YES Bank on Thursday witnessed a sharp fall in its stock prices after foreign brokerage UBS cut target price.
The stock plummeted 12.96% after UBS cut price target by 47%, as it expects more stress on the bank's asset quality.
The brokerage has a "sell" rating on the stock and cut the target price to Rs 90 from an earlier target price of Rs 170. Shares of YES Bank touched a fresh 52-week low on Thursday as it fell 13.77% intra-day to Rs 116.10 apiece before ending at Rs 117.20, down 12.96% from the previous close.
TARGET SLASHED
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- The brokerage has a "sell" rating on the stock and cut the target price to Rs 90 from Rs 170
- Shares of YES Bank touched a fresh 52-week low on Thursday as it fell 13.77% intra-day
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In a research note, UBS said YES Bank has fallen 19% year-to-date, and appears cheap at 1x P/BV (its five-year trough valuation) based on Bloomberg consensus estimates.
"We are currently not building in any capital raises in estimates due to uncertainty around the size or timing of the capital raise. As per our sensitivity analysis on capital raises and NPL (non performing loans) risks, we expect ROE to remain below 10% till FY2021 in three out of four scenarios (including base case). We expect 255/200 bps credit costs in FY20/21, which would be significantly higher than management guidance of 125bps. Moreover, we believe that the second-order effects of rising NPL on PPOP (pre-provision operating profit) growth/margins are not fully factored in by the Street. We cut our earnings by 79/53% for FY20/21 and believe the risk-reward is still unfavourable and look for "value" opportunities elsewhere," the note said.
The UBS Evidence Lab Data Science Team's study of about 5,800 companies suggests that YES's exposure to the top 10 groups is relatively high at 9.1%, compared with an average of 3.9% for the covered banks. It is very difficult for to forecast the severity of the NPL cycle and therefore depends on the best available data to form directional views, it said.
According to the brokerage, the revenue growth is estimated to be below 10% in next two years as the business model shifts away from a high upfront fee business. "We expect fee income to decelerate and margins to narrow sharply in FY20-21. Higher NPL formation and a shift towards low-yield business are likely to impact fee/margins adversely. We expect margins to decline by 30-50 bps over two years due to an increase in non-accrual book (NPL) and loan-mix change towards lower-yielding exposures. We cut our fee income estimates and expect an 11% CAGR in fees in FY19-21. Due to scarce CET1 (at 8.4% as of March 2019), we expect loan growth to moderate to 10% in FY20," the research note said.
During the bank's annual general meeting on Wednesday, CEO Ravneet Gill promised shareholders that every effort would be made by the management to keep their trust, focus on risk management, and restore its old glory. He also said that the bank's asset quality issues were being blown out of proportion.
