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JM Financial has lowered its 12-month target price for Yes Bank to Rs 17 from Rs 22 while maintaining its 'Reduce' rating, citing the financial implications of the Supreme Court's verdict setting aside the bank's Rs 8,400 crore Additional Tier-1 (AT1) bond write-down.
In its research report, JM Financial said the October 15 Supreme Court ruling, which upheld the Bombay High Court's decision, could result in an estimated post-tax impact of approximately Rs 6,300 crore on the bank's profitability and reduce its Common Equity Tier-1 (CET1) capital ratio by around 230 basis points to 11.4 per cent. The brokerage noted that the reinstatement of AT1 bonds would be accounted for through the profit and loss statement without an immediate cash outflow towards principal repayment. Despite these concerns, Yes Bank reported a 65 per cent year-on-year increase in net profit to Rs 1,080 crore in the second quarter of FY27, supported by balance sheet expansion and lower provisions. Net interest income rose 22.7 per cent year-on-year to approximately Rs 2,822 crore, while advances increased 23.7 per cent to Rs 3.09 lakh crore. Deposits grew 19.5 per cent year-on-year to Rs 3.54 lakh crore. However, JM Financial highlighted that deposit growth, excluding foreign currency non-resident deposits, was largely driven by wholesale funding. The bank's reported net interest margin declined by 10 basis points sequentially to 2.6 per cent, reflecting a 12-14 basis point drag from foreign currency deposits. JM Financial also highlighted concerns regarding future security receipt recoveries, potential AT1 coupon obligations and the bank's reliance on third-party distribution income. The brokerage now projects a net loss of approximately Rs 2,093 crore for FY27, factoring in the exceptional AT1-related impact. Meanwhile, Yes Bank's management expects margins to recover from the fourth quarter and has indicated that capital-raising options remain under evaluation. JM Financial said that although the bank's underlying operating performance continues to improve, capital pressures and uncertainties surrounding the AT1 ruling could affect its profitability trajectory. The brokerage valued Yes Bank at one time its estimated FY28 book value, arriving at the revised target price of Rs 17. (ANI)
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