Even as YES Bank Ltd shares climbed in Monday's trade following a beat on Q3 earnings, ICICI Securities retained its 'Sell' rating on the stock, with a lower target of Rs 15 from Rs 16 earlier. The brokerage said operating earnings as percentage of assets improved 10 basis points sequentially in the December quarter but is still sub-par at 1.04 per cent. It estimates 12 per cent growth in loans compounded annually for FY24–26.
YES Bank shares climbed 3.39 per cent to hit a high of Rs 18.25 on BSE. The stock is down 23 per cent in the past one year.
"We appreciate YES’ improving operating performance and see RoA ascending from 0.3 per cent in FY24 to 0.9 per cent in FY26E and 1 per cent-mark only in FY27E. Maintain SELL with a revised target price of Rs 15 against Rs 16 earlier, valuing the stock at 0.9 times FY26E ABV, in-line with RoA," the brokerage said.
YES Bank reported a net profit of Rs 612 crore for the December quarter, up 2.6 times YoY. Operating profit came in at Rs 1,079 crore, up 24.9 per cent YoY. YES Bank said its net interest income (NII) at Rs 2,224 crore for Q3 up 10.2 per cent YoY, but net interest margin (NIM) at 2.4 per cent was flat YoY and QoQ.
Non-interest income for Q3FY25 at Rs 1,512 crore, was up 26.6 per cent YoY. Cost-to-Income Ratio fell sequentially for the second consecutive quarter at 71.1 per cent.
Managing Director & CEO Prashant Kumar said: “Q3FY25 is the fifth quarter in a row where the Bank has demonstrated sustained sequential expansion in profitability. The RoA of the Bank has also expanded to 0.6 per cent from 0.5 per cent, reported over the last 3 quarters. It is quite encouraging that we have also started seeing expansion in our Operating Profitability."
ICICI Securities said low-yielding RIDF investment reduced to 8 per cent of assets against 10 per cent in the September quarter, but remains bulky.
"Our estimates for NIM expansion over FY25–27E factor in further normalisation in RIDF. Retail slippages, though elevated at 4.7 per cent annualised were stable QoQ. We model muted credit costs at 30 bps for FY26E on reduced net SR (0.1 per cent of loans)," it said.
ICICI Secuirties said the PL/credit card slippages are running at annualised rates of 7 per cent and 10 per cent, respectively. The bank mentioned performance of its recent vintage in unsecured products has been encouraging.
"The net carrying value of SR book has reduced to Rs 233 crore (0.1 per cent of loans). The bank expects Rs 1,200 crore recovery from its SR pool on annualised basis and Rs 3,000 crore overall. We estimate credit costs to be comfortable (~30bps) for FY26 yielding faster conversion of operating earnings to bottom-line. . We estimate credit costs to be comfortable (30bps) for FY26 yielding faster conversion of operating earnings to bottom-line," ICICI Securties said.