Yes Bank drops 20% as bad loans mount, provisions surge

Mumbai: Shares of Yes Bank Ltd on Thursday slumped nearly 20% to hit over five year low as many brokerage firms has slashed its share price targets after the lender’s profit missed estimates, bad loans continued to mount and provisions soared.

The stock in intraday touched a low of ?79.15 on NSE — a level last seen on 27 March 2014, and fell as much as 19.56%. At 9.35 am, the scrip was trading at ?86.80 on NSE, down 11.8% from its previous close. So far this year it has fallen nearly 51%.

“Q1 turned out to be far worse than what we had anticipated”, said brokerage firm, Jefferies India, in a 17 July note to its investors.

Brokerage firm PhilipCapital has revised target to ?85 a share from ?170 earlier, Morgan Stanley cut price target to ?95 from ?95.40 a share, Investec Securities reduced its target price to ?150 a share from ?240 a share, Kotak Institutional Equities slashed its price target to ?70 from ?170 a share, Jefferies India lowered its target price to ?50 from ?80 a share.

“The steep correction of stock price could entail significant dilution to book value/share as capital is not being raised at a point of business strength. Several risks exist outside CAR and downward revision to FV cannot be ruled out,” said Kotak Institutional Equities in a 17 July.

Private lender Yes Bank reported 91% decline in June quarter net profit to ?113.76 crore from ?1260.36 crore a year ago.

Asset quality deteriorated, with gross non-performing assets (NPAs) as a percentage of total loans rising to 5% as against 3.22% in the previous quarter. The bank saw an addition of fresh bad loans worth ?6,230 crore in the quarter.

Its provisions increased nearly three-fold to ?1,784.11 crore during the quarter as against ?625.65 crore the previous year. This includes a one-off mark-to-market provisioning of ?1,110 crore due to rating downgrades of investments in companies of two financial services companies it did not name.

“We have been cautious on the extant business model of YES for the past few years as it has relied on excessive dependence on fees or structuring in corporate loans that was strong on collateral but not necessarily backed by strong visibility of cash flows exposing the balance sheet to risks. As we speak, we are seeing the risks unfolding,” Kotak report said.

“We see a few key risks despite the price decline as a valuation discomfort: balance sheet risks still has increased further and we would need to wait for a couple of more quarters, revenue decline could accelerate as the bank could start pulling back loan to maintain CAR, weak revenue growth could result in a much slower trajectory for RoE improvement, risk to weakening of liability franchise and human resources is quite high and the impact of book value dilution if the bank reports any sharp losses and raises capital below book,” Kotak report added

Analyst believes weak capital levels are the biggest near-term constraints and capital raising will be a key near-term catalyst.

Of the analysts covering the stock, 15 have a “buy” rating, 13 have a “hold” rating, while 18 have a “sell” rating, shows Bloomberg data.

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