Yes Bank on Tuesday raised around ₹4,500 crore from anchor investors. The Yes Bank FPO at 50% discount to its current market price opens today. Country’s 6th largest private sector bank has been in trouble for some years now due to giving easy loans to firms that were unable to get credit easily elsewhere. The Government approved a rescue plan for Yes Bank backed by SBI in March. Under the plan, domestic investors including SBI, Housing Development Finance Corp, ICICI Bank, Kotak Mahindra Bank, Bandhan Bank, Federal Bank and IDFC First bank invested Rs10,000 crore into Yes Bank.
SBI approved a further infusion of ₹1,760 crore in the troubled bank a few days ago. Given the current chaotic state of the bank, should investors subscribe to the FPO offering a hefty discount. While most equity analysts ask investors to stay away, som analysts believe it is a good buy.
Here’s what the analysts say.
Conservative investors should stay away: Vikas Vardhan, Associate Manager – Equity Research, Value Research
Numbers aside, the nature of a bank is usually defined by the inherent culture of the organisation. It is seeded by the top management in the beginning which trickles down to the last employee over time. The nature of Yes Bank has been very aggressive on the lending side which resulted in most of the problems. While successful banks across the world have thrived due to their conservatism. If Yes Bank is able to change its culture, which will be a very difficult task, only then it can be investment-worthy. Hence conservative investors should stay away from it. (Note: Vardhan does not have any position in Yes Bank)
Cheap pricing comes with a baggage of uncertainties; Avoid: Nirmal Bang Institutional Equities
At the current juncture, our biggest concern with Yes Bank is the high level of stress, especially in such a fragile environment. Given the bank’s stressed asset resolution plans, we sense that write-offs/sale to ARCs/stressed assets spin-off will remain elevated. A confluence of high slippages, elevated write-offs and a flat loan book is unlikely to change the asset quality picture for good in the near term. We think that given the current economic situation the issue is aptly priced. Though the bank has reduced rates, attracting sizeable retail deposits could remain a challenge for some time given the recent ‘episodes’. Therefore, rebuilding of the liabilities shall remain one of the key monitorables. Also, given the broader valuations in the BFSI basket, we think there are other investment opportunities available that offer higher visibility, lower stress baggage and an overall better franchise. We recommend an ‘Avoid’ rating to the FPO. While we agree that the issue is priced cheaply, the valuation should be seen in context of the uncertainties, the likely stress and overall (poor) financial performance that is expected in the foreseeable future. We would be more comfortable getting into the stock once we have more clarity on the numbers and the future trajectory.
We assign a subscribe rating to the FPO: GEPL Capital Research
Since the implementation of the Reconstruction Scheme, they have formulated new strategic objectives which aim at augmenting deposit base and liquidity buffers, optimizing operating costs, building stronger governance and underwriting framework and focusing on stressed assets resolution over the next 6 to 12 months. The bank has an extensive network of branches. Yes Bank’s capital raise augments its CET-1 ratio to 9.9% from 6.3%, which can further give a positive outlook to credit fundamentals. An improvement in provision coverage to 74% (comparable to other private banks) indicates that the legacy stress in assets has been well provided for. The offer is priced at a discount to its book value priced at ~0.7 x its book value as on Mar FY20, which captures the lockdown induced stress risk on collections, and existing loans. We assign a subscribe rating to the FPO.
