Earlier this week, Yes Bank reported its financial results for the December-ended quarter, raising fears of asset quality issues with the lender.
The restructured bank saw a profit of Rs 151 crore in the third quarter of the financial year 2020-21 against a loss of Rs 18,560 crore in the same period last year. When compared to the previous quarter, profit was up 16.5% from Rs 129 crore.
Loan portfolio still vulnerable
ICICI Securities said in a recent note that Yes Bank's December-quarter earnings have aggravated fears of its asset quality issues.
"The portfolio vulnerability becomes visible from, a spike in standstill non-performing loans or NPLs (from 1.5% to 5%), SMA-2 pool (from 2.4% to 4%), SMA-1 (from 1.6% to 7.3), and additional restructuring outside of this pool at 3.2% over and above the labelled non-performing assets at 22%," it said.
The brokerage further gave a "hold" rating on the stock with a revised price target of Rs 16 adding that "asset quality fears outweigh the turn around in operating metrics and we expect the recently proposed equity raise to depress RoE."
Asset quality concerns merely being deferred and seem far from over, Yes Bank's stress pool aggravate fears around its asset quality, ICICI Securities said.
Emkay Research has a "sell" call on Yes Bank
Emkay Research has given a 'sell' rating to Yes Bank given the sub-par return ratios and unfavourable risk-reward with higher valuations.
The brokerage has set a target price of Rs 11 for the stock.
"We believe that the transfer of NPAs to a separate ARC (somewhat similar to IDBI in 2003) probably means window dressing standalone bank B/sheet, but we need to see the extent of hair-cuts, structure of ARC and recovery record in the ARC, which is not inspiring in case of IDBI SASF," said Emkay Research in its report.
The brokerage adds that though current top management with the help of regulatory/investor support has been able to arrest bank failure, re-orienting into a sustainable retail bank will require differentiated private management.
However, the brokerage believes a faster and sustainable business growth, lower-than-expected NPA formation and higher-than-expected recoveries from stress pool can be a key risk to their call.
Elara Capital lowers price target to Rs 6
Elara Capital said that Yes Bank's new stress loans stood at 17% while outstanding stress stood at 39%. Standstill corporate NPLs of Rs 51 bn were spread over 3000 accounts indicating that the average ticket size of corporate NPLs was low and there were no lumpy accounts. New corporate stress was mainly from hospitality and real estate, the brokerage said.
Elara Capital recommends "Sell" on Yes Bank with a target price of Rs 6 due to an uncomfortably high level of incremental stress. The brokerage said that its assessment is that Yes Bank's stress loans will likely rise sharply in H2FY21 / FY22E is turning out to be correct.
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