Even if one fully provides for IL&FS and all other exposure that are under various dispensations, the historic price-to-adjusted book still looks reasonable (at 2.5 times), especially if there is visibility after the top management rejig
We are recommending Yes Bank as a tactical call for investors who can withstand some volatility.
The stock has been in the thick of action for all the wrong reasons. It has corrected close to 54 percent from its 52-week high after Reserve Bank of India's refusal to extend Managing Director Rana Kapoor’s tenure beyond January 31.
We feel the steep price correction beckons investor attention, should its successor gets finalised shortly.
Newspaper reports suggest that the board of Yes Bank has suggested names of one internal (Rajat Monga, Executive Director) and one external candidate (Rajesh Sud, former MD of Max Life Insurance) to the RBI to replace Rana Kapoor. Pralay Modal another internal candidate gunning for the top job has quit and Sud has also backed out as per media reports, thereby leaving Monga as the sole contender for the top position.
Should RBI clear the name, Kapoor’s legacy would continue, offering respite to the beaten down stock. The leadership change should pave the way for capital raising, which is critical for future growth of the bank.
The bank has grown at a blistering pace in the past and a stable top management along with capital is all that it requires to come back to the race where it can meaningfully capture market share, thanks to the void created by the departure of weak state-run banks and smaller non-banking financial companies (NBFCs).
While current account-savings account (low cost deposits) at 34 percent has a long way to go, the bank has been steadily gaining market share in advances as well as deposits.
Asset quality remains a key concern and RBI’s audit report for FY18 is keenly awaited. Should it turn out to be better than last year, the stock will have reasons to cheer. In the near term, the rise in slippage and significant exposure to Infrastructure Leasing & Financial Services (IL&FS, in excess of Rs 2,620 crore) could mar performance.However, even if one fully provides for IL&FS and all other exposure that are under various dispensations, the historic price-to-adjusted book still looks reasonable (at 2.5 times), especially if there is visibility after the top management rejig.