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YES Bank plunges 13% as UBS cuts stock target by 47%

The scrip has dropped 33% year-to-date against Sensex’s 9.9% rise.|
Updated: Jun 13, 2019, 04.02 PM IST
NEW DELHI: YES Bank stock on Thursday fell 13 per cent after foreign brokerage UBS cut its target on the stock to Rs 90 from Rs 170 earlier, a drop of 47 per cent.

The brokerage has maintained its sell rating on the stock as it expects more asset-quality pressure than consensus, given the bank’s higher exposure to stressed corporates and lower recognition of these loans as gross non-performing loans.

"Despite our earnings estimates for SOE banks being above consensus expectations, we remain cautious given the weak profitability," UBS said.

Even at this price, the UBS target suggests a potential 25 per cent downside. UBS is expecting credit cost for the lender to rise to 250 basis points (bps) in FY20 from 200 bps. It cut earning estimates for FY20/21 by 79 per cent and 53 per cent, respectively.

The scrip has dropped 33 per cent of its market value year-to-date against Sensex’s 9.9 per cent rise.

A total of 11 brokerages have ‘sell’ ratings on the stock today against just two, 60 days ago; the number of brokers having a 'buy' rating on the stock has dwindled to 8 from 18, publicly available data with Reuters suggested.

UBS said that a sustained economic slowdown could impact the banking and finance sector on several fronts, including a slowdown in loans and higher NPL risk, while affecting fee income and exerting pressure on NIM.

In its AGM on Wednesday, CEO Ravneet Gill promised shareholders that the management would make every effort to keep their trust, focus on risk management, and restore the bank to its old glory. He also said that the bank’s asset quality issues were being blown out of proportion.

The bank board, however, avoided shareholder queries on Rana Kapoor’s future at the lender. Late night, the bank issued a clarification to stock exchanges denying an ET report that suggested that founder Rana Kapoor demanded a board seat and compensation that triggered directorial exits by independent members earlier in the week.

The private lender is facing investor wrath over the actual amount of its stressed assets, and is in talks with private equity investors to raise equity funds to help rebuild investor confidence after initial attempts at share sales to a broader set of institutional investors failed to materialise, ET had reported earlier.

"I do not know what is the extent of the damage. Now even the auditors are pulling back. So the challenge is that someone has to come and say, I have seen it, this is the way it is, and this is what is the extent of damage. Somebody needs to have a readdressal plan in place. Unless that is in place, how can investors rely on the data that is being dished out," said Sameer Narayan, Market Expert.

Moody’s Investors Service had placed Yes Bank’s ratings under review for a downgrade, citing its large exposure to debt-laden non-banking financial companies (NBFC) and the possibility that the bank’s loans under watch list could become non-performing assets (NPAs).

The shares of the bank closed 12.96 per cent lower at Rs 117.20 on BSE.

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