YES Bank announced a significant 45% year-on-year surge in its standalone net profit for the March quarter, reaching Rs 1,068.42 crore. This strong performance, however, is met with a cautious outlook from brokerage firm JM Financial, which has issued a "SELL" recommendation and set a 17% downside target for the private lender's shares.
Q4 Performance Highlights
The bank's net profit for the fourth quarter of the financial year saw a substantial increase from Rs 738.12 crore in the corresponding period last year. Net Interest Income (NII) also showed robust growth, rising 16% to Rs 2,637.7 crore, up from Rs 2,276.36 crore in the same quarter of the previous year. Loan growth improved to 11.1% for the quarter, and the Net Interest Margin (NIM) sequentially increased by 5 basis points.
JM Financial's Bearish Stance
Despite the impressive quarterly figures, JM Financial views the sustainability of YES Bank's profitability as a key concern. The brokerage highlighted that a significant portion of the recent earnings uplift has been driven by Security Receipt (SR) recoveries, which are finite. With this recovery pool nearing exhaustion, and core operational performance remaining a challenge, the firm questions the bank's ability to maintain a near 1% Return on Asset (RoA).
Concerns Over Future Earnings
JM Financial noted that the YES Bank management has guided for significantly lower SR recoveries of Rs 800-1,000 crore in FY27, a stark reduction from the Rs 1,560 crore in FY26. This anticipated reduction in recovery-led support is expected to negatively impact the bank's credit cost in FY27. The brokerage also pointed out that fresh loan slippages increased to Rs 1,100 crore in Q4 from Rs 1,050 crore in Q3, although net slippages declined due to elevated recoveries.
"We believe the stock is discounting a structurally stronger profitability profile that is yet to be demonstrated without recovery-led support. We value the bank at 0.9 time FY28 P/BV, with a target price of Rs 17, and reiterate our SELL recommendation," JM Financial stated.
Management's Future Outlook
YES Bank's management has projected double-digit loan growth in the range of 13-15% for FY27, with retail book growth expected at 10-11% and corporate growth at 20%. They also aim for a NIM target of 3-3.5% over the next two to three years, alongside an incremental core RoA improvement of 20-25 basis points in FY27. However, JM Financial's analysis suggests that the current stock valuation already incorporates a more robust profitability profile that is yet to be consistently demonstrated without the aid of finite recovery streams.