YES Bank: SMBC entry marks another reset; turnaround on cards? Here's target price

Sumitomo Mitsui Banking Corporation's (SMC) strategic entry may spark another reset for YES Bank on the asset side, but core profitability stays weak, the retail asset push has seen limited success, and the management transition remains a key monitorable, Emkay Global said today while reiterating its ‘Sell’ call.

YES Bank on Wednesday said it received the RBI nod for proposed amendments in connection with nomination of two nominee directors by SMBC and one nominee director by SBI, on the board of directors. 

SMBC recently received regulatory approval for acquiring 24.99 per cent stake in YES Bank; of this, it has already acquired 20 per cent from a slew of banks, with the incremental 4.99 per cent stake likely to be acquired either via secondary purchase or during future capital raise (CET 1 being sub-optimal at 14 per cent). 

Emkay Global noted that while SMBC will not have ownership control, it will have a say on the board in the appointment of the new MD & CEO, who will replace Prashant Kumar. 

In the past, SBI’s entry into YES Bank helped it stabilise deposit base. SMBC’s entry into YES Bank could potentially lead to one more reset on the asset front, apart from access to sustained source of
capital, enhanced governance, management rejig, and possibly some portfolio clean-up, Emkay said.

For now, the broker retained its 'Sell' rating on YES Bank with a target price of Rs 17, as core-profitability (PPoP at 0.9 per cent of assets) remains sub-par due to slower growth, lower margin (partly due to drag from industry’s high RIDF pool), and higher operational cost. 

"However, higher SR redemptions/provision reversal continue to support profitability; thus, the bank aspires to achieve 1 per cent exit RoA
in FY27 (vs 0.8 per cent now), subject to no major asset-quality disruption. We revise up our earning estimate by 7-15 per cent, building in higher SR income and some cost rationalization, as YES shifts toward branch-led loan sourcing," Emkay said.
It expects a return on asset (RoA) of 0.8-1 per cent over FY26-28. Despite the estimate revisions, Emkay maintained 'Sell' on the bank, given rich valuations relative to core profitability. 

A potential leadership transition, coupled with strategic influence of SMBC, will be a key monitorable as it could grant another opportunity to YES Bank for attempting a long-awaited turnaround, Emkay Global said.