Stock corner: Maintain ‘sell’ on Yes Bank, fair value unchanged at Rs 55

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Published: November 5, 2019 1:09:13 AM

Yes Bank surprised positively on Thursday with an announcement that it has received a binding bid from an investor committing US$1.2 bn.

yes bank, banking sectorYes Bank reported ~10% slippages, broadly similar to the previous quarter.

Yes Bank reported a loss led by ~40% y-o-y decline in operating profits, ~40% y- o-y growth in provisions and one-off DTA charge. The bank reported high slippages resulting in gross NPLs moving to 7% of loans (~40% q-o-q) and the ‘below investment grade’, despite high slippages, is still at ~10% of exposure (100 bps qoq). The bank has announced a capital infusion programme, which is positive, but CAR is one of the many issues to be resolved. We maintain ‘sell’ with fair value unchanged at Rs 55.

Yes Bank reported a loss on the back of revenue decline of 20% y-o-y, led by 10% y-o-y decline in NII (loans declined 6% yoy) and ~35% y-o-y decline in non-interest income, operating profit decline of ~40% y-o-y as cost-income ratio deteriorated to 53% and ~40% y-o-y increase in provision.

Yes Bank has announced that it has received a binding bid of US$1.2 bn from an investor. On a sequential basis, we have seen a decline in current, savings, retail and corporate term deposits.

Yes Bank reported ~10% slippages, broadly similar to the previous quarter. Gross NPLs increased 240 bps to 7.4% while net NPLs increased 140 bps to 4.4% of loans. Only 60% of the slippages came from ‘BB and below’. Despite higher slippages, especially from ‘BB and below’, there has been a further increase qoq to 10% of total corporate exposure. Upgrades and recovery were quite negligible. Given the stressed levels of these sectors, it is quite likely that a substantial portion of this book would slip into NPLs in the medium term.

Yes Bank surprised positively on Thursday with an announcement that it has received a binding bid from an investor committing US$1.2 bn. The bank also indicated that it has other offers on hand.

Dilution to book value would be high as the bank would make higher provisions on this capital raised. However, capital is one of the many key issues facing the bank. We are still unsure of growth, excess capital, path of RoE improvement given the changes in lending, progress of building the bank’s liability franchise that is currently inferior to its peers and profitability. Stability of the senior management is critical at this juncture.

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