YES Bank dips 6% to hit 40-month low as global brokerage downgrades stock

Shares of YES Bank hit a 40-month low of Rs 126, down 6 per cent on the BSE in the early morning trade on Thursday after reports said global brokerage firm UBS has cut the target price of private sector lender to Rs 90 from Rs 170.

The stock was trading at its lowest level since January 20, 2016, when it touched Rs 126.44 in the intra-day trade. The counter witnessed huge trading volumes with a combined 21 million shares changing hands on the NSE and BSE till 09:30 am.

The foreign brokerage firm maintains ‘sell’ rating on the stock saying sharp turnaround is less likely to fructify. It expects 255/200 basis points (bps) credit costs in FY20/21, higher than management guidance of 125 bps. NPL (non-performing loan) risks seem higher than current expectation.

Global rating agency Moody’s on Tuesday placed YES Bank's foreign currency issuer rating of Ba1 under review for downgrade as liquidity pressures on finance companies may negatively impact credit profile of the lender.

The review for downgrade takes into account Moody's expectation that the ongoing liquidity pressures on Indian finance companies will negatively impact the credit profile of YES Bank, given the bank's sizeable exposure to weaker companies in the sector.

In April 2019, the bank classified about Rs 10,000 crore of its exposures, representing 4.1 per cent of its total loans under the watchlist that could translate into non-performing loans over the next 12 months, Moody’s said.

“In our view, the next two-year profitability of the bank will erode due to rising NPAs similar to what Axis and ICICI Bank faced two years back. Also, the structural change in the balance sheet more towards working capital loans will not be easy and less return on equity (RoE) accretive. RoE will fall from 18 per cent in FY18 to 1.4 per cent in FY21e and ROA from 1.6 per cent to meager 0.1 per cent. We expect profits to fall by 25 per cent in FY20e to Rs 1,280 crore and by 70 per cent in FY21e to Rs 390 crore,” analysts at LKP Securities said in a company update on May 20, 2019.

Yes Bank