Apr 20, 2017 04:53 PM IST | Source:

Yes Bank Q4: Brokerages remain positive on the stock

Investors wary of the stock after the bank reported better than expected profits, but growth was restricted by higher provisioning and deterioration in asset quality.

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Shares of Yes Bank fell over 6 percent intraday on Thursday as investors reacted to the bank’s Q4 results.

Though the private sector lender posted better than expected net profits for the March quarter, the asset quality deteriorated with NPAs rising significantly.

Yes Bank posted net profit of Rs 914.1 crore, up 30.2 percent compared to the same period last year due to sharp rise in other income, net interest income & operating profit, but the growth was restricted by higher provisioning and deterioration in asset quality.

The net interest income stood at Rs 1,639.7 crore, a rise of 32.1 percent against Rs 1,241.4 crore reported during the same quarter last year. Meanwhile, the net interest margin increased to 3.6 percent against 3.5 percent during the previous quarter.

However, the bank's asset quality witnessed a deterioration as net non-performing assets (NPAs) grew substantially to Rs 1,072.3 crore against Rs 342.5 crore that it posted in the previous quarter. The spike in NPA was seen due to a slippage of one account of Rs 911 crore.

Gross NPAs more than doubled to Rs 2,018.5 crore compared to Rs 1,005.9 crore in the previous quarter.

The bank also witnessed a sharp increase in its provisions that rose to Rs 309.7 crore against Rs 186.5 crore during the same quarter last year. In the December quarter, the company had posted provisions of Rs 115.4 crore.

Analysts have largely retained their outlook on the bank.

Macquarie has maintained an outperform rating on the stock with an unchanged target of Rs 1,800. It believes that the asset quality slippage in the bank’s Q4 is disappointing, while the net profit was in line with its estimates. The negative surprise in the results could have a bearing on the stock performance. The research firm has made minor changes to its earnings estimates.

Meanwhile, it also expects the bank to revert its trend trajectory of credit costs of 50-70 basis points (bps).

Nomura has maintained its buy rating on the scrip with a target price of Rs 1,800. The brokerage house observed that the asset quality was weaker than expected, but the operating performance for the quarter was 14 percent above estimates. The slippages and large ARC sales of standard assets were a negative surprise. Meanwhile, it highlighted that the loan growth continued to be strong at 35 percent YoY and 6 percent QoQ. There was a positive surprise by retail loans, fees and liability momentum.

Morgan Stanley is overweight on the stock with a cut in target price to Rs 1,680 from Rs 1,750. It expects the stock performance to be weak due to the uncertainty around asset quality. The material increase in impaired loans and high pace of capital consumption is a negative for the bank. Its preferred stock in the pack was IndusInd Bank.

Citi has a buy call on the stock with a target of Rs 1,800. It sees the growth momentum to be robust with retail assets and liabilities showing traction. It pointed that the management believes one-off provision is likely to be reversed soon and that it may see some increased asset quality scrutiny in the near term.

Bank of America Merrill Lynch (BofAML) has reiterated a buy call on the stock with a target at Rs 2,100. The research firm saw Q4 earnings beating estimates and that the asset quality was a short term concern. Apart from the one-off NPA, new NPL formations are largely in line with the previous few quarters, it said, adding that the provisioning coverage stood at 46.9 percent. Retail banking will drive loan growth and operating metric, it added.

JPMorgan has an overweight call on the stock with an increased target to Rs 1,875 from Rs 1,500. The stock was one of its top picks in the banking space and the loan growth spiked to 35 percent YoY with strong growth across all segments.

Deutsche Bank has a buy call on the stock with a target of Rs 1,700. Adjusting for the one-off provision, asset quality would have been stable, it said. It saw the stock reacting negatively in the near term, but sees that as a good buying opportunity.

At 12:53 hrs, the stock was quoting at Rs 1,550.70, down Rs 54.70, or 3.41 percent on the BSE. It touched an intraday high of Rs 1,574.40 and an intraday low of Rs 1,501.00.
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