Sell Yes Bank; target of Rs 17: Emkay

Emkay's research report on Yes Bank

YES Bank's core performance remained weak, with credit growth slowing to 5% YoY (down 2.1% QoQ), while margins remain low at 2.5%. However, higher treasury gains led to an earnings beat, with PAT at Rs8.0bn/RoA at 0.7%. NIM held steady at 2.5%, aided by a reduction in RIDF deposits and the recent SA/TD rate cuts, though partially offset by adverse asset repricing. However, the bank expects NIM to slip in 2Q due to lending rate cuts. Yes’s retail portfolio continues to exhibit stress with slippage ratio of 2.5%, which we believe had led to management churn. Recently, SMBC agreed to acquire 20% stake from SBI (13.19% of the 24% sold) and other banks (6.81% of the total 9.7% stake sold) at sale price of Rs21.5/sh (implying 1.3x FY27E ABV). However,

Outlook

The transaction is still pending RBI approval and so the bank has halted its search for a new CEO. Factoring in the 1Q beat, we revise up FY26E EPS by 5% and in turn our TP by ~6% to Rs17 (rolling fwd on 1x Jun-27E ABV) from Rs16. However, we retain SELL, given sub-par growth/return ratios and higher valuations (1.2x FY27E ABV).