YES Bank shares at Rs 14? What analysts say post Q1 results

YES Bank shares stare at a potential downside as analysts cut their target prices on the stock, citing muted business growth, a sequential decline in net interest margin (NIM), rise in slippages and net non-performing assets and a drop in provision coverage ratio in the June quarter. 

ICICI Securities said it remained concerned on the bank’s muted operating earnings. It said pre-provision operating profit (PPOP) as percentage of assets stood at 1 per cent for the bank in FY23 and it sees only a gradual improvement to 1.1-1.3 per cent levels in FY24-25 due to relatively higher gestation period of retail businesses and intense competition.

"Despite building in modest credit cost at 50 bps for FY24/25E, we see the bank reporting sub-par RoAs at 0.7 per cent by FY25E. Our target price is unchanged at Rs 14 valuing the stock at 0.9 times FY25 ABV. Based on current price, the downside appears over 20 per cent, thus, we downgrade the stock to SELL from Reduce. Risk-rewards appear unattractive with the stock trading at 1.2 times FY25 ABV for single digit RoE," it said.

The overhang of a weak operating performance and higher (aging) provisions are expected to keep the RoA below 1 per cent in the medium term, said Anand Rathi as it retained its 'Sell' call on the stock with a 12-month target of Rs 16, 1 time FY25 P/ABV.

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The private lender reported a profit of Rs 314.30 crore for the June quarter, up 10 per cent YoY. Provisions for the quarter more than doubled year-on-year to Rs 360 crore from Rs 174 crore in the yera-ago quarter. While gross non-performing asset ratio declined 20 basis points sequentially to 2 per cent, net NPAs rose to 1 per cent from 0.8 per cent QoQ.

YES Bank's earnings growth at 10 per cent YoY was hurt by higher provisions that weighed on 40 per cent YoY growth in operating profits. Slippages were marginally higher but higher write-offs kept headline non-performing loan ratio marginally lower sequentially, Kotak Institutional Equities said.

"Our investment thesis remains unchanged as normalisation of return ratios is still some time away with the underlying drivers (NIM or cost ratios) yet to turn meaningfully positive. Valuations are no longer expensive but taking a constructive view needs more confidence on the path of RoE improvement. Maintain REDUCE (FV at Rs 17 from Rs 16 earlier," it said.

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