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Synopsis: Nomura has shared its neutral outlook on YES Bank stock with a target price of Rs17, underscoring a cautiously optimistic view on the bank’s performance. Despite improvements in operational metrics, the brokerage notes that current stock valuations appear to already incorporate potential positive factors. YES Bank's return on assets (RoA) is forecasted to improve but remains below industry standards, expected at 0.5% for FY25 and 0.8% for FY26. While recent growth in deposits and a stable asset quality reflect a strengthening profile, analysts maintain that competitive constraints and moderate returns remain key challenges.
Detailed Overview
Nomura India’s recent analysis on YES Bank points to gradual but steady improvement in the bank’s returns, driven by robust deposit growth and stable asset quality. For the September 2024 quarter, YES Bank recorded a profit after tax (PAT) of Rs550 crore, marking a 146% year-on-year increase due to reduced credit costs, a lower tax burden, and controlled operating expenses. Deposits saw an 18.3% year-on-year increase, reaching Rs2.77 lakh crore, while loan growth rose by 13.1%Rs.
SIMPLY WALL ST
The brokerage anticipates an RoA of 0.5% in FY25 and 0.8% in FY26 for YES Bank, levels that remain lower compared to peers. Additionally, the bank's net interest margin (NIM) is impacted by its exposure to low-yielding assets in the Rural Infrastructure Development Fund (RIDF), currently forming 11% of its overall assets. YES Bank management has indicated that efforts are underway to reduce RIDF deposits to 5% by FY27, which could contribute positively to margins over the coming years.
Despite these improvements, Nomura cautions that current market valuations, trading at 1.3 times FY26 book value, likely reflect these positive changes. Thus, the firm advises a neutral stance on the stock at its current price, as further upside could be limited. YES Bank shares were recently trading at around Rs21, showing a moderate decline of 7% year-to-date.
Investment Outlook
For investors considering YES Bank, the stock's growth trajectory highlights cautious optimism. However, with a neutral recommendation and an emphasis on the bank’s competitive constraints and valuation metrics, this stock might be more suitable for risk-tolerant investors seeking gradual returns rather than aggressive growth.
Disclaimer
This information is for educational purposes only and does not constitute financial advice. Always consult a financial advisor before making investment decisions.
