After reporting a surprise loss — its first-ever — in the fourth quarter, Yes Bank has been at the receiving end in terms of quick downgrades by brokerages.
In a rare instance, global financial major Macquarie did a ‘double-downgrade’ while lowering the target price by 30%. The global financial major was not alone as many Indian brokerages, including Edelweiss Financial Services, Prabhudas Lilladher and Emkay Global have also downgraded the stock citing concerns related to stressed assets and management uncertainty, among other factors. “We must eat humble pie today and admit we underestimated risks in structured finance. We got the call wrong,” said Macquarie in its report released on Monday with an ‘underperform’ rating on the banking major with a 12-month target price of ₹165.
Incidentally, Macquarie had an ‘outperform’ recommendation on Yes Bank since January 2018 though the target price has been consistently lowered. From a high of ₹425 in April 2018, the target price was reduced to ₹165 in February. “Incoming CEO flags large stressed pool, aggressive accounting practices and weakness in retail franchise... Loan book clean-up, investments in retail business and pivoting of business model within corporate segment should keep return ratios subdued for long,” stated the report.
Q4 performance
On Friday, Yes Bank posted a whopping ₹1,507 crore loss during the January-March period of 2018-19, as bad loans surged due to its exposure to troubled firms such as Infrastructure Leasing & Financial Services Ltd. (IL&FS) and an airline company, though the bank refrained from naming the airline. The bank had posted a ₹1,179-crore profit during the same period of the previous financial year.
Meanwhile, Edelweiss has downgraded the stock from ‘buy’ to ‘hold’, with a target price of ₹250 as it believes that while the bank recalibrates its strategy, the transition would be “arduous.”
“... transitioning will be arduous, entailing lower growth as well as returns given: softer revenue traction as focus shifts to risk; lower fee due to conservative policy; and modest earnings recovery due to early stress recognition & provisions,” it said.
In a similar context, Prabhudas Lilladher reduced its target price on the banking stock from ₹245 to ₹190 while lowering the rating from ‘accumulate’ to ‘reduce’. “Significant worry comes from collapse of fee income in near term, higher credit cost if more risks arise from unidentified stress and risks of NIMs (net interest margins) going down on higher interest reversals if stress book falls into NPA (non-performing asset), leading to an infinite loop of lower return ratios in medium term,” it said.
Interestingly, Motilal Oswal Financial Services has maintained a ‘buy’ rating on Yes Bank with a revised target price of ₹280.
