Yes Bank Ltd has lost its place in the list of India’s 10 most-valued lenders, in terms of market capitalization, after brokerage firm UBS India cut its target price by over 47%.
On BSE, Yes Bank stock fell as much as 12.74% to hit ₹117.50, a level last seen on 17 October 2014. The scrip has dropped 34% so far this year, underperforming the benchmark Sensex which rose 11% during the period.
UBS India has maintained its sell rating on the stock and cut its target price to ₹90 a share from ₹170 earlier, citing weak earnings going ahead. UBS expects 255/200 basis points credit cost in fiscal 2020-21, higher than the Yes Bank management's guidance of 125 bps.
"We estimate revenue growth will be below 10% in next two years as the business model shifts away from a high upfront fee business. We expect fee income to decelerate and margins to narrow sharply in FY20-21. Higher NPL formation and a shift towards low-yield business are likely to impact fee/margins adversely," the UBS report said.
"We think asset quality is a key concern, given its relatively high exposure to NIG corporates. We believe second-order effects of asset-quality deterioration on PPOP (pre-provision operating profit) and incremental growth/margins are not fully factored in by the Street. Higher dependence on non-retail deposits (compared with large peers) is a structural weakness and would put pressure on margins", it said.
With a market cap of ₹27476.23 crore, Yes Bank now ranks eleventh and has been replaced in the top 10 by Bank of India with a market cap of ₹27740.85 crore.
Currently, HDFC Bank Ltd is the country's most-valued bank with a market cap of ₹6.61 trillion, followed by State Bank of India at ₹3.05 trillion. Next comes Kotak Mahindra Bank at ₹2.84 trillion, and ICICI Bank Ltd with ₹2.69 trillion in market cap is number four followed by Axis Bank at ₹2.14 trillion, Indusind Bank at ₹87540.37 crore, Bandhan Bank at ₹64808.74 crore, Bank of
Baroda with a market cap of ₹40419.84 crore, and Punjab National Bank has a market cap of ₹34092.97 crore.
A total of 20 brokerages have sell ratings on the Yes Bank stock as of today compared with seven at start of the year. The number of brokerages with buy ratings has also dropped to 16 from 28 in the same period, according to Bloomberg data.
On Wednesday, Moody's placed the lender's Ba1 foreign currency issuer rating under review for a downgrade. The US credit rating agency said the review takes into account ongoing liquidity pressures on Indian finance companies, which may negatively impact the credit profile of Yes Bank, given its sizeable exposure to weak companies in the sector.
Recently, two of Yes Bank’s directors resigned due to personal reasons. Ajai Kumar, non executive director, and Mukesh Sabharwal, non executive independent director, stepped down from the bank's board.