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Yes Bank share price declined by 50%

5 Key Points on Yes Bank Stock Analysis

Yes Bank’s Share Price Drop 50% in May Month- Why?

Introduction

Yes Bank, India’s fourth largest private lender and a stock market darling for years, is now being shunned by investors. In the past month alone, the bank’s stock has lost nearly half its value, after the lender reported a record loss for the quarter ended March 31, 2019. From Rs.255 on April 18, its shares closed at Rs.134.55 apiece on BSE on Friday (May 17). Let us see the reasons behind the decline in share price.

Yes Bank Limited is India’s among large private sector bank players. It was founded by Rana Kapoor and Ashok Kapur in 2004. The bank primarily operates as a corporate bank, with retail banking and also asset management as subsidiary functions.

Yes Bank Stock Analysis – 5 Points

Yes Bank Stock Analysis
Yes Bank Stock Analysis

Following the March quarter loss, several brokerage houses including Macquarie, HSBC, Citigroup, and Morgan Stanley have either a “sell” rating on the stock or remain “underweight.” The stock has of Yes Bank has been corrected severely. Its share price has almost halved in last one month.

Problems of Yes Bank

  • All the problems started in FY2015-16. In year ended March 2016, the bank reported NPA’s worth $113 million (around Rs. 600-700 Cr). But when RBI conducted an audit, that time the actual NPA value came out to be $630 million. A gap of $517 million was found in the reported NPA’s. RBI gave many observations from their audit to the bank and told them to revise the NPA figure.
  • That was not the only time it happened. In FY2016-17 too, there were discrepancies in the NPA reporting done by the bank. This time there was an underreporting of almost $1 billion NPA’s. From that time RBI started intervening in the management of the bank and also started giving out a lot of observations to the bank.
  • And this was the reason Rana Kapoor, the then MD & CEO of the bank, did not receive a continuation of 3 years as it was not approved by the RBI. This was the time when the share price of Yes Bank started getting impacted and set out on a negative trend.
  • The new CEO of Yes bank, Ravneet Gill, has done an extra provisioning for $300 million. That is why a net loss of Rs. 1,500 Cr was seen in the March 2019 ended quarter.
  • Since listing the bank had never reported a negative quarter. Q3FY19 is the first where the bank has reported a loss. This happened because of the actions taken by Ravneet Gill to bring the bank back on the track.

But will the problems end here?

  • RBI doesn’t think so. Thus, RBI has appointed a former deputy Governor Mr R. Gandhi as an Additional Director on the board of Yes Bank in May 2019.
  • The RBI doesn’t like to take such actions. It also taken such actions in the PSU banks already. And now when a private sector bank does such things then RBI is bound to take strict actions against them. In coming time, the reporting by the RBI can get more aggressive from this point forward.

Why will the RBI reporting get more Aggressive?

  1. Out of the total exposure Yes Banks has from its loans, corporate & retail funding,
    • 16.6% of the exposure is from Shadow financing companies (NBFC’s) and real estate. After the IL&FS crisis started in August 2018, NBFC’s were the one who got hit the most. And yes bank has sizeable exposure to NBFC’s.
    • 16.7% of the exposure is from Sensitive (stress) sectors. Sensitive sector include steel, power, telecom & jewellery
  2. Thus, 1/3rd of the total exposure of Yes Bank is towards Stressed Assets. And this can be very negative for the bank.

Exposure to Riskier Companies

  • The bank has exposure to 2 big groups which are themselves going through a lot of issues. The 2 groups are Anil Ambani Group and Promoters of ZEE, that is Subhash Chandra.
  • The bank has exposure to the telecom and finance companies from Anil Ambani Group. The total exposure to the bank from this group is worth $1.85 billion. And the major exposure is from Reliance Communications which has filed for bankruptcy.
  • Subhash Chandra has made some investment in some infrastructure companies. The bank here has an exposure of $470 million for the ZEE promoter.
  • The exposure form ZEE can still be recovered as the promoter has given its word, but the exposure from Anil Ambani Group may not be recovered fully.

Summary

  • It will take some time for this bank to get back on its feet.
  • Just like Indiabulls Housing Finance and Lakshmi Villas Bank merger, Yes Bank may too be merged with some other banking entity but the chance of which are very sleek as it would require a very big balance sheet to acquire this bank. Also, no emerging bank would want to merge with Yes Bank in this situation.
  • Retail Investors should always stay away from companies where corporate governance issues have been reported.
  • Retail Investors should avoid this stock.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that this is a bad company.
  • We are also not suggesting anyone to immediately go and buy the stock or invest in the stock markets.
  • Only an analysis has been presented here. No judgments or final statements are being made here.
Yes Bank Q4 Results FY 2018-19

Why Yes Bank Stock is Falling?

