JM Financial in its latest note on YES Bank Ltd said the private lender reported promising results in the March quarter but valuations remain a concern. The domestic broking firm has downgraded YES Bank shares to 'Sell' while maintaining its price target that suggests a 32 per cent downside over the prevailing market price.
The downgrade was seen even YES Bank saw improved asset quality in Q4, supported by higher recoveries, steady margins and strong growth. On Tuesday, YES Bank shares fell 2.69 per cent to Rs 26.38 on BSE. JM Financial's target price of Rs 18 suggests a 32 per cent downside over this price.
Kotak Institutional Equities also suggested a ‘Sell’ on the stock post Q4 results. Kotak has an unchanged fair value of Rs 19 for YES Bank, as it values the bank at 1.2 times book and 13 times estimated EPS.
YES Bank reported robust Q4 recoveries and resolutions supported by healthy loan growth while opex was higher, JM Financial said. YES Bank's other income was aided by core fee income growth largely driven by increase in retail fee income and strong traction in third party fees, the brokearge said.
The management remains confident on strong momentum in resolutions to continue with a guidance of more than Rs 5,000 crore expected to come through in FY25. It also expect to build excess buffer from these recoveries, which will further strengthen balance sheet.
"The management expects margins to improve by 80-100bps in medium term as they plan to increase share of higher yielding retail mix accompanied by reduction in RIDF portfolio to
JM expects average return on asset of 0.54 per cent an return on equity of 5.13 per cent over FY25-26E.
"However, we believe current valuations of 1.7 FY26E P/BV are well ahead of the potential positives that could accrue over the medium-term," it said.