 "YES Bank stock plunges on UBS downgrade")
Private sector lender YES Bank’s stock tanked nearly 7.5 per cent and closed at Rs 797.35 on the BSE exchange, after brokerage house UBS downgraded the stock to ‘sell’ from ‘buy’. They have also revised the price target to Rs 740 from the earlier of Rs 1,000.
“YES Bank had the highest share of loans backed by unlisted shares and current assets (23 per cent). Up to 20 per cent of loan approvals were granted on subservient charges by YES, ICICI and Axis,” UBS said in its report.
UBS said YES Bank had one of the highest exposures to stressed assets at 125 per cent. The brokerage house also said the bank had not factored in an increase in credit cost. The revision in price target comes on the back of UBS raising the credit cost assumptions by 34-41 basis points and cutting the FY16/FY17 earnings estimates by 15-16 per cent.
ALSO READ: Yes Bank raises Rs 1,000 cr via green bonds, double the target
“YES has reported strong asset quality so far, with its impaired loans ratio the lowest among its peers at 1.2 per cent. However, according to our study, it is most vulnerable to a large corporate default. Estimated loans to potentially stressed companies (our sample) recorded a 60 per cent compound annual growth rate over FY12-15E and would be 125 per cent of the net worth for YES Bank,” the report added.
Apart from higher gross non-performing loans in the corporate sector, the worry about slower expansion of its retail loan book and a lower-than-expected increase in its current and savings accounts (CASA) and margins has led to the downgrade.
According to the UBS analysis, the total loan approvals by public sector banks and some private sector banks such as YES and ICICI have increased significantly over FY12-15, at the same time some other banks such as HDFC Bank, IndusInd and Federal Bank have largely stayed away from leveraged companies.
ALSO READ: YES Bank plans to seek regulator nod for entering mutual fund business
YES Bank has said they are strongly refuting the research content reports, as it is based on “unconfirmed and outdated data”.
“This report has exaggerated the exposures attributed to YES Bank, given that the ROC filings reflect historically sanctioned amounts, which are dated and therefore do not reflect the actual outstanding exposures. The report compares sanction amounts to total loans outstanding as at March 31, thus presenting a distorted picture,” said a YES Bank spokesperson.
“On the back of its risk management architecture, the bank has demonstrated exceptional credit quality outcomes over the past five years despite the challenges in the Indian economy. The quality of our portfolio is reflected in the net non-performing assets (NPAs), restructured loans and credit costs across cycles. The bank is confident that with the recovering economic cycle we will grow our business by 25-27 per cent per annum over the next five years.”
As of March 31, net NPA was 0.12 per cent and restructured loans were 0.51 per cent of the gross advances.
Other brokerages though continue to remain positive on the bank and believe the concerns around its asset quality might be overdone.
Suresh Ganapathy, financials analyst, Macquarie Capital, says, “If the quality of the loan book for YES Bank is poor and collateral quality weak, then the risk-weighted asset (RWA) proportion which takes into account even off-balance sheet activities should be much higher compared to peers. At 76 per cent, the FY15 RWA to total assets ratio of YES Bank is better than the average of its private sector peers (78 per cent).”
According to Bloomberg data, most analysts polled on Monday and Tuesday maintained their positive view on the stock. Three of the five analysts have a ‘Buy’ rating, while one has a ‘Hold’ rating. One brokerage, UBS, has a ‘Sell’ rating on the stock. The average target price of all these five brokerages stand at Rs 837 or five per cent higher from Wednesday’s closing price of Rs 797. Overall, analysts remain positive and have not changed their estimates.
“YES Bank had the highest share of loans backed by unlisted shares and current assets (23 per cent). Up to 20 per cent of loan approvals were granted on subservient charges by YES, ICICI and Axis,” UBS said in its report.
UBS said YES Bank had one of the highest exposures to stressed assets at 125 per cent. The brokerage house also said the bank had not factored in an increase in credit cost. The revision in price target comes on the back of UBS raising the credit cost assumptions by 34-41 basis points and cutting the FY16/FY17 earnings estimates by 15-16 per cent.
ALSO READ: Yes Bank raises Rs 1,000 cr via green bonds, double the target
“YES has reported strong asset quality so far, with its impaired loans ratio the lowest among its peers at 1.2 per cent. However, according to our study, it is most vulnerable to a large corporate default. Estimated loans to potentially stressed companies (our sample) recorded a 60 per cent compound annual growth rate over FY12-15E and would be 125 per cent of the net worth for YES Bank,” the report added.
Apart from higher gross non-performing loans in the corporate sector, the worry about slower expansion of its retail loan book and a lower-than-expected increase in its current and savings accounts (CASA) and margins has led to the downgrade.
According to the UBS analysis, the total loan approvals by public sector banks and some private sector banks such as YES and ICICI have increased significantly over FY12-15, at the same time some other banks such as HDFC Bank, IndusInd and Federal Bank have largely stayed away from leveraged companies.
ALSO READ: YES Bank plans to seek regulator nod for entering mutual fund business
YES Bank has said they are strongly refuting the research content reports, as it is based on “unconfirmed and outdated data”.
“This report has exaggerated the exposures attributed to YES Bank, given that the ROC filings reflect historically sanctioned amounts, which are dated and therefore do not reflect the actual outstanding exposures. The report compares sanction amounts to total loans outstanding as at March 31, thus presenting a distorted picture,” said a YES Bank spokesperson.
“On the back of its risk management architecture, the bank has demonstrated exceptional credit quality outcomes over the past five years despite the challenges in the Indian economy. The quality of our portfolio is reflected in the net non-performing assets (NPAs), restructured loans and credit costs across cycles. The bank is confident that with the recovering economic cycle we will grow our business by 25-27 per cent per annum over the next five years.”
As of March 31, net NPA was 0.12 per cent and restructured loans were 0.51 per cent of the gross advances.
Other brokerages though continue to remain positive on the bank and believe the concerns around its asset quality might be overdone.
Suresh Ganapathy, financials analyst, Macquarie Capital, says, “If the quality of the loan book for YES Bank is poor and collateral quality weak, then the risk-weighted asset (RWA) proportion which takes into account even off-balance sheet activities should be much higher compared to peers. At 76 per cent, the FY15 RWA to total assets ratio of YES Bank is better than the average of its private sector peers (78 per cent).”
According to Bloomberg data, most analysts polled on Monday and Tuesday maintained their positive view on the stock. Three of the five analysts have a ‘Buy’ rating, while one has a ‘Hold’ rating. One brokerage, UBS, has a ‘Sell’ rating on the stock. The average target price of all these five brokerages stand at Rs 837 or five per cent higher from Wednesday’s closing price of Rs 797. Overall, analysts remain positive and have not changed their estimates.