percent of loans),” it said. ICICI Securities said PL/credit card slippages are running at 7 percent and 10 percent annualised rates, respectively.
The bank noted that its recent performances in unsecured products have been encouraging. “The net carrying value of the SR book has declined to Rs 233 crore (0.1 percent of loans). The bank expects to recover Rs 1,200 crore on an annualised basis and Rs 3,000 crore overall from its SR pool.
We estimate credit costs to remain comfortable (~30 bps) for FY26, leading to faster conversion of operating income to the bottom-line.
