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Emkay gives sell rating to Yes Bank, target price at 11

The brokerage adds that though current top management with the help of regulatory/investor support has been able to arrest bank failure, but re-orienting into a sustainable retail bank will require a differentiated private management. (Mint)Premium
The brokerage adds that though current top management with the help of regulatory/investor support has been able to arrest bank failure, but re-orienting into a sustainable retail bank will require a differentiated private management. (Mint)

Emkay Research has given a 'Sell' rating to the bank given sub-par return ratios and unfavourable risk-reward with higher valuations.

Analysts see the share price of Yes Bank dropping even further. Emkay Research has given a 'Sell' rating to the bank given sub-par return ratios and unfavourable risk-reward with higher valuations. The brokerage has set a target price of 11 for the share of Yes Bank.

At 12:06 p.m, on Wednesday, the shate of Yes Bank is trading at 15.85 on NSE.

"We believe that the transfer of NPAs to a separate ARC (somewhat similar to IDBI in 2003) probably means window dressing standalone bank B/sheet,but we need to see the extent of hair-cuts, structure of ARC and recovery record in the ARC, which is not inspiring in case of IDBI SASF," says Emkay Research.

The brokerage adds that though current top management with the help of regulatory/investor support has been able to arrest bank failure, but re-orienting into a sustainable retail bank will require a differentiated private management.

However the brokerage believes a faster and sustainable business growth, lower-than-expected NPA formation and higher-than-expected recoveries from stress pool can be a key risk to their call.

Here are the report highlights:

> Yes Bank has sustained profitability at 1.5bn (vs. estimate of 8.7bn loss), aided by treasury gains and contained provisions as NPA formation is deferred due to SC stay. Overall stress pool stood high at Rs185bn (11% of loans), indicating continued asset quality risk.

> Yes bank carries Covid-related contingent provisions of Rs27bn (1.6% of loans), which is still low factoring in higher stress pool. The bank has restructured over Rs81bn of loans (4.8% of loans), which is highest in the industry till now. It awaits regulatory approval for Independent ARC to transfer and manage its stress assets.

> The downtrend in credit/deposits has been largely arrested and incremental focus is on building retail asset/liabilities, but sustaining momentum will be an arduous task. Despite CET 1 of 13.1%, the bank plans to raise capital again to the tune of 100bn (4.2% of RWA) probably to secure capital before asset quality fallout begins, leading to further dilution for existing investors.

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