YES Bank rebounds 11%, but still down 5% as Q2 profit misses estimates

Shares of YES Bank has rebound 11% from its early morning low, but still down 5% at Rs 188 at 10:17 am; on Friday after the private sector lender reported a lower than expected net profit on higher provisioning for bad loans and mark-to-market (MTM) losses in the September quarter (Q2FY19).

The stock slipped 15% to Rs 169 in early morning trade, close to its 52-week low of Rs 166 touched on September 28, 2018, on the BSE in intra-day trade.

YES Bank on Thursday after market hours reported a decline of 3.87% in net profit to Rs 9.65 billion for Q2FY19 against profit of Rs 10.02 billion in the year-ago period. The net profit during the reported quarter declined due to one-time MTM provisioning, predominantly on corporate bonds, the bank said.

Net interest income or NII (interest earned minus interest expenses) grew 28.2% year-on-year (Y-o-Y) to Rs 24.18 billion during the quarter. Net interest margins (NIM) were stable sequentially at 3.3%, while declined 0.4 bps Y-o-Y from 3.7% in Q2FY18.

Analysts on an average had expected a profit of Rs 11.94 billion and NII of Rs 27.83 billion for the quarter.

“In Q2FY19, YES Bank posted a weak set of numbers. Higher delinquency to preempt likely divergence under RBS and elevated MTM losses led to deviation at bottom-line. Gross slippages at Rs 16.3 billion and sale of loans worth Rs 4.5 billion to ARCs leads to total slippages at Rs 20.8 billion, which was much higher than average slippages of Rs 7.2 billion over past 5 quarters,” analysts at Elara Capital said in quarterly update.

“Regulatory course of actions and resultant transition have led to a forced realignment on balance-sheet issues and succession planning. Negative surprises are frictional outcomes of the above reasons and could continue for a quarter. Our credit growth estimates at 22%, net slippages of 192bp and credit cost of 105bp (highest ever in last decade) take into account the likely worst,” the brokerage firm said in a report with ‘buy’ rating on the stock.

“Volatility in asset quality as well as large divergence post RBI assessment is a cause of concern. At the same time its ability to recover does impress us. Expansion of branches and employee addition will keep costs elevated. Change in top management does add uncertainty to its guided strategy. Contribution of fee income has improved over the years. As the retail footprint of the bank increases, it is likely to witness a higher share of retail fee income,” IDBI Capital said in result review. The brokerage firm maintains ‘buy’ rating on the stock.