Uncertainty over Rana Kapoor a big negative: Analysts
Markets, for one, do not like uncertainty — and that’s exactly what’s driving down YES Bank at the bourses. On Thursday, the Reserve Bank of India (RBI) approved the continuation of Rana Kapoor as the bank’s managing director and chief executive, till further notice. This, analysts believe, is one of the catalysts that can trigger a correction in the stock.
On Friday, the stock slipped 7 per cent in intra-day trade to hit an eightweek low of ~338-levels (closing at ~343.40). The uncertainty surrounding the reappointment has seen the counter slip 14 per cent in the past eight trading sessions, as compared to 1 per cent rise in the S&P BSE Sensex.
Analysts at Jefferies suggest the issue of Kapoor’s reappointment is hanging over the stock. This, they believe, could lead to a challenging environment for the stock over the next few quarters. The biggest challenge, they say, will be raising fresh capital in the absence of top management continuity.
“We hazard a guess, but in our opinion, the reappointment may not be a clean one, and while all options are possible, the Street is likely to react negatively to this uncertainty. There are three impending catalysts — finalisation of Rana Kapoor’s reappointment with whatever associated clauses; nonperforming loan (NPL) divergence report for FY18; and capital issuance,” write Nilanjan Karfa and Harshit Toshniwal of Jefferies.
They, however, have maintained a buy rating on the stock for now with a price target of ~445, implying an upside of nearly 32 per cent from Friday’s level.
Thus far in calendar year 2018 (CY18), YES Bank has performed in line with the markets and gained around 9 per cent, as compared to 10 per cent rise in the Nifty Bank index and 11 up move in the Nifty50 index.
Analysts at Macquarie suggest anything short of a full three-year term for Kapoor will be taken negatively by investors. In the absence of any communication from the bank, they say markets will now begin to speculate as to what the RBI is investigating. They, too, maintain an outperformer rating on the stock with a target price of ~425.
“In the low probability event that the RBI asks Rana Kapoor to step down, it would be a significant negative for the stock. Despite how institutionalised YES Bank has become in processes and management strength, the market sometimes does not differentiate between the founder-CEO and the bank. The planned $1 billion qualified institutional placement (QIP) at the end of the year (and thereby future growth) would also go into limbo,” wrote Suresh Ganapathy, Nishant Shah and Akash Nainani of Macquarie in a note.
For the April-June 2018 quarter (Q1FY19), YES Bank reported a 31 per cent rise in its net profit at ~12.6 billion. While net interest income (NII) grew 22 per cent on a year-on-year basis to ~22.19 billion, its asset quality took a hit. Gross non-performing assets (NPAs), as a percentage of total advances, in the recently concluded quarter, stood at 1.31 per cent, up by 34 basis points (bps) compared to the previous corresponding period and 3 bps from the previous March quarter.