Several analysts have downgraded YES BankNSE -28.06 % and cut target price after the lender reported its first ever quarterly loss but the biggest cut has come from Macquarie, which double downgraded the stock to 'underperform' and cut target price by 40% to Rs 165-one of the lowest on the Street.
Macquarie said it has been constructive over the last eight years on YES Bank's ability to thrive in a risky business segment like structured finance but admitted that they got the call wrong . Suresh Ganapathy, Head of Financial Services Research at Macquarie termed the call on YES Bank as the biggest mistake of his professional life as analyst.
"We must eat humble pie today and admit we underestimated risks in structured finance. We got the call wrong," said analysts at Macquaire led by Ganapathy. Macquarie had an 'outperform' rating on YES Bank earlier.
YES Bank on Friday posted a loss of Rs 1507 crore in the March quarter compared to profit of Rs 1180 crore a year earlier.
The bank made total non-tax provisions of Rs 3662 crore, more than nine times the Rs 400 crore reported a year earlier and nearly seven times the Rs 550 crore reported in December 2018, even as gross NPAs rose to 3.22% of loans from 2.10% in December. The loss was amplified by provisions against bad loans to an infrastructure conglomerate and an airline as the lender's first non-founder CEO Ravneet Gill began a clean-up act.
Loan book clean-up, investments in retail business and pivoting of business model within corporate segment should keep return ratios of YES Bank subdued for long, said Macquarie, cutting EPS estimate by 45%.
The new CEO’s flag of a sequential increase of three times BB and below rated accounts, despite aggressive slippages in the fourth quarter of the financial year ended March, comes as a material negative surprise, said Macquarie. Flagging off of aggressive accounting practices in fee income and weakness in retail franchise further dampen fundamental view on the robustness of the business model, added Macquarie.
The stock has declined 11% in the last two weeks ahead of the result, ending down 0.1% at Rs 237.40 on Friday. YES Bank shares have fallen 32.6% in the last one year, underperforming the Bank Nifty which has gained 17.55% during the same period.
Besides Macquarie, other brokerages such as BoB Capital and Emkay Global have also downgraded the stock.
"Near-term headwinds from new asset quality shocks, elevated credit costs, higher opex and slower growth will remain an overhang on the stock," said BOB Capital Markets. Morgan Stanley has the lowest target price on the Street on YES Bank at Rs 125.
While structural changes by the new leadership are geared to building a solid franchise in the long run and are essential to restore investor confidence, any rerating of the stock will hinge on effective execution of the new strategy, it said,
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