Yes Bank has done better than expected, say analysts, but more work needs to be done

 

• Read on to know why he thinks Yes Bank shares may give lower returns than frontline banks, and what is his call on the stock

Yes Bank share price has been in an uptrend with few days of consolidation in the recent past. The stock recently touched its 52-week high on December 14, but today it was trading down 4% at ₹21.55 on BSE at the time of writing this copy.

Taking to Twitter today, independent technical analyst Nooresh Merani said the bank has outperformed expectations, but a lot more needs to be done to sustain the valuation.

He also said that the stock is trading at about 10% premium to IndusInd Bank and 15% discount to Axis Bank. "In our view, it appears to be unsustainable," he said.

"The bank has done a remarkable job in the last three years to overcome its crisis," he said.

#YesBank is trading at a premium to IndusInd Bank & 15% discount to Axis Bank in valuations. #Disclosure - No position and no interest

— Nooresh Merani (@nooreshtech) December 16, 2022

“We were concerned over their post-mortonum capital structure, their ability to improve their liability franchise and their ability to retain their existing employees, given that the organization needs time to recover. On all these parameters the bank has performed better than expected. However, Yes Bank needs to do a lot more to stay at these valuations."

He further said that the bank needs to further improve the liability franchise, as the difference in cost of funds with frontline banks is high.

"It requires significant investment and usually takes longer. Its loan book is targeting sectors where there is no real benefit from them."

"Consequently, we should expect Yes Bank to deliver lower returns than frontline banks. From that context, we would prefer to retain our Sell Call, with its FV of Rs 16 (from Rs 14 earlier), 12X Book and The bank will be valued at 20X. We believe the risk-reward is not appropriate to be positive at current levels," he said.

Merani is not alone in expressing his concern regarding the valuation of the stock. Some other market experts have also warned investors to be wary of the stock's moves in the recent past.

Morgan Stanley in its latest report said that the bank has made good progress so far, but while giving 'underweight' rating to the stock, said that the return on assets (RoA) recovery above 1% will be gradual. It expects the stock to reach an ROA of 1% by FY2015, which is where the stock is currently priced.

“If you are so excited about Yes Bank and all the things happening in it, remember that the 3 year lock-in for 75% of the shares before the drama expires in March 2023, which is 3 months from now is after. Deepak Shenoy, founder and CEO of Capital Mind, recently said in a tweet, “Lots of liquidity coming in, and news will be almost everywhere by the end of February.”

In March 2020, lenders such as Axis Bank, ICICI Bank, Kotak Mahindra Bank, IDFC First Bank had bought stake in Yes Bank.