Yes Bank Share price: After Q3 result, asset Quality back in focus, Elara Capital recommends Sell with a target price of Rs 6

Yes Bank share and target price: Elara Capital highlights that the new stress loans stood at 17% while outstanding stress stood at 39% for Yes Bank. PAT of Rs 1.5 bn in Q3 FY21 grew 16% QoQ but declined 101% YoY. While there was strong sequential growth in operating profit and deposits, asset quality deteriorated sharply. New standard stress loans including standstill NPLs, SMA1, SMA2 and restructured loans were uncomfortably high at Rs 282 bn or 17% of total loans in Q3 FY21 versus 5% in Q2 FY21. Reported GNPLs stood at 15% vs 17% QoQ. Yes Bank total outstanding stress loans rose sharply to 39% from 29% QoQ with proforma GNPLs rising from 18% to 20% and standard stress loans rising from 11% to 19%.

Details on Yes Bank stressed loans:

Yes Bank SMA2 loans were at 4% of total loans while SMA1 loans were at 7%. Management explained that SMA1 borrowers have paid 2 out of 4 instalments. As such slippage from SMA1 loans will be substantially lower than from SMA2 loans. Yes Bank corporate loans formed a major portion of both standstill GNPLs and SMA2 loans. 80% of SMA2 loans and 70% of standstill NPLs were from the corporate segment.

See Zee Business Live TV Streaming Below:

Standstill corporate NPLs of Rs 51 bn were spread over 3000 accounts indicating that the average ticket size of corporate NPLs was low and there were no lumpy accounts. New corporate stress was mainly from hospitality and real estate. Retail loans accounted for 17% of standstill NPLs and 12% of SMA2 loans. Yes Bank collection efficiency in retail was 96%, close to the pre-Covid level of 97%. Fresh restructuring including overlaps with SMA and standstill GNPLs, stood at 5% in Q3 FY21, while excluding overlaps it was lower at 0.7%.

Strong sequential growth in PPOP by Yes Bank but no interest reversal on standstill NPLs:

Yes Bank deposits grew strongly at 8% QoQ though YoY there was a decline of 12%. CASA deposits grew 13% QoQ but declined 29% YoY. Loans grew 2% QoQ but declined 9% YoY. The bank disbursed INR 120bn towards retail and MSME against the target of INR 100bn. PPOP grew 68% QoQ. Credit cost rose sharply from 2.9% to 5.2% QoQ due to higher stress. Yes Bank has not reversed interest on standstill NPLs. Elara Capital says if they account for estimated interest reversal of Rs 3.7 bn, the bank could have reported pre-tax loss vs reported PBT of Rs 866 mn. Adjusted NIM would be lower at 2.9% vs reported NIM of 3.4%.

Yes Bank Valuation:

Elara Capital recommends Sell on Yes Bank with a target price of Rs 6. With an uncomfortably high level of incremental stress, Elara Capital reiterates a Sell rating. Elara’s assessment that Yes Bank stress loans will likely rise sharply in H2FY21 / FY22E is turning out to be correct.