Yes Bank stock rating ‘Sell’- ICICI Securities downgrades Yes Bank shares, keeps target price unchanged

Yes Bank stock rating ‘Sell’: ICICI Securities downgrades Yes Bank shares, keeps target price unchanged

ICICI Securities has downgraded Yes Bank stock to ‘Sell’ from ‘Reduce’ with an unchanged target price of Rs 14, expressing concerns over the bank’s weak fiscal first-quarter results and ongoing pressure on its core profitability. ICICI Securities, in a research note, highlighted multiple factors contributing to the downgrade, including muted business growth, a sequential decline in Net Interest Margin (NIM), an increase in slippages and net Non-Performing Assets (NPAs), as well as a drop in Provision Coverage Ratio (PCR).

Yes Bank Q1FY24 results: Apprehension over muted operating earnings

Yes Bank stock: Valuation concern; risk-reward unattractive

The target price of INR 14.0 reflects a valuation of the stock at approximately 0.9 times the FY25 Adjusted Book Value (ABV). With the current stock price indicating a downside of over 20%, the brokerage suggested that risk-rewards appear unattractive, particularly with the stock trading at around 1.2 times the FY25E ABV, resulting in single-digit Return on Equity (RoE).

Conservative overall loan growth estimate

One of the key risks identified in the report is a sharp rise in growth and NIMs trajectory. The bank’s overall loan growth was relatively slow at 7.4% Year-on-Year (YoY), impacted by a reduction in the corporate loan book. However, retail loan growth remained healthy, with a positive outlook projected by the management for FY24. Despite the management’s guidance, ICICI Securities is building in a more conservative loan growth estimate of around 10% Compound Annual Growth Rate (CAGR) for FY24-25E due to heightened competition.

Yes Bank Q1FY24 results: A closer look

The bank’s deposits showed relatively better growth at 13.5% YoY, but the share of Current Account and Savings Account (CASA) deposits decreased both YoY and quarter-on-quarter (QoQ), falling to 29.4%. The decline in CASA share was offset by an increase in Time Deposits (TD), which contributed significantly to incremental deposit accretion. Margins witnessed a decline in QoQ due to pressure on both yields and cost. Yields dropped by 10 basis points QoQ to 10.1%, while the cost of deposits surged 30 basis points QoQ and 110 basis points YoY to 5.9%, attributed to the rising share of TD in the overall deposit mix.

Retail fee income showed improvement YoY, though it declined QoQ. The bank’s focus on retailization of the balance sheet led to a rise in operating expenses, resulting in an elevated cost-to-income ratio. Gross slippages increased sharply QoQ, with retail and corporate loans being the major contributors. Recovery and upgrades, however, stabilized net slippages QoQ. The Provision Coverage Ratio (PCR) witnessed a significant decline, impacting the bank’s asset quality.

While the bank’s capital adequacy remains adequate, there is lingering uncertainty related to AT-1 bonds write-offs, pending before the Supreme Court. The ongoing litigation on this matter poses potential risks to the bank’s capital position.

Overall, the report indicates a challenging outlook for Yes Bank, with pressure on core profitability and a cautious approach to loan growth. Investors are urged to exercise caution, given the risk-reward dynamics and the current valuation of the stock.