At the start of this week, veteran investor Rakesh Jhunjhunwala bought 129 lakh shares of Yes Bank at the price of Rs 67.1 apiece, which makes for 0.5 percent of the stake in the private lender.
Shares spiked after news of the respected investor's interest in the bank, however, it remains unclear if he made the purchase as part of his "investment" holding or "trading" bet.
The highly volatile stock has remained in the limelight for long and has kept stirring investors' interest.
Jhunjhunwala's purchase comes at a time when brokerages are bearish on the stock following the bank's Q2 results released last week.
If you are also one of the investors who have or would like to follow the Jhunjhunwala's bet, here are some major concerns that you should consider:
1. Weak Q2 results
On 1 November, Yes Bank reported a net loss of Rs 600 crore for the second quarter of 2019-20, stating that it incurred a one-time DTA (Deferred Tax Asset) adjustment of Rs 709 crore. While without the DTA it would have posted a profit, what cannot be ignored is the rise in its gross non-performing assets (NPAs), a major indicator of asset quality in the banking business.
Gross NPAs rose to 7.39 percent in the September-ended quarter from 5.01 percent in the June quarter and 1.6 percent in the same quarter of the previous year.
It made provisions of Rs 1,336 crore during the quarter and said it has identified certain performing accounts that are facing stress due to current market and liquidity conditions.
The net interest income, which is the difference between interest earned from loans and interest paid on deposits, was at Rs 2,186 crore for the quarter, which is 9.6 percent lower from a year ago and included an impact of Rs 228 crore due to fresh slippages in the period.
2. Fund raising plans
A few days ago, CEO Ravneet Gill announced that Yes Bank has received a binding offer of $1.2 billion from a global investor and an additional eight bids from global investors worth close to $1.5 billion. He was confident about raising $3 billion from these strategic investors.
The statement did move the stock prices and if things go as per the bank's said plans, it will address the concerns of Yes Bank's status as a going concern.
However, this could mean that the stake sale would be as high as 30 percent. While the RBI has made exceptions on such large deals in the past with Catholic Syrian Bank, the approval from the central bank is still needed.
3. Unsure brokerages
In October, shares of Yes Bank made tremendous recovery from its decade low pricing of Rs 29 per shares. Shares have more than doubled and trading around Rs 69. However, brokerages are unsure of the sustenance of this rally.
Post the Q2 results, Macquarie gave an "underperform" rating to the Yes Bank stock with a target price of Rs 50. It said that there is a whole lot of stress yet to be recognised for the bank and seriously doubts the management's ability to assess risk.
Nomura lowered its target to Rs 63 from Rs 110 and gave a "neutral" rating to the stock.
"The events that have been unfolding recently corroborate our longstanding negative stance on the stock. Balance sheet deterioration has been quick, leaving very little time to react to the situation. The recent capital infusion is insufficient for the size of unrecognized problematic loans," said Kotak Institutional Equities. It maintained its "sell" rating with fair value at Rs 55.
4. Cannot "invest and forget"
Unlike bond investors, equity investors hold the risk of whether or not the bank will provide significant returns in the immediate future.
Most events associated with the bank in the last one and a half year, have been unpredictable. From the record high of Rs 440 seen just a little over a year ago (August 2018) to the below Rs 100 levels now, the change was not anticipated even in the stock recommendations by brokerages.
In 6 months time, the stock lost 85 percent in value after persistent pessimism over the stock that started after RBI did not permit an extension of co-founder Rana Kapoor's term as Yes Bank's CEO in 2018.
5. Management concerns
Yes Bank has been putting out fires with adverse PR management for a long time now. Differences between the promoter families (Kapoor and Kapur) after the unexpected death of co-founder Ashok Kapur in the 26/11 Mumbai attacks and the most recent promoter-related news being the invocation of pledged shares, the management has been focusing on saving the bank's image among investors.
While as a commercial bank, it has proven its skills on rapid growth and expansion in retail banking across the country by becoming one of the leading private banks in India, there are concerns of its constant mention in the newspapers, hurting shareholder wealth.
Under the leadership of Rana Kapoor, the bank had under-reported its NPAs to the tune of Rs 6,355 crores in 2016-17. Such instances, where investors were kept in the dark about the bank's books, raises so many questions on corporate governance, resulting in severe reaction in stock's prices.