Yes Bank plunges 29% on weak Q4 result; Macquarie, HSBC & Citi downgrade stock

Macquarie: Downgrade to Underperform| Target: 165

Macquarie has double-downgraded Yes Bank stock to Underperform with a target price of Rs 165 which translates into a downside of 30 percent from current levels.

"We must eat humble pie today and admit we underestimated risks in structured finance. We got the call wrong. We draw upon our learnings from how Axis Bank handled its watchlist disclosures, and now built in a significantly more conservative slippage and credit cost estimate over FY20-22E, more than double the management’s guidance," Macquarie said in a note.

Over the past eight years we have been constructive on YES Bank’s ability to not just survive, but to thrive in a risky business segment like structured finance, the global investment bank said.

Macquarie slashed FY20-21E EPS by 45 percent each. "We have built in capital raise of Rs 35 billion at Rs 200/share in FY20."

Citi has downgraded the stock to sell and cut target price to Rs 180 from Rs 240 per share. According to foreign brokerage house, the company faces twin challenges of profitability and capital. It has lowered the company's FY20/21 earnings estimates by 62%/41%, while RoA is likely to be lower for longer.

HSBC also downgraded the stock to reduce and cut the target to Rs 164 from Rs 243 per share earlier. “The company has reported its first quarterly loss since FY06, while its asset quality has deteriorated significantly. We cut FY20/21 profit estimates by 70%/56%.” According to HSBC, the major exposure to stressed sectors will also weigh on the stock in the near term.

Morgan Stanley has maintained underweight call on the stock and cut target to Rs 125 from Rs 160 per share. Meanwhile, it expects a gradual turnaround under the new CEO and sees 0.7-0.9% ROA in next 3 years. “The stock looks expensive at 2x current book and we cut FY20/21 EPS estimates by 47/41%,” it added.

The stock may trade 5-10% gap down on April 30 when markets reopen, said Sameer Kalra, Founder & President (Research), at Target Investing. "We still have buy rating on the company and lower weight since recent run up."

The results have taken a hit due to proactive provisioning by the new management with two major accounts almost fully provided for and some high risk accounts.

The cost of credit increased and might be elevated for next two quarters on reversal on certain high risk high return accounts which turned bad assets. We see results as positive step forward on cleaning the balance sheet which might be at expense of short-term profit, he added.

Manali Bhatia, Senior Research Analyst at Rudra Shares & Stock Brokers feels that the stock would see sharp fall of 5-7%. However, we advise investors to not panic and to hold the stock, even buy on every dip, keeping in mind medium-to-long-term perspective.

To maintain higher quality, strong balance sheet and cleanup process, bank has increased total provisions to Rs 3,662 crore.

This move by the management though is a one-time pain, but it can be rightly stated that bank is on the verge of cleaning and strengthening its balance sheet by equally maintaining quality, she added.

Prabhudas Lilladher, on the other hand, has maintained reduced rating on the stock with a target of Rs 190 per share.

The earnings were disappointing on the back of management (likely on conservative CEO) recognizing large NPAs of Rs 34.8 billion from aviation, infra and real estate space.

Sumit Bilgaiyan, Founder at Equity99 recommended investors to stay invested in the stock for couple of more quarters despite the recent headwinds.

The bank has undergone a significant transition in its senior management, we believe that the bank’s performance in near term will remain dampened as such huge transitions are painfully slow but necessary for the bank to revive in a meaningful way and this pain will be temporary blip and will lead to a strong revival in bank’s performance over near-to-medium term, he added.

He sees sizable earnings downgrade post the result.

Broking house Sharekhan has maintained buy rating on the stock with a revised price target of Rs 275 per share.

The bank posted weak results for Q4FY2019, with spike in NPAs, high provisions, lower other income impacting performance. Changes in business model, mix & strategy may see growth and return ratios moderating for a near to medium term, it added.

At close, Yes Bank was down Rs 69.40, or 29.23 percent at Rs 168 on the BSE.