Yes Bank Q4 FY2019 Results Update (26th April, 2019)

Introduction

Yes Bank shares fell around 30% on April 30,2019 after the company reported weak key financial parameters for the quarter ended March 2019 ie. Q4 FY2019. According to the Q4 results, the bank has reported a net loss of Rs.1,507 Crore on the back of spike in bad loans (mainly IL&FS Group and Jet Airways). Lets analyse the Q4 FY2019 results of Yes bank in detail in this article.

Company Profile

  • Yes Bank Limited is India’s fourth largest private sector bank, incorporated in 2004 by Rana Kapoor and Ashok Kapur. It primarily operates as a corporate bank, with retail banking and asset management as subsidiary functions.
  • The bank offers a full-range of client-focused corporate banking services, including working capital finance, specialized corporate finance, trade and transactional services, treasury risk management services, investment banking solutions and liquidity management solutions among others to a highly focused client base.
Business Areas
  1. Corporate and Institutional Banking- The bank offers a broad range of financial and risk management solutions to clients such as large Indian corporates and groups, multinational companies, central and state governments, government bodies and public sector enterprises.
  2. Business Banking- Yes Bank offers a range of products, services and resources to small and medium businesses.
  3. Corporate Finance- It offers corporate finance solutions to various clients such as local corporates, multinational companies, financial institutions and public sector undertakings.
  4. Retail Banking- Under this, the  bank offers wide range of products and services such as saving account, current account, fixed deposit, retail loan, depository services and many more.
  5. Investment Banking- Yes Bank offers investment banking services in area of mergers and acquisitions, divestitures, private equity syndication and IPO advisory.

Current statistics of Yes Bank

Current Statistics of Yes Bank
Current Statistics of Yes Bank

Q4 FY2019 Results

Yes Bank Q4 FY2019 Results
Yes Bank Q4 FY2019 Results
  • On April 26, 2019 Yes Bank reported its biggest quarterly loss in 14 years at Rs.15,066 Million for the Q4 FY2019 owing to spike in bad loans (mainly IL&FS Group and Jet Airways). Net loss incurred because of the decline in the other income & increased proactive Contingent provision for the bad loans. Net Profit in Q4 FY2018 was Rs 11,794 Million.
  • NII (Net interest income), the difference between interest earned and interest expended, grew by 16.3% year-on-year in Q4FY19 to Rs 25,059 Million with credit growth at 18.7% , but net interest margin contracted by 30 bps. NIMs for Q4FY19 is at 3.1% on account of higher slippages during the quarter. FY19 NIMs at 3.2%.  Lower NII/NIMs are seen on account of higher NPA recognition in Q4.
  • Non-Interest income at  Rs.5,317 Mn for Q4FY19 as Retail Banking Fees witnessed high sequential growth of 18%
  • Taking the entire year into consideration, Net Profit of FY2019 is at Rs.17,203 Million, plunged 59% and net interest income grew by 26.8% to Rs.98,090 Million compared to previous year.
Comparing Yes Bank's Q-o-Q Operating & Net Profit
Comparing Yes Bank’s Q-o-Q Operating & Net Profit

Balance sheet Clean-up by Provisions & Contingencies to Strain Profitability

  • The balance sheet clean-up by Yes Bank will strain its profitability in the next 12-18 months as it makes provisions for stressed assets. The bank is profitable on a full-year basis, with a return on assets of 0.5% as of March 31, 2019, as against 1.4% a year ago.
  • It’s overall stressed assets are about 8%of its gross loans. Thus, the balance sheet clean-up will strain the bank’s profitability in next 1 year since it provides for the stressed assets.
  • The March quarter loss (Q4 FY2019) of Yes Bank was driven by higher credit costs for non-performing loans (NPLs) and the creation of a contingent provision against a pool of identified stressed assets. The bank has created contingency provision of around Rs 21,000 Million pursuant to a review of the credit portfolio.
  • As a result, Provisions and contingencies shot up significantly to Rs 36,617 Million in Q4 FY2019 with a massive increase of 9 times over corresponding period last year and 6.6 times compared to previous quarter.
  • Total provisions for the quarter Q4 FY2019 also included provisions related specific loan loss Rs 1,270 crore, investment Mark to market (MTM) Rs 243 crore and other Rs 48 crore.

