October 26, 2018
The YES Bank stock slipped up to 15% in early trade a day after the private sector lender reported Q2 earnings which signalled weaker asset quality and higher provisions. Brokerages paring their target price also affected sentiment around the stock. At 10:46 am, the stock was trading 4.49% or 9 points lower to 189.45 on the BSE.
Earlier, the stock fell to 168.60 intra day down 15% from its previous close of 198.35 on the BSE. The stock fell nearly 2 points short of reaching its 52-week low of 166.15 hit on September 28, 2018.
30 of 46 brokerages rate the stock “buy” or ‘outperform’, eleven “hold” and five “underperform” or “sell”, according to analysts’ recommendations tracked by Reuters.
The stock has lost 40.06% since the beginning of this year and is down 43% during the last one year.
It was the top gainer in terms of turnover with over 56 lakh shares changing hands in 43,021 trades amounting to a total turnover of Rs 10,551 lakh on the BSE.
Concerned over the weaker asset quality and rising provisions, brokerages cut their target price on the stock.
Credit Suisse reduced its target price to Rs 190 (from Rs 395) as it saw bank sharply slowing down its asset growth on concerns over capital and liquidity constraints. Given uncertainty on management change, capital raise may be pushed back, the brokerage said.
The mid-sized private sector lender on Thursday reported a 3.8 per cent fall in September quarter net profit at Rs 964.7 crore, weighed down by a surge in investment provisions on corporate bond bets and worsening asset quality.
Deutsche Bank said managing capital and liquidity was crucial due to weaker asset quality. It reiterated a buy call but cut its target price to Rs 270 from Rs 310. Net interest margins hold up well but credit costs may be higher in H2.
The bank said overall provisions for the quarter shot up to Rs 940 crore which included Rs 409 crore for loan losses, Rs 344 crore for investment, including the one- time mark-to-market provisioning of Rs 252 crore and Rs 117 crore for standard assets. That apart there was a Rs 9.7-crore provisions for its asset reconstruction business.
Jefferies maintained buy call on the stock but cut its target price to Rs 285 from Rs 365. The The net profit was below estimates due to higher provisions and growth has to slow down materially and revenue decline in H2.
Gross NPA ratio moved up to 1.6 per cent on fresh slippages of Rs 1,631 crore which came from an account of a diversified company, while there were others like a cement account which also defaulted.
CITI lowered its FY19E/FY20 estimates for profit after tax by 10%/7% after factoring in higher provisions and lower growth. Analysts also reduced their target price to Rs 215 from Rs 260, and said the provisions for the quarter were 44 percent higher than they expected.
Overall provisions rose to Rs 940 crore which included Rs 409 crore for loan losses, Rs 344 crore for investment, including the one-time MTM provisioning of Rs 252 crore and Rs 117 crore for standard assets and Rs 9.7 crore for ARC.
HSBC said 2QFY19 results disappointed on asset quality and capital (common equity tier 1 @ 9%) Due to constraints on capital raising, loan growth could slow down sharply (19% in FY19 vs 61% in Q2FY19). The brokerage cut target price to Rs 224.
Senior group president for financial markets at the bank Rajat Monga said the bank expects reversal of an Rs 631-crore slippage to a single account in the next quarter.
Monga, who is speculated to be among the internal candidates to succeed Rana Kapoor after the RBI refused to give him a fresh term, said the bank also had to set aside Rs 252 crore for mark-to-mark losses in its corporate bond portfolios.
He, however, refused to answer any questions related to Kapoor’s imminent departure or the way forward for the bank after the co-promoter’s exit.
Kapoor’s term was curtailed by over two years by RBI for unspecified reasons and a bank request for extension of his term beyond January 31, 2019 was also rejected by the regulator. The RBI refusal came even after the appointment committee of the central bank had reportedly cleared his three year-term.
The move followed a similar step at larger rival Axis Bank whose chief executive Shikha Sharma was also asked to go.
Both Yes Bank and Axis Bank were found to have under-reported their stock of NPAs by Rs 10,000 crore each for two consecutive years.
Monga said the bank is yet to receive the risk-based supervision from the regulator for FY18, in which the “divergences” are specified and have to be disclosed if they cross certain thresholds.
Monga explained that the diversified account has already initiated sale of an asset, receivables of which will come to bank as repayment of loans, and expected a recovery in the next quarter.
He further said a part payment has already been received in this case after September 30.
Monga exuded confidence of achieving the credit cost guidance of 50-70 bps, saying it has touched 34 bps for the first half.
The bank has an exposure of Rs 2,600 crore to the entities associated with the troubled IL&FS group but Monga said this is to special purpose vehicles lower down the order and the entire exposure is standard and has not made any provisions against it.
The core net interest income rose 28.2 per cent to Rs 2,417 crore, largely helped by a 61 per cent loan growth and margins being stable at 3.3 per cent. The non-interest income grew 18 per cent to Rs 1,473 crore but was depressed by treasury performance, Monga said, adding the share of Casa deposits slipped to 33.8 per cent.
The bank is awaiting clarity on various things and may look to bolster its capital adequacy later, he said, adding it already has an enabling resolution to raise $1 billion from the board and shareholders.