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Why Yes Bank Share Price is Rising

Sep 12, 2022

Why Yes Bank Share Price is Rising

Editor's note: We know it's counterintuitive and it may even be premature to say that Yes Bank has figured out a turnaround story.

Some of you may even say it's crazy to think about Yes Bank's revival, given how the private lender ran into a deep crisis, just a little over two years ago.

But its share price performance makes one wonder whether the private lender has finally found its mojo back...

Yes Bank share price has gained 15% in the past one month while its 3-month performance show 40% gains.

In July this year, we wrote to you the probable reasons why Yes Bank could be rising.

Two months have passed and there have been some new developments.

Continue reading to find out the reasons driving Yes Bank's share price higher.

Why Yes Bank Shares are Rising

The story of Yes Bank's journey is no less than a soap opera, comprising headwinds, family battles, tragic death, bad loans, and losses too.

The private lender has consistently been part of headlines since RBI imposed a 30 days moratorium in 2020.

Since then, many changes have occurred in the company's internal core and since State Bank of India bought a 49% stake in the lender.

"The real glory is being knocked to your knees and then coming back".

Yes Bank has proved this statement right. For the time being at least...

The share price of Yes Bank has risen by more than 11% in the past month.

Let's dig a little deeper for the probable reasons.

#1 Good Quarterly Results

Yes Bank's Q1 results came as surprise to investors.

The company's net profit jumped by 50% to Rs 3.1 bn which stood at Rs 2.1 bn a year ago.

Net interest income (NII) for the quarter increased by 32% to Rs 18 bn YoY.

The provisions of the bank are down by 62% on a YoY basis at Rs 1.7 bn.

Asset quality improved. Gross non-performing assets as a ratio of advances fell to 13.4% for the quarter, from 13.9% in March 2022, which was 15.6% a year ago.

According to reports, the bank has signed a binding term sheet with partner JC Flowers to form an asset reconstruction company (ARC) with the goal of selling a pool of nearly Rs 480 bn in stressed assets.

Prashant Kumar, managing director and chief executive officer at Yes Bank also added that, once the deal is completed, Yes Bank's gross non-performing assets will drop to 1.5-2% from the current 13.4%.

It can be observed that the bank's balance sheet is now resilient enough to navigate the volatile interest rate environment. It's on track to meet its financial year 2022-23 and medium-term guidance and objectives.

Yes Bank is also one of those companies which turned profitable in 2022.

Have a look at the progressing financial numbers of Yes Bank.

  2022 2021 2020 2019 2018
Revenue (Rs m) 1,90,235.11 2,00,418.35 2,60,666.10 2,96,247.50 2,02,674.20
Net Profit (Rs m) 10,662.12 -34,622.27 -1,64,180.20 17,202.70 42,245.60
Net Profit Margin % 5.6 -17.28 -62.98 5.81 20.84
Data Source: BSE

Let's have a look at Yes Bank's share price performance in 2022.

chart

#2 Sectoral Effect

Amid this year's volatility, where the benchmark BSE Sensex is down by 5% in 2022 so far, the BSE Banking index has gained over 2%.

And in the past month, the index is up more than 8% whereas the Sensex is up by 5%.

Since the beginning of 2022, some key banking stocks like Bank of Baroda are up more than 30-40%.

Analysts refer to the banking sector as the "mother sector" because good performance of banks indicates good times for the economy. It's hit hard when the economy performs poorly.

Banks benefit from rising interest rates because their net interest margin expands naturally while their costs remain stable in the short term.

So far, this has helped banks outperform and deliver handsome returns to investors.

Let's have a look at the top public and private sector banks and how have they performed last month.

Company 1 Month performance
Bank of Baroda 15.00%
Bank of India 5.40%
Canara Bank 19.30%
Central Bank 5.80%
Federal Bank 17.60%
HDFC Bank 2.70%
Yes Bank 10.50%
Source: Equitymaster

Last week, IndusInd Bank reported good results owing to which it rallied 10%.

We reached out to Tanushree Banerjee, Co-head of research at Equitymaster and lead banking sector analysis on what she had to say.

Here's Tanushree:

  • IndusInd Bank's results are reflective of a trend that may be seen across the banking sector in the next couple of quarters.

    Strong credit growth along with rise in lending rates have come at a time when NPA levels have moderated, and treasury incomes are high.

    Therefore, higher than expected profit growth is given in the near term. Over time once deposit rates also catch up with the lending rates, the lending margins may moderate.

In fact, Tanushree had predicted last month that the coming quarters for banking sector stocks will be good.

Read here editorial to know why: Bank Stocks in 2022 Mirror Warren Buffett's 1989 Wells Fargo Investment.

#3 Fundraising

Update: In August 2022, Yes Bank's board approved raising of Rs 89 bn from funds affiliated with private equity investors Carlyle and Advent International.

Both the funds will potentially own 10% each in Yes Bank.

For this fundraise, Yes Bank had convened an extraordinary general meeting (EGM) to seek the approval of shareholders.

Note that this is one of the largest private equity (PE) capital raises by an Indian private sector bank.

At the time of announcement, the bank had said this fundraise will bolster the capital adequacy (CAR) of Yes Bank and aid its medium to long-term sustainable growth objectives.

Why Yes Bank has struggled over the past two years is because of its ability to raise funds. It was the key trigger that many were waiting for and as it turns out, Yes Bank did manage to get approval.

Market experts are of the view that after the fund raise, Yes Bank will be able to shore up its CAR. This will provide some cushion in the near-term.

It will also give confidence to the market about the bank's ability to raise capital. A key trait for the best bank stocks is their ability to raise funds. Any subsequent fundraising would become much easier.

About Yes Bank

Incorporated on 2003, Yes Bank is a full-service commercial bank that offers banking solutions to retail, corporate, and small and medium-sized businesses (SMEs).

Yes Securities, the bank's wholly-owned subsidiary, conducts investment banking and brokerage business.

It offers a comprehensive banking experience through an extensive branch banking network of over 1,000 branches and 1,800 ATMs.

The past history of Yes Bank may not paint a good picture, but things are changing. It remains to be seen whether Yes Bank regains its glory once again, like how it performed in 2018.

To know more about the company, check out Yes Bank's financial factsheet and its quarterly results.

Also check out Yes Bank's news and analysis.

You can also compare Yes Bank with its peers:

Yes Bank vs Federal Bank

Yes Bank vs Bank of Baroda

Yes Bank vs ICICI Bank

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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