Yes Bank Share Price Movement Post Q4 Results

Yes Bank's Share Price Fall Post Q4 FY2019 Results
Yes Bank’s Share Price Fall Post Q4 FY2019 Results
Source : www.marketsmojo.com
  • The share of Yes Bank was closed at Rs. 237 on Friday April 26, 2019.
  • Reacting to the result, the bank’s shares on April 30, 2019 (Tuesday) slumped over 30% to Rs.165.30 apiece on the BSE in the early trade. The scrip ended the day at Rs 168, down 29.23% on the BSE.

Future Outlook

  1. In January 2019, Yes bank appointed Ravneet Gill as its managing director and chief executive officer (CEO) after Rana Kapoor stepped down. Under the new leadership of Mr. Gill, the change in corporate behaviour is expected to be credit-positive after the de-risking is completed.
  2. In the next three financial years, the bank may slow loan growth to about 20%-25% annually, compared with an average loan growth of 34% a year between 2013-14 and 2018-19.
  3. The bank has planned to increase its focus on the retail segment and small- and medium-sized enterprises, reducing the dependence on corporate lending gradually. Thus, a reduction in loan concentration to large corporate groups will be credit-positive. Since these types of loans have lent volatility to the bank’s asset performance in the recent years. Thus, the robust transaction banking, retail and digital platforms will allow the bank to accelerate granularity in our businesses
  4. The bank’s board has approved an equity capital raising plan of up to $1 billion, which, once complete, will help improve loss-absorbing buffers while supporting asset growth. The board has also approved raising fund up to Rs.20,000 crore by issue of debt securities.
Yes Bank stock review

Yes Bank Share Price Going Up – Detailed Analysis

Yes Bank Stock review – Feb 2019

Yes Bank Limited is India’s fourth largest private sector bank, founded by Rana Kapoor and Ashok Kapur in 2004. It primarily operates as a corporate bank, with retail banking and asset management as subsidiary functions. The Yes Bank stock opened 30% up on 14th February 2019 at Rs. 204 from the closing of Rs. 168 on the previous day (13th February 2019).

Problems with Yes Bank

In the years 2015-16 and 2016-17, asset quality divergence took place. This means that the actual NPA’s were different and the reported NPA’s from the bank were different, that is there was a mismatch in the values of the NPA. RBI raised concern on this after which a full asset quality audit was conducted. In that it was found out that the bank had reported NPA’s 2%-3% on a lower side, it means that if the NPA was around 6% then only 3% of the NPA’s were reported.

This was a huge number in the asset quality divergence and for this reason RBI ordered Mr. Rana Kapoor to resign as the CEO of Yes Bank and appoint a new CEO. This resulted in the stock getting beaten in the stock market.

Now, in the asset quality divergence report of 2017-18, RBI reported it to be NIL. This means that the reporting of NPA’s was not done on the lower side, the actual NPA’s were only reported. This raises some questions regarding the way RBI acted and the timing of the actions taken by the RBI.

YES BANK’s Stock Price Movement

Should I Invest in Yes Bank in the Indian Share Market
Yes Bank Stock movement in last 1 year
  • In August 2018, the share price was trading at a share price of around Rs. 400. But after all these problems (as mentioned above), the share price in February 2019, in hardly 6-7 months, came down at Rs. 171. The fall in the share price was more than 50%. Here, minority holders that is the general public were the ones who had to incur huge losses. Currently (on 18th February 2019), the stock is being traded at Rs. 214.
  • After the asset quality divergence was reported as NIL, immediately all the stock broking houses increased the targets for the share of the bank. Where the targets of Yes bank’s share price were lower earlier, have now gone up to a range of 275 to 300 after the asset quality divergence report was NIL.
  • Before the fall, the stock of was trading with a PE at the level of 20+. But after the fall, it was trading with a PE of around 9.

After the market rise (on 14the February 2019), the PE came up till 11.70. And currently (on 18th February 2019) it is almost same at 11.50.

YES BANK’s New CEO

Another positive for Yes bank seen by the stock broking houses is their new CEO. Mr. Ravneet Gill has been appointed as the new CEO and will join and take charge of the position from 1st March 2019.

Summary

  • There is no problem with the business of the bank. The major problem with the bank was their corporate governance, that is the decisions that were not taken properly by the management which were found during the audit.
  • In what happened with this Bank, the intentions of the RBI was definitely to set an example.
  • The timing at which all the events unfolded was negative.
  • With the NIL asset quality divergence and the new CEO, this could prove to be a revival point for the bank.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that this is a bad company, or the stock of this company is bad.
  • We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.
  • Only an analysis has been presented here.

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