Shares of private-sector lender Yes Bank have corrected 46 percent in the last nine months, or from their 52-week high (touched on December 11, 2020), despite the rally in leading largecap and midcap banks as well as in the benchmark and broader markets. In fact, this is a big under-performer, if we compare it with the BSE Bankex stocks in the same period.
Yes Bank shares corrected 46 percent to close at Rs 10.95 on September 9, trading below its follow-on public offer price of Rs 12 per share. The bank had raised Rs 15,000 crore through that FPO in July 2020.
The BSE Bankex, in the last nine months, has rallied 20 percent, the Sensex 27 percent, Midcap index 41 percent and Smallcap index 58 percent. In fact, during this period, the benchmark indices have been hitting record highs, with the Nifty50 surpassing the 17,400-mark and the BSE Sensex rising above 58,500 for the first time, though there have been intermittent corrections and consolidation.
Why is it an under-performer?
Experts largely feel consistent quarterly earnings below industry estimates, elevated non-performing assets and gross slippages, and negative return ratios caused selling pressure in the stock. However, leading private banks have been reporting better to in-line earnings in the last few quarters.
The bank was under the control of RBI in March 2020 and was later handed over to a new management to nurse it back to growth. Rana Kapoor, the chief and co-promoter of Yes Bank, was arrested in a fraud case in March 2020.
Recently, rating agency CRISIL has upgraded its rating on the bank’s Tier II and infrastructure bond to ‘BBB+’ from BBB with a stable outlook.
“Yes Bank is continuously reporting numbers below industry estimate. In Q1FY22, net interest income (NII) was down 26.5 percent YoY due to muted credit growth and lower NIM (YoY). Sequentially (QoQ), NII grew by 42.1 percent due to significant interest reversals in Q4FY21. Advances are declining due to lower retail disbursements and lower-than-expected corporate loan growth,” said Mohit Nigam, Head, PMS, Hem Securities.
He feels the bank continues to remain on a weak footing in terms of asset quality. “In Q1FY22, its gross non-performing asset (GNPA) increased to 15.6 percent. Gross slippages, amidst the disruption caused by the second wave of COVID-19, were elevated at Rs 2,230 crore. The corporate segment constituted over 55 percent, predominantly in the real-estate and hospitality segments, which are the most hit segments by COVID.”
Yes Bank reported a net profit of Rs 207 crore in the quarter that ended in June 2021 against a profit of Rs 45 crore in Q1FY21 and a loss of Rs 378.8 crore in Q4FY21. Advances, at Rs 1.63 lakh crore, fell 0.5 percent YoY, but deposit growth was healthy at 39.1 percent to Rs 1.63 lakh crore.
Vishal Balabhadruni, Research Analyst (BFSI) at CapitalVia Global Research, said the banking sector, as a whole, was under stress from the start of the current year and concerns over the asset quality of banks and the second wave of COVID-19 proved negative for the banking sector.
“Yes Bank registered negative Return on Capital Employed (RoCE) and Return on Equity (ROE) numbers, which did not do well for the stock. With not much change in the NPA numbers, the stock corrected itself on account of the negative outlook of the self and sector,” he added.
What should investors do now?
Experts largely feel the Rs 20 level, seen by the bank in December 2020, is unlikely to be seen in the coming period, unless there is a drastic change in loan growth and advise to not take any fresh position.
“Overall, the bank still looks risky and any higher tick/upside is a good opportunity to exit from this script. According to our analysis, it would be difficult for the bank to reach the Rs 20 level, unless some drastic change is made in the loan book,” said Nigam of Hem Securities.
“In the long term, we might see growth but it will be gradual. The shorter term outlook is slightly unclear as of now. Looking at the charts, Rs 12 looks like a strong resistance for the bank. On the downside, Rs 9 looks like a good support,” he said.
Vishal Balabhadruni of CapitalVia Global Research also feels the current outlook of the stock looks weak. “We would not advise a fresh position in it right now. Investors can hold with a stop-loss of Rs 9.50.”
“The view for the stock is not very optimistic. Although CRISIL upgraded its tier II & infrastructure bond rating to ‘BBB-‘, the overall view and sentiment for the stock seem to be negative at the moment. Therefore, the chances of it reaching the Rs 20 level seems grim,” he said.
Palak Kothari, Research Associate, Choice Broking, too, feels, technically, the stock looks weak on the charts now. “Yes Bank requires fundamental triggers for an upside move.”
“On the weekly chart, momentum indicator Relative Strength Index (RSI) is also trading at the oversold zone, and the stock has been trading below 21 & 50 daily moving averages, which points out weakness in the counter,” he explained.
At present, the stock has an immediate support around the Rs 10 level, and the resistance is placed around the Rs 14-15 levels. “Only when the stock is able to break the resistance level on a closing basis, can an upside move can be seen in the Rs 18-Rs 20 level, in the short- to medium-term.”
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