Yes Bank Valuation Turns Expensive, Markets Expect a Fall

Yes Bank is engaged in offering a range of financial products and services, including digital solutions. Its investment banking, merchant banking, and brokerage operations are managed by its subsidiary, YES Securities. The bank has strengthened its financial position this quarter, although its profitability is still hindered by an inefficient RIDF. 

Key Financial Points 

• Yes Bank reported a Q4FY24 profit after tax of Rs.452 Cr, as compared to Rs 202.43 Cr for the same quarter last year, meeting expectations, with a return on assets (ROA) increasing to 0.5%.
• Net non-performing assets (NPA) and net stressed assets ratio (SR) improved significantly to 1.1% from 1.7% QoQ and 2.4% year-on-year (YoY).
• The bank has strengthened its balance sheet, but profitability is still affected by an unproductive rural infrastructure development fund (RIDF), which accounts for about 11% of assets.
• The bank expects RoA to increase to around 1.0% by FY26E from 0.3% in FY24, driven by improving net interest margin (NIM) and low credit costs.

However, the valuation remains unattractive, with the stock trading at around 1.9/1.8/1.6 times FY24/25E/26E adjusted book value (ABV). In its recent report, ICICI Securities stated that YES Bank’s March quarter results met their profit expectations. The bank experienced a healthy 5% sequential growth in loans and a robust 10% quarter-on-quarter growth in deposits. 

While YES Bank has improved its balance sheet, profitability is still affected by the unproductive Rural Infrastructure Development Fund (RIDF), which constitutes 11% of its assets. Efforts in organic PSL origination aim to ease the RIDF burden, boosting yields and RoA. Estimated RoA improvement to 1.0% by FY26E from the current 0.3%, driven by better NIM and lower credit costs.

Stock Price 

Today, on May 2nd, 2024, Yes Bank’s stock price fell by 2.68% which is why investors have been asked to keep a close watch on Yes Bank’s stock performance in the upcoming days. For now, several brokerage firms like ICICI Securities, JM Financial and Kotak Institutional Securities have maintained a “SELL” on the stock.

Conclusion: In conclusion, Yes Bank has made some improvements in its financial position and key performance indicators. Challenges remain due to a problematic rural infrastructure fund, but the bank is taking steps to address this. Despite progress, concerns about the bank’s expensive valuation persist. Yes Bank needs to continue working on its issues to build trust with investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.