Buy, Hold or Sell? Experts suggest what you should do with Yes Bank shares post Q1result

The bearish mark was such in Yes Bank that the stock even clocked a 52-week low of Rs 82.55 per piece on exchanges in previous trading session.

The Q1FY20 PAT has dropped by a whopping 91% as against net profit of Rs 1,260.4 crore in Q1FY19. Photo: Reuters

Post Q1FY20 result announcement, heavy selling sentiments were witnessed in private lender Yes Bank shares this week. On Friday, the share price of Yes Bank ended at Rs 83.25 per piece down by 2.97% on Sensex. But the bearish mark was such in Yes Bank that the stock even clocked a 52-week low of Rs 82.55 per piece on exchanges in previous trading session. In its June 2019 (Q1FY20) quarter, the bank bagged a net profit of Rs 114 crore which was despite absorbing one off impact from MTM provisions of Rs 1,109 Crore. Further, on yearly basis comparison, the Q1FY20 PAT has dropped by a whopping 91% as against net profit of Rs 1,260.4 crore in Q1FY19. Meanwhile, net interest income (NII) came in at Rs 2,280.8 crore in Q1 rising sequentially by 2.8% from Rs 2,219.1 crore a year ago in the same period.

Experts' opinion on Yes Bank shares are mixed, with some giving buy or sell or even hold call. Here’s what you must know:

Hold on to Yes Bank shares?

Pritesh Bumb and Prabal Gandhi, analysts at Prabhudas Lilladher said, “Yes Bank recognized Rs 62.3bn of slippages with large part coming from the watchlist and partly from BB & below book (non watchlist) impacting overall asset quality sharply. The bank also saw its BB & below book loans assets increase on net basis to 9.4% from 8.3% in Q4FY19 which puts asset quality under high risk as these are extremely lumpy exposures. On our deep dive we believe only certain part of exposure can be resolved quickly, while large part of exposure slipping into NPAs remains a high chance which we have factored in the same over FY20 & FY21. Although we take comfort from imminent capital raise (we build-in Rs30bn in near term) & operating profit would help mitigate large provisioning requirement and should not see capital deterioration. We upgrade to HOLD (from REDUCE) with revised TP of Rs101 (from Rs190) based on 1.0x (from 1.5x) Mar-21 ABV.”

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A hold call was also given by Edelweiss Securities. Its analysts Kunal Shah, Prakhar Agarwal and Anisha Khandelwal analysts said, “The quarter was characterised by multiple pressure points – weak asset quality, precarious capital position, softer growth and lower NIM; robust retail growth (reflecting franchise strength) was the only saving grace. We expect further pain to accrue and have built in GNPL of >8% (5% currently), effective credit cost of >2.5% (management guidance of 125bps), USD850mn capital raising over two years, 10-13% growth and 7-10% dip in core fee income. This translates in to BV cut of 24% and assigning 1x target multiple we arrive at revised TP of INR110 (earlier INR250). While upside will hinge on bank’s ability to raise capital, we believe business upswing will be elongated and will thus prefer to sit it out. Maintain ‘HOLD’.

Selling Yes Bank shares?

Yuvraj Choudhary and Mayank Agarwal, analysts at Anand Rathi said, “With its huge sub-investment grade book, of which 25% are investments, and given the current volatile economic environment, further lumpy slippages could arise in coming quarters. Accordingly, we build higher losses from the investment book, which would lead to lower profitability. The uncomfortable capital position and uncertainty regarding raising the desired capital would impact loan growth in the medium term. Therefore, we lower our rating to a Sell and cut our target price to Rs 95.”

Even Emkay Research gave sell call on Yes Bank shares. Anand Dama and Shreesh Chandra, analysts at Emkay said, “We cut our earnings estimates for FY20/FY21 by 56%/42% and RoAs to 0.3%/0.5%, factoring in lower growth, subdued margins/fees and higher credit costs in view of a further deterioration in asset quality. Apart from concerns around capital, asset quality, subdued return ratios and management attrition, we believe the glide path to the much-needed retail business build-up in the long run still remains hazy and could be fraught with significant execution risks. We maintain Sell rating with a revised TP of Rs85, led by a cut in earnings, potential capital raising at a lower price and target multiple (0.9x). We are UW on the name in banking sector EAP.”

Why Buy Yes Bank shares?

According to Shivaji Thapliyal and Raghav Garg, Research Analyst at Nirmal Bang, emergence of material slippage from outside the watchlist is a moderate negative surprise. However, management reiterated prior credit cost guidance of 125 bps for FY20. The sub-investment grade book itself increased from ~Rs 230bn to ~Rs 297bn over the quarter. This was entire on account of bond exposures to 2 financial services accounts (one large HFC and another financial services holding company, which is part of a conglomerate). The outstanding provisions held on these 2 accounts is now ~Rs 15bn (Rs 11.09bn taken during the quarter). There are no loan exposures to these 2 accounts. Management stated that resolutions to these 2 accounts and the entertainment sector account are likely to take place in the ensuing quarter and are expected to be better for lenders than generally indicated in the media. Retail and SME slippages were contained at ~Rs 1bn. The intention is to take PCR to 60% ultimately but this would not happen by this financial year-end. GNPA ratio stood at 5.01% compared with 3.22% in 4QFY19.

Further, the duo pointed out that, management explained that core margin was tracking at relatively better levels but interest reversal of Rs 2.23bn for the quarter and increasing stock of bad loans, dragged down the NIM.

The duo at Nirmal added, “ We have revised our NII estimates by -0.8%/-2.2%, PPOP estimates by -5.5%/-0.8% and PAT estimates by -9.6%/-0.8% for FY20/FY21, respectively, and retained Buy rating on YBL, revising our target price to Rs113 (from Rs111 earlier) and valuing the stock at 0.8x FY21E P/BV.”

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