Brokerages Divided As Yes Bank’s Bad Loans Double

Brokerage houses Morgan Stanley and Jefferies cut their price targets on Yes Bank Ltd. after its bad loans doubled for the January-March quarter following a directive from the Reserve Bank of India, which asked banks to recognise any large divergence between their assessment of bad loans and that of the central bank.

Most remained cautious over the bank’s asset quality performance, attributing the high risk of corporate slippages to be one of the key factors for the stock to see a ‘significant correction’ going ahead.

Here is what brokerages say on the bank’s performance:

UBS

• Rating: Sell
• Price Target: Rs 800

• Maintains below-consensus earnings estimates
• Expects non-performing loan risk to remain high
• Believes there is still a significant gap in the reported stress (3%) and UBS’ estimates of bank’s exposure to stressed corporates (>10%)
• High growth and assumption of lower NPL forever has led to re-rating of the stock in the last one year.
• At 2.8x price-pook value FY19, stock is trading close to 5-year peak P/BV
• Continued higher NPL provisioning could lead to a significant correction

Credit Suisse

• Rating: Neutral
• Price Target: Raised To Rs 1,462 from Rs 1,273

• Profit and loan growth remained strong
• Asset quality saw deterioration due to lumpy slippage from cement and real estate sector
• Increases EPS by 2-4 percent and builds in dilution to increase price target

Morgan Stanley

• Rating: Overweight
• Price Target: Reduced To Rs 1,680 from Rs 1,750

• Material increase in impaired loans and faster pace of capital consumption key negatives
• Reduces earnings estimates on higher credit costs.
• Expects weak near-term stock performance.
• Its preferred stock is IndusInd Bank

Jefferies

• Rating: Hold
• Price Target: Rs 1,605

• The bank delivered strong bottom line in spite of large provisioning
• Comfort around asset quality along with steady improvement in retail asset and liability remains key to further re-rating of the stock
• Higher NPL, NIM compression, slowdown in retail franchise build out remain key downside risks
• Improvement in cost and NPL ratios key to upside

Motilal Oswal On Yes Bank

• Rating: Buy
• Price Target: Rs 2,110

• Expects bank to grow faster than the system due to significant investment in people, branches and new products
• Sees current performance of asset quality as a one off.
• Says the bank is dequately capitalised for the next stage of growth
• Robust loan growth, NIM expansion and rising fee income could drive a CAGR profit growth of 26 percent through FY20

Kotak Institutional Equities

• Rating: Sell
• Price Target: Rs 1,450

• Strong loan growth, CASA and retail fees were some of the positives
• Recent capital infusion will drive strong loan growth
• The bank has demonstrated its ability in building a strong business
• Sees limited value at current levels
• Improvement in retail asset build-up is yet to reflect in loan composition
• Slippage risk due to high share of corporate loans are biggest risks leading to negative outlook

Yes Bank's shares were trading lower by 3.7 percent at Rs 1,546.80 at 12:40 p.m. IST. The stock has outperformed the S&P BSE Sensex index on a year-to-date basis. While it has gained 33.76 percent in 2017, the benchmark index has managed gains of 10.39 percent.