Don’t get swayed away by 355% rise in Yes Bank’s profit, asset quality remains a concern
In Q1FY22 Yes Bank slippages of more than 5% were offset by upgrades, recoveries and write-offs
Shares of Yes Bank were trading 4.67% higher at Rs 13.68 apiece after the bank reported a 355% year-on-year (y-o-y) rise in net profit at Rs 206.84 crore for the quarter ended June 30 on Friday. The bank had reported a profit of Rs 45.44 crore in the corresponding quarter last year. On the other hand, the net interest income of the bank declined 26.50% y-o-y to Rs 1,402 crore.
Provisions declined 40.70% y-o-y to Rs 644 crore. The operating profit of Yes Bank also declined by 19.80% y-o-y to Rs 920 crore during the period under review. On the asset quality front, the percentage of gross non-performing assets (NPAs) improved 15.60% of the gross advances as of June 30, 2021, from 17.30% in the year-ago period. Net NPAs increased to 5.78% from 4.96% in the year ago period.
While the bottomline growth seems fascinating the asset quality is still a question. Here is what brokerages have to say
ICICI Securities | Rating: Hold | Price target: Rs 14
In Q1FY22 Yes Bank slippages of more than 5% were offset by upgrades, recoveries and write-offs. While gross NPAs remained stable, credit cost was contained at 1.6%. The share of retail/SME mix improved 200 basis points quarter-on-quarter to 53% and CASA improved 130 basis points to 27.4%.
The sharp spike in retail slippages and retail overdue buckets, elevated stress pool with net labelled exposure at 7.4%, restrictions on network partner Mastercard to adversely impact new credit card issuances should be closely tracked. Return on Equity of less than 6% over the next couple of years will likely cap rerating beyond 1x FY23E book.
Kotak Institutional Equities | Rating: Sell | Price Target: Rs 11
Yes Bank reported a marginal profit led by lower provisions though the operating performance was weak with a 20% y-o-y decline in operating profit growth. Deposit mobilization continues to show strong traction but stress in the loan book continues to remain high. Common Equity Tier-1 at 11.6% is above regulatory limits but the bank would continue to have to make higher provisions in the medium term for the unprovided part of the stress book.
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