Yes Bank Share Price: What is the Future? Should You invest?

Yes bank has gone through a fairly effective restructuring in the last year. We look at the various aspects here and try to take a call on the quality of the business as an investment in the current scenario. We will Look at the Fundamentals First and then a very focused Quantamental observation is shared which will help you take more informed decisions. So be please with me till the end of this content.

What is the current NPA Status?

The question prior to Yes Bank Reconstruction was of 2020 was – what is the actual quantum of NPAs and actual quality of the assets? That question has been somewhat answered – with a Gross NPA of 15.4% out of which 11.4% has been provisioned for, which leaves us with net NPA of 4%. Networth stood at Rs: 33378 Crore giving the company a gearing on net NPAs of about 3.5%. That is if all the Net NPAs fail they have 3.5 times more equity to balance that out.

What is the status of Deposits inflows?

The deposits have grown  55% year-on-year from Rs: 1.05 Trillion on Mar’20 to Rs: 1.63 Trillion on Mar’21. There had been a sort of run on the bank prior to the fiasco and subsequent reconstruction. But with leveraging of the capital infusion and management backing of SBI (two of the board of directors of Yes Bank currently are from SBI) trust has been reinstated. (Latest CRISIL Report)

What is the Cost of Debt? Why is it important?

Yes bank had a comparatively higher cost of debt. Its debt was around Rs: 2.3 Trillion while its interest cost was Rs: 12611 Crore for FY2021 which translates to a Cost of Debt of 5.1%. To compare this with a Premium bank like HDFC they have a cost of debt of around 4%. Why is this important? Well when you are stuck with no choice but to pay higher cost of debt, you have no choice but to charge higher interest rates on loans – which means you go that much away from the cream customer base. That increases future risk of NPA inturns. Yes bank shall be  better off going for better portfolios with lesser interest margins to reduce moderate term NPA formation risks.

Interest on Deposits – Number comparatively high:

Closing Deposit was Rs: 1.63 Trillion while interest paid was Rs: 7666 Crores – which comes to 4.7%. To compare this to HDFC Bank, they had a total deposit of Rs: 13.35 Trillion and interest on deposits of Rs: 50000 Crores, which comes to 3.75%Thus Yes Bank Deposits are at 1% disadvantage in term of the HDFC Bank. But that being said, this is a major influence for deposit growth for Yes Bank. They currently have a very high depositor concentration with top 20 depositors comprising of 18.28% of the deposits compared to HDFC which has 4% in the same metric. This has to diluted further for reducing risk of capital adequacy volatility.

Why there are Losses and reduction in capital adequacy ratio?

Yes bank had an Operating Profit of Rs: 4977 Crores on FY21. But they had to provision for bad loan buffers and contingencies which amounted to Rs: 9712 Crores. This translates to a loss before tax of Rs: 4735 Crores and After tax number of negative Rs: 3462 Crores.  There has been very high Gross NPA which been provisioned for. 11.4% out of 15.4% has been provisioned for. Yes bank had an overall PCR (Provision Coverage) of 79%. Then there has been write offs of bad loans which are primary reason for the Losses and CAR reduction. But it is well above the Permissible limits of RBI of 8%. (2021 Annual Report of Yes Bank)

What is the buzz around recent confrontation with Dish TV Promoters?

Yes bank has an exposure of Rs: 8000 Crore in Dish TV which is about 4.8% out of its total loan book of Rs: 1.67 Trillion . Recently it has called for legal action/removal of existing management from Dish TV. In May 2020 Yes Bank took over 24.7% stake in Dish TV post invoking of pledged shares as Essel Group defaulted on its loans. Subhash Chandra and Dish TV Promoter Jawahar Goel are brothers. Recently the Board of Directors of Dish TV had approved the rights issue of Rs: 1000 Cr. post which Yes Bank sought to take legal action and remove the management citing the following – “unethical corporate governance” & “motive to dilute Bank’s Stake” & “handful of shareholders who own 6% of the company not acting for the interest of the larger shareholders.” Issue is on-going and will be observed closely.

Should I buy now?

Technically Speaking – Both in terms of fundamental and technical there is above average volatility and in terms of demand there is pressure on the selling side. The Stochastic RSI and the Williams %R are showing contradicting position thereby exhibiting near term (30days) volatility/uncertainty. Our macro analytics foresee volatility in the 30-45 day Horizon. Technically speaking the trend will continue till October at the least.

Fundamentally Speaking – Bad loan accrual risks in the near term remains as even the MSME and various other sector strive to return to peak performance levels. Retail lending will also follow similar trends albeit in a milder or lagged way. The GNPA of Jun’21 was 15.6% rising marginally from Rs: 15.4% as on Mar’2021. Corporate GNPA stood at around 27%, really high numbers, which is basically a continuation of the acts committed by the previous management. The current Global scenario has made it difficult for the bank to rise quickly on its feet despite being phenomenal in terms of the endurance and revival that it has shown under the new management. Stark rise in NPAs may arouse panic in the markets. Therefore it advisable to have a watchful stance or at best cautious and limited accumulation.

[We have Proprietary Analytics to create high performing Portfolios. Performance is Our EGDE! Join Us for a journey that focuses on Your Wealth Creation & Abundance!]