YES Bank share price target raised; ICICI Sec on SMBC’s absence of promoter tag

ICICI Securities on Thursday noted that the absence of a ‘promoter’ tag for SMBC could limit its otherwise strong embedded value. YES Bank saw a pause in its profit trajectory in Q2 after reporting steadily improving PAT for the past seven quarters. The domestic brokerage highlighted that operating earnings, which had risen consistently over the previous four quarters, declined sequentially in the September quarter, according to its earnings review note.

ICICI Securities said the return on asset (RoA) for YES Bank has moderated sequentially to 0.6 per cent in Q2. CASA growth was healthy at 30 and remained above the industry level, it added. 

Overall slippages eased, though retail slippages remain elevated at 4 per cent, ICICI Securities said.

"Importantly, SMBC has acquired 24.2 per cent stake in YES Bank. We believe the absence of ‘promoter’ tag for SMBC and limited headroom to further increase stake may restrict the otherwise strong embedded option value. CET 1 stood at 13.9 per cent. Maintain HOLD with target price revised to Rs 22 from Rs 20 earlier), basis 1.2 times (1.1 times) FY27E ABV," ICICI Securities.

A sharp rise in delinquencies poses downside risk for YES Bank. Upside risk included strong recoveries in legacy NPA and SR portfolio,. the brokerage said.

SMBC has received the RBI approval to acquire up to 24.99 per cent stake in YES without being classified as promoter. SMBC now holds 24.2 per cent stake, making it the largest shareholder, followed by SBI (10.8 per cent).

"We believe the absence of ‘promoter’ tag for SMBC and limited headroom to increase stake may restrict the otherwise healthy option value. YES, has appointed Mr. Rajeev Kannan and Mr. Shinichiro Nishino as
Non-Executive & Non-Independent directors, nominated by SMBC," ICICI Securities said.

The domestic brokerage said loan growth remained soft at 6 poer cent YoY to Rs 2.5 lakh crore, led by commercial banking (up 16.5 per cent YoY) while retail (2 per cent YoY) and CIB (up 5 per cent YoY) were muted. Deposit growth was strong QoQ at 7 per cent, led by 21 per cent QoQ rise in CA. CASA ratio improved to 33.7 per cent against 32.8 per cent QoQ. RIDF declined 23 per cent/9 per cent YoY/QoQ, with commensurate decline in borrowings.

"Cost of deposits fell 20bps QoQ, though NIM was stable QoQ at 2.5 per cent as yields remained under pressure. NII fell 3 per cent QoQ (up 5 per cent YoY). Opex growth was very well contained (up 1 per cent YoY; down 4 per cent QoQ). Cost to income remained stable QoQ at 67.1 per cent. We estimate YES to deliver 12 per cent loan growth with improving NIM for FY27E, aided by receding RIDF and deposits re-pricing.