What’s next for YES Bank stock as 91% profit fall sends it below book value?

The stock traded below Rs 114.30 book value that the bank reported for June quarter.

What’s next for YES Bank stock as 91% profit fall sends it below book value?
NEW DELHI: Yes Bank’s 10 per cent slippages in June quarter, highest for any quarter in last 10 years, surprised Dalal Street more than the 91 per cent plunge in profit. Even the most optimistic analyst call on the stock does not suggest much upside.

This, even as the scrip traded below its book value.

On Thursday, CEO Ravneet Gill told ETNOW in an interview that all slippages reported for the quarter were out of the book comprising loans that are rated BB or below, which he felt has bottomed out.

But the stock was jittery, plunging 14.98 per cent to hit a 52-week low of Rs 83.70 on BSE. At this price, the stock traded below Rs 114.30 book value that the bank reported for June quarter.

A P/B ratio less than one is seen as buying opportunity by some market participants. But, many a time, it also suggests that the company is earning weak or negative returns on its assets, or the assets are overstated.

The disappointing June quarter earnings by YES Bank followed a Rs 1,507 crore surprise loss in March quarter.

Foreign brokerages CLSA, JP Morgan and Nomura have slashed their price targets on the stock to Rs 110. Morgan Stanley sees the stock at Rs 95, Credit Suisse at Rs 94, PhillipCapital Rs 85 and Jefferies at Rs 50! Antique and Axis Capital have put their ‘hold’ ratings on the stock ‘under review’.

Analysts said that excessive dependence on fees or restructuring of corporate loans, which was strong on collateral but was not necessarily backed by visibility of strong cash flows, exposed the bank’s balance sheet to risks in the last few years.

“We are seeing the risks unfolding,” said Kotak Institutional Equities. The brokerage finds valuation discomfort despite the price erosion.

“Balance sheet risks have increased further, and we would need to wait for a couple of more quarters. The decline in revenue could accelerate as the bank would start pulling back loans to maintain capital adequacy ratio (CAR). Weak revenue growth could result in a much slower trajectory for RoE improvement,” the brokerage said. The pegged the fair price for the stock at Rs 70.

Meanwhile, there is a risk of the liability franchise weakening further.

Credit Suisse has cut its EPS estimate by 72 per cent on the back of larger dilution. The brokerage expects weaker growth and higher credit cost, even as the bank management maintained its prior credit cost guidance of 125 basis points for FY20.

“A drop in CASA deposits highlights pressing need for recapitalisation,” Credit Suisse said. June quarter fee income of the bank dropped 51 per cent YoY to Rs 608 crore.

Nirmal Bank Institutional Equities said all net slippages from the corporate book, which amounted to Rs 4,554 crore, emerged from the sub-investment grade book. That said, Rs 2,100 crore worth of material slippages also emerged from outside the pre-designated watchlist, which is a moderate negative surprise.

For June quarter, the bank’s profit plunged 91 per cent on a yearly basis to Rs 113.80 crore, dented led by a three-time spike in provisions. Gross non-performing assets spiked to 5.01 per cent from 3.22 per cent in March quarter and 1.31 per cent in the year-ago period.

The bank said net provisions at Rs 1,784 crore were the result of rating downgrades of investments in companies of two financial services groups. The bank’s ‘BB’ and below rated book now stands 230 basis points lower at 9.5 per cent of total corporate exposure.

It said the resolutions of the two accounts and the entertainment sector account could be better for lenders.

Equity raise and resolutions over the next two quarters hold key for the bank, said JP Morgan. It pointed out that capital buffer is low for the bank, and it needs to raise equity quickly.




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