YES Bank: Nomura says profitability metrics may improve gradually, maintains share price target

Nomura India, which recently initiated coverage on YES Bank, said lower income and higher provisions impacted YES Bank's profitability in the September quarter. The foreign brokerage said net interest margin (NIM) for the bank moderated 20 basis points sequentially to 2.3 per cent, largely on account of a higher rise in cost of deposits.

Core-fee income growth, it said, was strong at 28 per cent YoY and 20 per cent QoQ, led by retail fees. Core pre-provision operating profit, Nomura added, declined 3 per cent YoY but was up 16 per cent sequentially, driven by strong fee income and moderation in opex growth.

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Nomura India maintained that YES Bank's profitability metrics may witness a gradual expansion over FY23-27. It sees YES Bank's return on assets at 1 per cent and return on equity at 10 per cent in FY27.

For the quarter, provisions for YES Bank increased 39 per cent sequentially, implying credit cost of 1 per cent. YES Bank has reported a 47 per cent YoY jump in Q2 profit at Rs 225.21 crore, aided by other income. A few brokerages were expecting the bank to report doubling of profit.

YES Bank is a widely-tracked stock as 48,05,454 small shareholders owned this stock as on September 30. The stock plunged 6.02 per cent to Rs 16.24 on Monday. The stock market is shut on Tuesday on account of Dussehra.  

Nomura India said YES Bank’s return profile, though on an improving trajectory, is significantly lower than peers. Further, it said the private lender trades at 1.1 times September 2025 book value per share, which adequately captures the positives. Post YES Bank's Q2 results, Nomura has maintained its 'Neutral' rating on the stock with a target of Rs 16.50. 

Nomura India had recently said YES Bank was incrementally focused on lending to SME and retail segments. This is at a time when the bank was running down its bulky corporate book. Nomura India sees granular loans to continue to be the key drivers of loan growth, which it pegs at 17 per cent CAGR over FY23-27.

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