Buy Yes Bank; target of Rs 418: Edelweiss

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26 Aug, 2025 12:21

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Edelweiss' research report on Yes Bank

Yes Bank clocked an impressive core operating performance (NII >30% YoY) in Q2FY18, but high asset quality stress played spoilsport (GNPLs doubled to >INR27bn, 1.82%). Key highlight was INR63.6bn of NPL divergence with RBI. However, of this merely INR12.2bn slipped into NPL as balance was repaid/sold/upgraded. This is similar to trend demonstrated in earlier divergence of FY15/FY16, wherein only 10-15% had slipped. Beyond this too stress came in higher—2.2% versus 1.4-1.5% run rate, driven by 1 NCLT account. Meanwhile, retailisation sustained momentum—retail & business banking jumped ~37%, savings accounts catapulted >50% and retail fees surged >29% YoY. While the divergence is a concern, we believe Yes Bank’s business strength (loan underwriting and structuring) and superior loan structuring skills will restrict loss given default (LGD; corroborated by historical evidence). Also, we believe robust growth and NIM improvement will aid it post best-in-class return ratios and fuel re-rating. Maintain ‘BUY’.

Outlook
Going ahead, while some divergence could persist, the Bank’s superior loan structuring skills will restrict overall LGD (FY18 credit cost guidance maintained). Moreover, progress in branch banking will lead to best-in-class return ratios and reduce volatility. At CMP, the stock trades at 2.6x FY19E P/ABV, attractive for a bank that has delivered >30% EPS CAGR over past 5 years and estimated to clock >29% ÇAGR over FY17-19. With anticipated economic recovery and the bank’s commendable retail effort, focus in ensuing quarters will be on growth than stress. Maintain ‘BUY/SO’ with INR418 TP (3.3x FY19E P/BV).
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