YES Bank share price target: What can trigger a re-rating for the stock?

Foreign brokerage Nomura in its latest note YES Bank Ltd said the private lender witnessed a broad-based strength across growth, margins and profitability in the June quarter and that its core return on asset (ROA) was catching up. It upped its target price on the stock to Rs 23 from Rs 21 earlier, but maintained its 'Neutral' rating on the stock, saying positives are mostly priced in. 

Nomura's target on YES Bank is higher than the Bloomberg consensus estimate of Rs 21.10, based on 10 analyst projections. Brokerages such as Citi, Investec, Morgan Stanley and JPMorgan have either 'Sell' call or 'Underweight' rating on the stock.

Nomura said YES Bank aims to improve its core-ROA by improving margins and turning around its retail business and containing credit cost before benefits of Security Receipts (SR) recoveries fade out. 

"While the performance is on a gradually improving trajectory, YES Bank needs a strong profitability turnaround in its retail segment for further re-rating, in our view. We maintain our Neutral rating with a higher share price target of Rs 23, valuing the bank at unchanged multiple of 1.1x Mar-28F BVPS," Nomura said.
The foreign brokerage said YES Bank reported strong core pre-provision operating profit growth of 62 per cent YoY, which was 5 per cent above its estimate, led by strong net interest income (NII), robust fee income and inline opex. 

"NII growth was supported by a 4 basis points QoQ margin improvement (vs our estimate of 3 bps decline QoQ) while fee income included a Rs 120 rcore interest on IT refund in 1Q27. A slightly higher credit cost of 56bp (vs estimate 50bp) was offset by strong treasury gains and a lower tax rate, resulting in PAT of Rs 1,072 (vs our estimate of Rs 840 crore)," Nomura said.

Excluding one-offs (interest on IT refund, SR recovery), PAT was 8 per cent above Nomura's estimate. 

The YES bank management maintained its SR recovery guidance of Rs 800-1,000 crore in FY27E despite a lower quantum in Q1FY27. We raise loan growth and margin estimates, resulting in 6-7 per cent higher earnings for FY27-28F. 

"While Yes Bank’s return profile is on a gradually improving trajectory, we believe the current valuation at 1.1 times Mar-28F BVPS adequately captures the positives," Nomura said.