Mumbai: Shares of Yes Bank Ltd on Friday slumped 7.4%, its biggest single day fall in two year, as many brokerages cut the lender’s target price after it reported a sharp rise in bad loans, following the Reserve Bank of India’s (RBI) supervisory assessment.
The scrip closed at Rs307.20 on the BSE, down 7.39%, its biggest fall since 24 August, 2015, from its previous close. In intraday, the stock fell as much as 9.86% to Rs299 a share—a level last seen on 6 July. Since 16 October, Yes Bank has declined nearly 17% or erased over Rs12,000 crore market value of the investors. So far this year, it has gained 35%.
The central bank’s assessment of Yes Bank’s gross bad loans was Rs6,355.20 crore more than what the lender had reported at the end of March. However, the entire divergence amount was not tagged as non-performing as of end September.
“The performance of the quarter is difficult to gauge in the context of the divergence exercise. If anything, it highlights that the underwriting of the bank is significantly different from other banks. Investors would need to continue to have faith that the bank would be in a position to recover loans from its delinquent borrowers even in a weak macro environment. We probably find such business models difficult to value at higher multiples even if the reported RoEs (return on equities) are closer to 20%. We prefer being conservative which the current valuations do not offer," said Kotak Institutional Equities, in a report to its investors.
The brokerage house has maintained its sell rating on the stock and reduced its target price to Rs285 a share from Rs304 earlier.
Out of the total divergence, 26.6% of loans were net payments, while 47% of loans were upgraded as standard on account of satisfactory conduct because there was no overdue and 19.2%, or Rs1,219.4 crore, were classified as non-performing assets (NPAs).
Including divergence impact, gross bad loans rose to Rs2,720.34 crore as the end of September, up from Rs916.68 crore a year ago and Rs1364.38 crore a quarter ago. As a percentage of total loans, gross NPAs were at 1.82% as the end of September compared to 0.97% three months earlier.
“Yes disclosed discomforting NPL (non-performing loans) divergence (difference between RBI’s assessment and bank’s reported NPLs)—one that is growing not just in absolute amount but even as percentage of loans. The bank needs to change its narrative whereas the investors need to alter how they view the business model—nothing drastic, just needs a shift in perspective," said Jefferies India in a note. The brokerage firm has maintained its rating to hold and reduced its target price to Rs300 a share from Rs345 a share.
Macquarie has downgraded the stock to “neutral" from “outperform" and kept its price target at Rs340 a share. IDFC Bank was downgraded to “underperform" from “neutral" and lowered its target price to Rs270 a share from Rs309 a share.
The private sector lender reported a net profit of Rs1,002.73 crore, up 25% a year ago. A Bloomberg poll of 18 analysts had forecast the bank’s profit at Rs1,035.50 crore. Net interest income increased 33.49% to Rs1,885.09 crore. Other income was up 35.43% to Rs1,248.44 crore.
Of the 52 brokers tracking Yes Bank stocks on Bloomberg, as many as 39 recommended a “buy" rating, nine asked its investors to “sell" the stock and four have a “hold" rating.