Analysts cautious on YES Bank despite 77% YoY growth in Q3 profit; here's why

Brokerages retained their cautious view on YES Bank despite it posted nearly 77 per cent year-on-year (YoY) growth in net profit at Rs 266.43 crore for the quarter ended December 31. Shares of the private sector lender traded 1.16 per cent lower at Rs 13.58 at around 1.06 pm (IST). On the other hand, the benchmark BSE Sensex was down 1.97 per cent at 57,871.

It had reported a profit of Rs 150.71 crore in the same quarter last year. Net interest income (NII) declined 31.10 per cent YoY to Rs 1,763.98 crore. Asset quality of the bank improved marginally during the quarter gone by. Gross non-performing assets (NPA) came at 4.70 per cent in Q3FY22 over 15 per cent in Q2FY21. Net NPA also declined to 5.30 per cent from 5.50 per cent on a quarter-on-quarter basis.

While retaining a ‘Sell’ rating on YES Bank, Emkay Global Financial Services said, “The bank reported a miss on earnings mainly due to lower other income and higher expenses. Overall asset quality was weak. The bank remains hopeful of launching an ARC by March/June’22-end to take over stressed assets from its balance sheet.”

“We believe the bank needs to accelerate its provision cover instead of showing token profits,” Emkay Global Financial Services said while setting a target price at Rs 10.

The operating profit of the lender declined 66.40 per cent YoY to Rs 731 crore during the quarter under review. However, the figure increased by 7.7 per cent on a quarter-on-quarter (QoQ) basis. The provision also decreased by 82.10 per cent YoY and 0.70 per cent QoQ to Rs 375 crore.

“We expect the bank’s return on assets trajectory to remain sub-par at 0.3-0.7 per cent over FY23-24E against management expectation of 1-1.5 per cent. We retain ‘Sell’ on YES Bank amid persistent concerns over its asset quality, sub-par return ratios and unfavourable risk-reward ratio,” Emkay Global Financial Services said.

Nirmal Bang Securities also maintained ‘Sell’ on YES Bank with a price target of Rs 12.50.

“We remain wary of elevated NPA levels, which underpin our negative stance on YES Bank. The bank is in the process of setting up an ARC, which will take over a substantial amount of NPAs currently lying in the bank’s books. The ARC is expected to be fully operational by the end of June’22 (1QFY23). We continue to maintain that the outlook on the profitability front is weak. On the growth front, business seems to be improving with retail disbursements up 25 per cent YoY and 10 per cent QoQ,” Nirmal Bang Securities said in a report.

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Also read: Yes Bank Q3 results: Net profit jumps 77% to Rs 266 cr on lower provisions

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