Kotak Reiterates ‘Sell’ Rating on YES Bank Despite SMBC Stake Acquisition
Kotak Institutional Equities has maintained its ‘sell’ rating on YES Bank, even after the announcement of a significant 20% stake acquisition by Sumitomo Mitsui Banking Corporation (SMBC). The brokerage stated that while the deal brings clarity on the buyer, it does not alter the bank’s core business model or growth outlook.
- The acquisition does not shift YES Bank’s underlying operational fundamentals.
- Kotak noted that a change in ownership alone won’t drive performance improvements.
The ₹13,482 crore transaction involves SMBC purchasing 13.19% from SBI and 6.81% from a group of lenders including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and others, according to YES Bank’s exchange filing.
- This move reduces uncertainty regarding strategic backing.
- SMBC will gain the right to nominate two directors, while SBI retains one non-independent director seat.
Market Reaction and Current Valuation
Shares of YES Bank gained over 2% to close at ₹20.82 on Tuesday, pushing its market capitalization above ₹65,000 crore. The stock has recovered 30% from its 52-week low of ₹16.02 but remains 24% below its peak of ₹27.41 recorded in July 2024.
- Despite the bounce, the stock remains well below its yearly high.
- Market optimism is moderated by concerns about long-term profitability.
Brokerages argue that the stock’s movement reflects short-term sentiment, not fundamental strength. Kotak emphasized that while the SMBC deal enhances visibility, core business challenges remain.
- The acquisition price exceeds Kotak’s fair value estimate of ₹17.
- The brokerage values YES Bank at 1x book value and 10x FY27E EPS, assuming 10% return on equity.
Structural Issues Still Persist
Kotak warned that YES Bank, though stabilized, has not achieved profitability or growth ratios in line with its private sector peers. The bank’s recovery, while commendable, was facilitated by unique circumstances and supportive macro conditions.
- The turnaround was made possible by coordinated intervention during a one-off crisis.
- Such recoveries are harder when multiple lenders face pressure in broader lending cycles.
Yuvraj Choudhary from Anand Rathi Institutional Equities agreed, stating that although the SMBC deal is sentimentally positive, the bank will need multiple quarters to show improvement in return on assets (RoAs).
- Return metrics remain below industry averages, requiring consistent financial performance.
- The stock’s upside is limited unless core profitability improves materially.
Financial Performance and Loan Book Restructuring
YES Bank reported a 63.3% YoY rise in net profit to ₹738.1 crore for Q4FY25, driven by a 5.7% increase in net interest income (NII) to ₹2,276.3 crore. Its net interest margin (NIM) improved to 2.5%, reflecting better asset-liability management.
- Though earnings improved, margins remain modest compared to larger peers.
- Profit growth was supported by the bank’s efforts to granularize its loan book and build a stable deposit base.
While progress is visible in operational metrics, analysts believe the bank still faces challenges in matching industry-leading RoEs and growth stability.
- YES Bank’s current metrics indicate progress, not outperformance.
- Future gains are tied to sustained execution and credit quality discipline.
Consensus View Among Brokerages
In addition to Kotak, other brokerages have issued cautious or negative outlooks. Nomura and ICICI Securities both maintained ‘neutral’ ratings, with target prices of ₹17 and ₹16, respectively. JM Financial recommended a ‘sell’ rating, with a lower target of ₹15.
- The consensus suggests limited near-term upside due to valuation concerns and execution risks.
- Brokerages highlight that alternative investment options may offer better risk-adjusted returns.
Kotak concluded that, while the SMBC transaction provides YES Bank with strategic stability, it does not justify re-rating the stock without visible, sustained improvements in financial metrics and business strategy.
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