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

Shares of YES Bank Ltd on Wednesday staged some recovery, rising 3 per cent in Wednesday's trade as investors judged Monday's 8 per cent drop on the counter unwarranted. Against sell orders of 21,17,382 shares on BSE, the stock had buy orders of 87,62,603 shares, exchange data showed. YES Bank was the third-most active stock on NSE, with 3,19,04,434 shares worth Rs 53 crore changing hands so far. Analysts largely hold 'Neutral' or rating on the stock, saying the stock lacks re-rating triggers post a less-than-expected September quarter results.

JM Financial said it expects YES Bank’s return on equity (RoE) improvement to be gradual at 0.3 per cent in FY24 and 0.6 per cent in FY25 driven by gradual improvement in margins with focus on high yielding products, benefits accruing from early investment in digital and technology, and lower credit costs in medium term. The domestic brokerage has 'Hold' call on the YES Bank stock with a a revised target price of Rs 16.50, valuing the bank at 1.1 times FY25E book value per share.

On Wednesday, the stock rose 2.83 per cent to hit a high of Rs 16.70 on BSE.

YES Bank's Q2 profit missed the Street estimate  due to a sharp increase in provisions and a contraction in net interest margin. The management though felt margins have bottomed out and suggested a slight improvement.

It indicated that the retail segment- credit card and unsecured loans, will see more cautious disbursement going forward as signs of stress were visible in the previous quarter.

"Credit costs increased to 2.5 per cent due to a sharp increase in PCR to 56.4 per cent (vs 48.4 per cent in 1QFY24) and with management guiding for it to increase to 70% in FY24E, we expect the credit costs to remain elevated in the near term. We build in an average credit cost of 0.77 per cent over FY24/25E.

Nomura, which also has a target of Rs 16.50 on the stock, expects the profitability metrics fo the private lender to expand over FY23-27. It forecast YES Bank's on assets at 1 per cent and return on equity at 10 per cent in FY27.

"RoEs are still weak at 2 per cent and the path to normalized RoE or closer-to-peers is still a few years away. 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," KOtak Institutional Equities said it a note. This brokerage has retained its 'Reduce' stance on the stock with a fair value of Rs 17.

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