Thursday 22 November 2018

Yes Bank in damage control mode: Is stock a value buy or risky bet?


Yes Bank has lost half its value in the past few months and the stock has remained volatile since the Reserve Bank of India asked Rana Kapoor to trim his term as MD & CEO.

Rana Kapoor's term will now end in January 2019.

After that, the bank's board saw high-profile exits with Rentala Chandrashekhar, independent director, Vasant Gujarathi, independent director and Ashok Chawla, non-executive (independent) chairman of the board resigning.

The bank said these resignations bear no impact on the selection process of new MD & CEO. "Therefore, the new MD & CEO selection process is on track, as per committed timelines."

"The Search & Selection Committee ("SSC") and the N&RC is scheduled to convene on December 12, 2018 to discuss the final shortlist for new MD & CEO appointment," the bank said in a BSE filing dated November 20.

"Pursuant to this meeting, the Board of Directors is scheduled to convene on December 13, 2018," it added.

After these developments and weak earnings in Q2, experts advised avoiding the stock that has fallen 50 percent in the last three months amid corporate governance issues. However, it had rallied 1,144 percent in last nine years before this correction.

"The recent news flow in Yes bank has dampened the sentiment for the stock and it is moving southwards," said Astha Jain, Senior Research Analyst at Hem Securities who advises investors to stay away from the counter as it is surrounded by lot of uncertainties.

Also in Q2FY19, bottomline of the bank has shown de-growth on a YoY as well as QoQ basis.

She recommended 'sell' on the stock with target of Rs 170 in medium term.

The private sector lender's second quarter profit fell 3.8 percent year-on-year to Rs 964.7 crore, dented by sharp rise in provisions and weak asset quality performance.

Its asset quality deteriorated during the quarter. Gross non-performing assets (as a percentage gross advances) increased to 1.60 percent against 1.31 percent in June quarter. Net NPA was also higher at 0.84 percent against 0.59 percent in previous quarter.

Prashanth Tapse, AVP Research, Mehta Equities also said as on date, investors should avoid Yes Bank with wait-and-watch strategy.

"The recent hiccups are all because of the top-level developments taking place in the recent past and the way it has been handled. Fundamentally, these developments would create low confidence in investors and high volatility in the price movement, hence it would be on risk to invest for medium," he reasoned.

He said the 50 percent fall in the stock from the recent high of Rs 398 levels means the problem is genuine and highly mismanaged; hence, Yes Bank is not an investment bet but can be traded on technical levels with trading stop loss of Rs 166 with target of Rs 234.

Vineeta Sharma, Head of Research, Narnolia Financial Advisors said the bank's financials in terms of deposits and liquidity remain robust, but the Risk-based Supervision (RBS) Audit report by RBI for the last two years showed that there has been divergence to the tune of Rs 4,177 crore and Rs 6,355 crore of GNPA for FY16 and FY17, respectively.

Also, the way RBI has been firm towards restricting the extension of current CEO's term as head of the bank, the market has sensed concerns. The RBS supervision report, which is pending for FY18, may show up further higher divergence, according to her.

The company also has capital constraints which should hamper growth going forward, she believes.

The banks promoters — Rana Kapoor and Madhu Kapur — have locked horns in a legal battle.

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