Yes Bank Shares Gain Most Since Listing After Q3 Results, Analysts Unimpressed
Yes Bank shares rose as much as 58.12% despite posting its biggest ever loss in the December quarter of the current fiscal.
Shares of Yes Bank Ltd. gained the most since listing after the government notified a reconstruction scheme for the struggling private lender, taking it a step closer to resuming full operations. Still, analysts remain cautious.
Several other lenders such as State Bank of India, Axis Bank Ltd., ICICI Bank Ltd., Kotak Mahindra Bank, Bandhan Bank Ltd. and Federal Bank Ltd., as well as housing finance company HDFC Ltd. have also approved investments in Yes Bank in an attempt to resuscitate the private bank placed under moratorium earlier this month due to its deteriorating financial health. The moratorium will be lifted on Wednesday.
Yes Bank shares rose as much as 58.12 percent compared with a 5 percent decline in the Nifty 50 Index. To be sure, the troubled lender will be replaced by Shree Cement Ltd. in the Nifty 50 Index and by Bandhan Bank in the Nifty Bank Index on March 27.
That’s despite the private lender posting its biggest ever quarterly loss as bad loans surged. Yes Bank’s loss stood at Rs 18,564 crore in the quarter ended December compared with a profit of Rs 1,001 crore last year.
The increased provisions needed to cover for the loans depleted the lender’s capital.
Most analysts put the bank’s ratings under review and cut target prices. According to brokerages, including Emkay Research and Macquarie, “much more will be needed for the survival of Yes Bank” and the risk of deposit outflows remains.
The Enforcement Directorate and the Central Bureau of Investigation have launched investigations into dealings between Yes Bank’s former Managing Director and Chief Executive Officer Rana Kapoor and some of its borrowers. Kapoor has been placed under the ED’s custody till March 16.
Here’s what the brokerages have to say after Yes Bank Q3 results:
Emkay Research
- Maintains ‘sell’ and cuts target price by 91 percent to Rs 4 a share.
- Bank will need more to survive and thrive.
- Bank will need at least $3.8 billion to reach respectable CET-1 of 12 percent.
- Lifting of moratorium could open flood gates and will require a calibrated approach.
- Bank survival hinges on success of reconstruction scheme.
Edelweiss Securities
- Rating under review.
- Third quarter performance corroborates need for intervention.
- Resolution has been spelt out, but uncertainty around depositor behaviour, selling restrictions and management reshuffle make it tough to project the direction.
- Medium-term issues pertaining to customers and employees are key risks.
Kotak Institutional Equities
- LCR has dropped to less than 75 percent, implying an intervention was more than required.
- Significant deterioration in both wholesale and retail term deposits would have made it challenging to stabilise the balance sheet.
- SMA 1 and 2 is still about 6 percent of loans.
Macquarie
- ‘Underperform’ rating and target price of Rs 25 apiece, under review.
- Massive recognition of bad loans and run-down of deposits, as expected.
- Out of the corporate bond portfolio of Rs 28,800 crore, 28 percent has been classified as non-performing investment, 32 percent is stressed.
- Total capital requirement works out to be Rs 31,100 crore, that is $4.3 billion.
JPMorgan
- Has ‘underweight’ rating with a target price of Re 1.
- Stress book mark-down largely erodes net worth.
- Recap in place but more needed.
- Liquidity needs to be watched.
- Stock illiquidity is a risk.
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Credit Suisse
- Suspends coverage on the stock.
- With a three-year moratorium on existing and new shareholders for 75 percent of their holding (and new shares locked-in), equity valuations will be distorted.
- Capital infusion much lower than $4 billion needed.
- Merger may be the eventual outcome.