Buy Yes Bank; target of Rs 430: Dolat Capital

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26 Aug, 2025 12:21

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Dolat Capital's report on Yes Bank

"Yes Bank's net profit grew 21 percent YoY to Rs 4.15bn, boosted by the significantly low provisions this quarter. The bank had a write back of Rs 520 mn on its bond book which led to the low provisions in Q3. While the bank saw a higher fresh NPL formations at Rs 1.4bn, the overall asset quality with gross NPLs of Rs 2bn (0.39 percent gross NPLs) remained largely under control. The bank did not undertake any fresh restructuring and has no major restructuring pipeline. The total restructured loan book stood at 0.21 percent of total loans. "

"NIM at 2.9 percent was almost stable QoQ. We believe that the softening of the bulk borrowing rates should aid in keeping the NIM steady at a time when the bank would be increasing the low yield priority sector loans. Loan growth was 15 percent YoY driven by the corporate and the retail segment. The bank saw a reduction in its business banking (SME) segment. CASA ratio remained stable QoQ at 20.9 percent. Cost/income ratio saw a sharp rise QoQ to 41.6 percent, impacted both by the lower treasury income and high other operating expenses. Excluding the Rs 140mn one-time operating expense, the cost/income ratio would be closer to 40 percent."

"We have been factoring rising NPLs for the bank, and are not too worried with the high slippage during the quarter. We believe that despite the rising NPLs, the banks overall asset quality would remain amongst the best in industry. While the bulk borrowing rates have started to soften, a meaningful reduction and a noticeable impact on the bank's NIM should be visible over the medium term of 2-3 quarters. The bank remains a significant beneficiary of a reversal of the interest rate cycle. We remain positive on the stock in the medium to loan term given its attractive valuations of 1.8x on FY14 ABVPS and 1.5x on FY15 ABVPS forecasts. We have a Buy rating with target price of Rs 430 based on target PBR of 2.2x on FY14 and 1.8x on FY15 BVPS forecasts," says Dolat Capital research report.

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