YES Bank shares fall sharply from day's high after Q3 results; Kotak downgrades the lender

Shares of YES Bank Ltd took a U-turn during the trading session on Monday as the private lender gave up early gains and traded sharply lower following a muted set of numbers in the December 2023 quarter, below the street's estimates. Even a brokerage firm remains negative over the lender's outlook.

YES Bank had reported its earnings on Saturday, wherein it clocked a net profit of Rs 231 crore in the quarter ended on December 31, 2023, growing about 440 per cent on a year-on-year (YoY) basis. Its net interest income (NIIs) rose 2.4 per cent YoY to Rs 2,017 crore in Q3FY24.

Provisions for the December 2023 quarter dropped sharply, which aided growth in the bottom line. Provisions and contingencies for the reported period stood at Rs 555 crore, compared with Rs 845 crore a year ago. However, the pre-provision operating profit declined 5.4 per cent YoY to Rs 864 crore, despite this slump.

Net interest margins (NIMs) for the quarter were at 2.4 per cent, up 10 bps on quarter-on-quarter (QoQ) basis but dropped in similar fashion YoY. Gross NPA ratio at 2.0 per cent was flat both on year and quarter. Net NPA ratio at 0.9 per cent was flat on quarter and slightly better than 1.0 per cent a year ago.

YES Bank reported 4.5 times earnings growth on low base due to lower provisions, whereas operating profits fell 5 per cent on a yearly basis. Slippages were unchanged at 2.4 per cent, led by the retail loan portfolio, said Kotak Institutional Equities. NIM increased 10 basis points sequentially to 2.4 per cent, despite higher cost of funds, it said.

Following the announcement of results, shares of YES Bank nudged higher on Monday at Rs 25.38, but saw a sharp profit booking. The stock dropped about 3.45 per cent from days high to 24.50, with a total marketcap slipping down to Rs 70,00 crore levels. The scrip had settled at Rs Rs 24.88 on Thursday's session.

Shares of YES Bank have surged more than 80 per cent in the last three months from its 52-week low at Rs 14.10 hit in October. The stock has gained 15 per cent in the last one month, while it has gained more than 45 per cent in the last six-month period.

The quarter’s performance is broadly on expected lines. Performance on NIM has been marginally ahead, as the increase in cost of funds has been slower, Kotak said. Asset quality is holding up, as it is largely driven by retail and credit costs, at this stage of the bank’s cycle, is likely to remain fairly low. Earnings are likely to remain volatile in the interim, it said.

"RoEs are still weak and unchanged qoq at 2 per cent; as highlighted previously, the path to normalized RoE or that closer to peers is still a few years away," it added while downgrading the stock to 'sell' but increased its fair value to Rs 19 from Rs 17 earlier. "We would need a far lower valuation multiple to change our view."

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