Stay away from YES Bank shares, warn analysts

KS Badri Narayanan Chennai | Updated on March 17, 2020 Published on March 17, 2020

Nomura suspends coverage; heading towards ₹4, says Emkay Global

Despite the shares of YES Bank surging following approval of the revival package by the RBI and the government, analysts are cautioning investors to stay away from the stock. After hitting a low of ₹5.65 when the RBI imposed a moratorium on withdrawal by its depositors in the first week of March, shares of YES Bank jumped seven times to currently rule at around ₹58.5.

Analysts said the jump seen in the last two days is purely on technical grounds, following the Centre imposing a lock-in period on Friday post marker hours for 75 per cent of the holdings of retail and institutional investors. Those who went short on Friday need to buy the stock to honour delivery commitments. The lock-in squeezed the public float and hence, the vertical rise in the stock price, reasoned out analysts.

Global investment advisory firm Nomura has suspended its coverage on the stock saying “While YES Bank’s going concern risk is now minimised post RBI’s restructuring plan (₹10,000 crore of capital infusion by banks), in our view the bank is damaged beyond repair to fundamentally evaluate any business/investment case.”

Despite the revival package, it is not the time to enter the stock as no one knows how long it will take to revive the sentiment and business confidence, said an analyst with a domestic brokerage firm. After its Q3 results announcement, one has to wait till the bank gives signal that it can stand on its own, he added.

According to broking firm Nirmal Bang, “Even though the investor community had a good sense of the bad assets lying under the carpet, we think the rate of NPA formation during the quarter was unprecedented. GNPA ratio has climbed from 7.4 per cent in Q2 FY20 to 18.9 per cent in Q3 FY20.”

Elevated NPA formation

The bank is guiding for 5 per cent slippage in FY21, followed by normalisation, which indicates that FY21 will be yet another year of elevated NPA formation. Given that sell-downs are one of the primary strategies to shore up capital, NPA ratios could look optically higher going forward, it added. “Given the 5 per cent slippage guidance and assuming the coverage ratio is maintained, we estimate a provisioning hit of another about ₹70,000 crore,” Nirmal Bang said.

Another broking house, Emkay Global believes it will be a long battle for YES Bank to survive and thrive independently with many bumps in the journey, including the risk of failure of the reconstruction scheme.

“Separately, a three-year lock-in for new and existing shareholders with more than 100 shares (75 per cent of holding) and write-off of AT-1 bonds too will be viewed negatively by investors. Maintain ‘Sell’ with a revised TP of ₹4,” it added.

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Published on March 17, 2020
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