Global brokerage Nomura has increased its target price for YES Bank shares to Rs 23 from an earlier Rs 21, citing improved performance in the June quarter. Despite the upward revision, Nomura maintained its 'Neutral' rating on the stock, suggesting that many positive developments are already reflected in the current valuation.
According to Nomura's latest report, YES Bank demonstrated broad-based strength across growth, margins, and profitability during the recent quarter, with its core return on asset (ROA) showing significant improvement. The brokerage's new target price surpasses the Bloomberg consensus estimate of Rs 21.10, which is based on projections from ten analysts.
Retail Business Turnaround is Key
While acknowledging the bank's improving trajectory, Nomura emphasized that a substantial turnaround in the profitability of its retail segment is critical for any further re-rating of the stock. "We maintain our Neutral rating with a higher share price target of Rs 23, valuing the bank at unchanged multiple of 1.1x Mar-28F BVPS," Nomura stated in its report.
The bank's management has reiterated its Security Receipts (SR) recovery guidance of Rs 800-1,000 crore for FY27E, even after a slightly lower quantum in Q1FY27. YES Bank aims to enhance its core-ROA by boosting margins, revitalizing its retail operations, and keeping credit costs in check before the benefits from SR recoveries diminish.
Strong Q1FY27 Performance Highlights
Nomura noted that YES Bank reported robust core pre-provision operating profit growth of 62 percent year-on-year, exceeding the brokerage's estimate by 5 percent. This strong performance was driven by healthy net interest income (NII), solid fee income, and controlled operating expenses.
NII growth was supported by a 4 basis points quarter-on-quarter margin improvement. Additionally, fee income included a Rs 120 crore interest on an IT refund during Q1FY27. Despite slightly higher credit costs of 56 basis points (compared to an estimated 50 basis points), the bank's profitability was bolstered by strong treasury gains and a lower tax rate, resulting in a Profit After Tax (PAT) of Rs 1,072 crore, significantly above Nomura's Rs 840 crore estimate. Excluding one-off items like the IT refund interest and SR recovery, PAT was still 8 percent higher than Nomura's projections.
Analyst Consensus and Outlook
While Nomura maintains a 'Neutral' stance, other prominent brokerages such as Citi, Investec, Morgan Stanley, and JPMorgan currently hold 'Sell' or 'Underweight' ratings on YES Bank shares. Nomura believes that the current valuation, at 1.1 times the March 2028F Book Value Per Share (BVPS), adequately accounts for the bank's improving return profile.