Yes Bank shares plunged 9 percent and IndusInd Bank tanked 6 percent intraday on June 13 after global brokerage house UBS slashed price target sharply by 47 percent and 18 percent, respectively, citing weak earnings going ahead.
UBS downgraded IndusInd Bank to sell and cut target to Rs 1,400 from Rs 1,700 earlier while in case of Yes Bank, the brokerage maintained sell rating and slashed target to Rs 90 from Rs 170 apiece.
"We raise FY20 credit cost estimates for Yes Bank to 250 bps from 200 bps and for IndusInd Bank to 150 bps from 100 bps as network risks drive credit cost estimates higher," the brokerage said.
According to the research firm, the next level of risk could appear from leveraged corporates' related companies.
Hence, UBS lowered its earnings estimates for Yes Bank/IndusInd Bank by 79 percent/53 percent & 7.3 percent/8.6 percent for FY20/21.
"Lending to non-investment grade companies against main companies is high for both banks, which does not appear to be fully priced in," UBS said.
It also added that the concentration of lending to weak companies is also high for Yes Bank, ICICI Bank and PNB. These stocks lost 20 percent and 9 percent in the last five trading sessions, respectively.
At 0957 hours IST, IndusInd Bank was down 5.33 percent at Rs 1,484.20 and Yes Bank down 9.17 percent at Rs 122.30 on the BSE.
Another reason for fall in Yes and IndusInd Bank is their exposure to Dewan Housing Finance Corporation, which defaulted on interest repayment last week.
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