Yes Bank Slumps After UBS Puts Out Most-Bearish Price Target
UBS cut the price target on the lender by nearly half to Rs 90—indicating a downside of 33 percent from the last close.
UBS cut its recommendation on Yes Bank Ltd. to ‘Sell’ due to greater-than-expected risks from bad loans and moderating loan growth.
The brokerage lowered its rating on the stock to ‘Sell’ from ‘Neutral’. It also downgraded the bank’s price target by nearly half to Rs 90—indicating a downside of about 33 percent from the last close.
Expectations of a sharp turnaround are less likely to fructify, the brokerage said in a report, adding that the lender’s non-performing loans would rise further due to its exposure to non-investment-grade companies.
Yes Bank’s loan growth, the report said, would moderate to 10 percent in financial year 2019-20 due to scarce common equity tier I capital compared with its guidance of over 20 percent growth. UBS said the bank may not focus on working capital business, resulting in lower yields and lesser fees.
Shares of Yes Bank declined 9.4 percent intraday to Rs 122 apiece, the lowest in over three years.
The Street often under-estimates non-performing loans cycles, and we believe the extent of NPL (non-performing loans) risk is still not fully priced in the stock.UBS on Yes Bank
Spate Of Exits
Two directors stepped down from Yes Bank’s board this week. Mukesh Sabharwal, who has been non-executive independent director on the board of the bank since April 2012, resigned, the bank informed exchanges on Tuesday. Sabharwal cited a desire to “devote quality time” to his academic pursuits, the bank said in a statement.
Rumblings within the Yes Bank board had begun last year after the lender came under pressure for under-reporting of bad loans while Rana Kapoor was still CEO. Yes Bank had reported two consecutive years of divergence in bad loan reporting, which was seen as a key reason behind the RBI’s denial of another term to Kapoor.
The lender disclosed on Monday that Ajai Kumar, who was a non-executive, non-independent director on the board, has also stepped down. Kumar, who had served as the bank’s interim CEO for one month after Kapoor’s exit, cited personal reasons for his exit.