YES Bank shares: ICICI Securities ups rating after stock correction, sets stock price target at Rs 14

ICICI Securities on Wednesday said YES Bank Ltd is progressing reasonably well on balance sheet parameters such as CET1, net non-performing assets, granularity, mix and  CASA but said progress on operating earnings has been much slower. The domestic brokerage said while it is not so worried about incremental asset quality or credit costs, it sees only a gradual improvement in pre-provision operating profit (PPoP) margins.

Following a nearly 10 per cent correction in the last three months, the brokerage has changed its rating on the stock to 'Reduce' from 'Sell' earlier but maintained its target price at Rs 14 on the stock. This is against a target of Rs 16.50 per share suggested by Nomura India and JM Financial and a fair value of Rs 17 as suggested by Kotak Securities on the stock earlier this week.

Due to bulky RIDF (Rural Infrastructure Development Fund) drag, ICICI Securities expects return on asset (RoA) for YES Bank to remain sub-par in the near term. It sees RoA normalisation from FY26 onwards.

ICICI Securities said despite 25 per cent YoY drop in growth in corporate loans, YES Bank clocked reasonable loan growth of 8.7 per cent YoY, which was led by a strong 27 per cent YoY growth in non-corporate book."The bank has been shedding corporate loans (20 per cent YoY decline in run-rate) due to less rewarding pricing and is also in-line with its strategy of de-bulking the balance sheet. Corporate share in overall loan mix has reduced further to 23 per cent vs 34 per cent YoY while retail share has improved to 48 per cent (41 per cent YoY), mid–corporate and SME stands at 29 per cent (25 per cent YoY), the brokerage said.

ICICI Securities said the bank has been making active efforts to reduce the RIDF drag and has inorganic plans. YES Bank estimates RIDF drag should start receding meaningfully from FY26. ICICI Securities has been building in a marginal improvement in NIM on a low base.

In another note, JM Financial said any improvement in the private bank'RoE would be gradual at 0.3 per cent in FY24 and 0.6 per cent in FY25. This, it said, would be driven by a gradual improvement in margins and a focus on high yielding products.  YES Bank is also seen benefitting from early investment in digital and technology, and lower credit costs in the medium term. JM FInancial has a 'Hold' rating on the stock.

Nomura anticipated YES Bank's ROA at 1 per cent and ROE at 10 per cent in FY27. Kotak Institutional Equities said RoE for the bank  is weak at 2 per cent and that the path to normalised RoE is a few years away.

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"We have revised our earnings downward to reflect a possible slower progression in NII growth. The bank has significantly underperformed its peers, but we are still not confident if the risks are fully captured in the stock price," it said.

 

Also read: YES Bank shares stage recovery, rise 3%. JM Financial sets target price at Rs 16.50

 

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