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NEW DELHI: Investors gave thumbs up to YES Bank‘s surprise March quarter profit on Monday morning , even as the scrip lost steam as the session progressed.

Among the initial reports on the private lender’s March quarter results, ICICI Securities has maintained a ‘hold’ on the stock with a target of Rs 14. Nirmal Bang Institutional Equities has maintained its ‘sell’ call with target of Rs 12.8, saying the lender’s fundamentals are improving yet are unappealing.

Another brokerage Edelweiss resumed coverage on the stock, with a target of Rs 11.

Edelweiss said that against Street’s estimate of a loss for FY23, there is a case for building profit for FY23 and FY24, given the turnaround in FY22.

“Even so, positive triggers could be building up — transfer to ARC without a haircut, return on asset (RoA) surprise, digital traction and accelerating core earnings, visibility on the triggers materialising is low for now,” Edelweiss said.

While the YES Bank management has guided for a return on asset (RoA) of 0.75 per cent in FY23, Edelweiss pegs it at 0.4 per cent, given rising rates and the expectation that credit cost has bottomed.

YES Bank reported a net profit of Rs 367 crore for the March quarter compared with a loss of Rs 3,788 crore in the corresponding quarter last year. The profit figure was up 37.9 per cent sequentially over the December quarter’s Rs 266 crore.

The private lender said its net interest income (NII) rose 84.4 per cent year-on-year (YoY) to Rs 1,819 crore from Rs 987 crore in the same quarter last year. Non-interest income also grew 27.9 per cent YoY to Rs 882 from Rs 689 crore, the bank said.

Net interest margin (NIM) improved to 2.5 per cent in the March quarter from 2.4 per cent in the December quarter and 1.6 per cent in the year-ago quarter.

Nirmal Bang said YES Bank’s profit came against its expectation of a loss, driven by 84 per cent YoY growth in NII and 95 per centYoY drop in provisioning. But net loans grew 8.5 per cent YoY, lower than its expectation earlier during the year.

“Operational performance was stable with emphasis on retail loans, which now account for 60% of total loans. Deposit traction remains healthy even as the bank has been able to reduce its cost of deposits. We take note of the continued reduction in stress levels over the last few quarters, driven by lower slippages and higher recoveries/upgrades. However, even at the current stress levels and return profile, we find it hard to make a positive case for the bank,” it said.

The bank has guided for a 3 per cent exit quarter NIM in FY23, a 2.4 per cent opex/assets, 2 per cent slippages and, as suggested above, over 0.75 per cent ROA in FY23.

“Our numbers are fairly lower than management’s guidance, but we would closely watch quarterly delivery to make changes to our estimates. The ARC set-up is expected to be complete by June. Subdued return ratios of the bank, coupled with attractive valuations of large-cap banks, make it challenging to make a favourable case for YES Bank currently,” it said while maintaining a SELL rating with a target price of Rs12.8.

ICICI Securities said that the revamped leadership is stabilising and turning around the bank from its downcycle.

This, it said, is evident from its better-than-expected operating performance over the past three quarters. It not only achieved but overshot, on a few parameters, the guidance articulated for FY22 including exit quarter slippage run-rate managed at below 2 per cent (FY22 at 3.5 per cent), credit cost contained below 1 per cent, net labelled exposure brought down to 5.3 per cent.

The NIM profile has gradually improved to 2.5 per cent from lows of 1.6 per cent, it said, while noting that retail + SME advances grew 26 per cent for the quarter, taking the mix towards the target level of 60 per cent.

There is a turnaround in relevant operating metrics and improved confidence in the stability of the franchise.

Nonetheless, we remain cognizant of risks from delay in resolution of stress pool, net labelled exposure of 5.3 per cent, modest RoE profile during transition and supply overhang post the expiry of lock-in shares. We maintain HOLD with an unchanged TP of Rs14,” it said.

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