Yes Bank Shares Tumble from Day’s High Following Q3 Results; Kotak Downgrades the Lender

Yes Bank reported its earnings on Saturday, revealing a net profit of Rs 231 crore for the quarter ending on December 31, 2023. This marked a substantial year-on-year growth of about 440 percent.

Yes Bank Shares Decline Despite 440% Rise in Q3 Net Profit; Kotak Downgrades Stock, Revises Fair Value Targets.

Shares of YES Bank initially rose but later reversed course, trading significantly lower on Monday. The private lender’s stock declined after reporting muted financial results for the December 2023 quarter, which fell below the street’s estimates.

Yes Bank reported its earnings on Saturday, revealing a net profit of Rs 231 crore in the quarter ended on December 31, 2023. This marked a significant year-on-year growth of about 440 percent. Additionally, the bank’s net interest income (NIIs) increased by 2.4 percent on a YoY basis to reach Rs 2,017 crore in Q3FY24.

In the December 2023 quarter, Yes Bank witnessed a sharp drop in provisions, contributing to the growth in the bottom line. Provisions and contingencies for the reported period amounted to Rs 555 crore, a notable decrease from Rs 845 crore in the same period the previous year. Despite this reduction in provisions, the pre-provision operating profit declined by 5.4 percent year-on-year, reaching Rs 864 crore.

In the December quarter, Yes Bank’s net interest margins (NIMs) stood at 2.4 percent, showing a 10 basis points increase on a quarter-on-quarter basis but experienced a similar drop year-on-year. The gross non-performing asset (NPA) ratio remained flat at 2.0 percent, unchanged both on a yearly and quarterly basis.

The net NPA ratio, at 0.9 percent, remained steady on a quarter-on-quarter basis and showed a slight improvement compared to 1.0 percent a year ago.

YES Bank reported 4.5 times earnings growth due to a low base resulting from lower provisions. However, operating profits fell by 5 percent on a yearly basis. Slippages remained unchanged at 2.4 percent, primarily led by the retail loan portfolio, according to Kotak Institutional Equities. Despite a higher cost of funds, the net interest margin (NIM) increased by 10 basis points sequentially to 2.4 percent.

After the results announcement, YES Bank’s shares initially nudged higher on Monday, reaching Rs 25.38. However, they experienced sharp profit booking, with the stock dropping approximately 3.45 percent from the day’s high to Rs 24.50. The total market capitalization slipped to around Rs 70,000 crore. The scrip had settled at Rs 24.88 in Thursday’s session.

Over the last three months, YES Bank’s shares have surged more than 80 percent from its 52-week low of Rs 14.10 in October. In the last one month, the stock has gained 15 percent, while over the last six-month period, it has witnessed an increase of more than 45 percent.

Kotak commented on YES Bank’s quarter performance, stating that it is broadly in line with expectations. The net interest margin (NIM) exceeded expectations marginally, attributed to the slower increase in the cost of funds. Asset quality is being maintained, driven largely by the retail segment, and credit costs are expected to remain relatively low at this stage in the bank’s cycle.

Despite the volatility in earnings, Return on Equity (RoE) remains weak and unchanged at 2 percent quarter-on-quarter. Kotak downgraded the stock to ‘sell’ but increased its fair value to Rs 19 from Rs 17 earlier, emphasizing the need for a significantly lower valuation multiple to change their view.

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