Indian share markets got off to a solid start this week, with benchmark indexes advancing 0.5% on 23 January 2023.
Gaining 1%, the Bank Nifty outperformed overall markets, with the Nifty Private Bank and Nifty PSU Bank indexes trading in the positive territory.
Despite a good day for the banking industry, investors of Yes Bank were taken aback by the stock plunging 12% intraday.
However, this is not the first time the stock has experienced such an abrupt drop.
The stock was a favorite with investors in 2015–2016 and lost 98% of its luster in 2018–2020. It was one of the popular stocks that turned into penny stocks.
The already-limping Yes Bank is again stuck with another blow.
Here is why its share price is falling.
#1 Higher provisions dent profitability
On 21 January 2023, the bank reported an 80% YoY decline in its net profit at Rs 520 m for the December 2022 quarter. The decline in the net profit was due to an increase in provisions for ageing bad loans.
The bank had posted a net profit of Rs 2.6 bn in the year-ago period.
Provisions for the quarter increased 125.5% YoY to Rs 84.5 bn.
The bank’s net interest income (NII) was up 11.7% YoY at Rs 19.7 bn while the net interest margin (NIM) rose marginally to 2.5%.
The bank’s asset quality improved substantially during the quarter due to the transfer of stressed assets to the JC Flowers ARC.
The gross non-performing performing asset (GNPA) ratio stood at 2% in the December 2022 quarter, against 14.7% in the year-ago period. The net non-performing performing asset (NNPA) ratio came down to 1%, compared to 5.3% in the same quarter last year.
#2 ATI bond and the current uncertainty
Before the company released its results, the stock had already taken a hit after the Bombay High Court on 20 January 2023 quashed Yes Bank’s decision to write off Rs 84.2 bn of additional tier 1 (AT1) bonds on the illegal move ground.
In March 2020, the Yes Bank administrator wrote off additional tier 1 (AT1) bonds worth Rs 84.2 bn.
Unsurprisingly, bondholders were not pleased with these write-offs and took the bank to court. The bondholders petitioned that the administrator did not have the right to write off these bonds after the final reconstruction scheme got notified.
The provision for wiping off the bonds was deleted from the final rebuilding program.
The ruling is currently on hold by the Bombay High Court for six weeks. It is now on its way to approach the Supreme Court.
However, if the Supreme Court also quashes the plea, there is a chance that the bank would have to make interest payments or pay off the entire Rs 84.2 bn.
An alternative course of action would be to convert these bonds to equity. In fact, the bondholders brought up this equity option in March 2020. They wrote to the RBI seeking an allotment of 1.7 bn shares instead of a write-off.
These blows have created a tortuous period of uncertainty for investors. Also, most other banks have reported spectacular results. Due to this, investors have many alternatives in the same sector to choose from. This triggered selling as well.
How Yes Bank shares have performed recently…
Yes Bank shares have declined 9.5% in the last five days and over 7% in the month gone by.
The stock was under pressure in the first half of 2022 due to the selloff in the broader market. All banking stocks fell as FIIs reduced their holdings on account of interest rate hikes.
However, the bank’s shares are up more than 35% in 2022. It has turned around on the back of stronger than expected results and Rs 89 bn fund raising in August 2022.
The company touched its 52-week high of Rs 24.7 on 14 December 2022 and its 52-week low of Rs 12.1 on 30 March 2022.
At the current price, IndusInd Bank trades at a PE multiple of 41.1 and a price to book value multiple of 1.5.
About Yes Bank
Yes Bank is a full-service commercial bank that offers banking solutions to retail, corporate, and small and medium-sized businesses (SMEs).
Yes Securities, the bank’s wholly owned subsidiary, conducts investment banking and brokerage business.
It offers a comprehensive banking experience through an extensive branch banking network of over 1,000 branches and 1,800 ATMs.
The past history of Yes Bank may not paint a good picture, but things are changing. Whether Yes Bank regains its glory or not is a million dollar question.
For a fundamental analysis of Yes Bank, check out the editorial we did a couple of months ago – Is it Time to Say “YES” to this Bank?
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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