The share of the company has dropped significantly which has created a panic among the investors.
Recently many brokers and rating agency like Moody ,UBS have revised the rating and down graded the stock to under perform. So, as an investor It’s always important to analyze what went wrong and what lies ahead.
- Loss in the latest quarter - The bank has reported a loss of Rs 1,507 crore for the January-March quarter, compared with a profit of Rs 1,180 crore a year earlier. This was the first loss reported by the lender since its 2004 launch.The main reason for the massive loss was higher provisions for possible reverses, .Yes bank took a provision of Rs 3,661 Crores for the quarter which is almost ten times of the last year provisioning worth 399 crores.
- NPA and stressed Asset - The gross non-performing assets ratio increased by more than doubled to 3.22 per cent from 1.28 per cent in the year.It has a 7 per cent exposure to the commercial real estate sector, which is facing troubles. Overall slippages of the bank have rose to Rs 3,481 crore, including Rs 552 crore to Jet Airway and Rs 529 crore for the bankrupt infra lender IL&FS.
- Recent Default – A Mumbai-based Developer, Radius has defaulted on scheduled interest payment of Rs 30 crore, on a Rs 1,200-crore loan to the private lender. However as per Radius Developers, it had cleared interest payments of Rs 30 crore to Yes Bank .
We understand that all these factors are a serious problem for the Private lender but does the current price of Rs 93 justify the valuation ?
- The current book value is at Rs 116.2. The stock is currently trading at a P/B of 0.82. The public lenders like Punjab national bank , IDBI who have even worst asset quality are trading at a higher valuation. IDBI which has a gross NPA ratio of 27.47% and Net NPA ratio of 10.11, is trading at a P/B of 1.37. Similarly, PNB having a GNPA of 16.33 and Net NPA of 8.22 is trading at a P/B of 0.92.
- As the bank has a large exposure to high ticket size corporate clients, the performance and growth will be highly correlated to industry growth and economic cycles. Also, the high level of NPA and stressed Asset book is not very un-common with such level of concentrated corporate portfolio. The main question is whether it’s a temporary problem or a permanent one ?
- With revival in business cycle, we expect the growth to be stable . We feel the NPAs have taken a toll on the company’s earnings and stock prices, and if the upcoming quarters can get the earning back to past levels then company’s stocks have the potential to reach the previous highs.
We recommend subscribers to stay invested for a long period and returns can potentially be very rewarding if you can wait for 6-8 quarters.
Disclaimer- For informational purposes only, not an Investment advise.
Author- Urvi Kotak
Disclosure- The Author has recommended the stock to the clients of finology ventures pvt. ltd.