IIFL
YES Bank (Buy)
CMP: ₹286.7
Target: ₹400
The recent underperformance in YES Bank’s stock has been triggered by concerns of worsening asset quality amid tightening regulations. We believe YES Bank has robust resolution processes and will be able to recover the bulk of its stressed assets. The strong corporate loan growth, while opportunistic, is driven with a specific strategy in mind. In time, focus on growing granular assets would regain importance as the current opportunity subsides. In the medium term, the lender will likely report contained slippages, sharply reduced divergence in the next RBI supervision and improved risk adjusted returns. These would drive stock returns.
Despite short term challenges to margins and asset quality, long-term trends remain intact. YES Bank would continue to build its retail assets and liabilities, increase engagement with SME and improve profitability, thereby reducing capital burn.
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