YES Bank share jumps 6% on robust Q4; should you buy, sell or hold?
Shares of YES Bank rallied more than 6% in opening trade on Monday, in an otherwise weak broader market, as investors cheered the private lender’s stellar financial performance in the quarter ended March 31, 2022. The bank delivered growth in the top and bottom line on the back of a sharp decline in provisions for bad loans as well as an improvement in asset quality.
Reacting to Q4 earnings, YES Bank shares opened higher at ₹14.25 apiece against the previous closing price of ₹13.62 on the BSE. The stock gained as much as 6.5% to hit a high of ₹14.51 in the first hour of trade so far. In contrast, the BSE benchmark Sensex was trading 300 points lower at 56,759 levels.
The private lender has posted a net profit of ₹367 crore in the January-March quarter of 2022, compared to a loss of ₹3,788 crore in the year-ago period. On a sequential basis, the profit grew 38% from ₹266 crore in the preceding quarter ended December 2021. The net interest income (NII) of the lender increased 84% YoY to ₹1,819 crore in Q4FY22, while it rose 3.1% on a sequential basis. Net interest margin improved to 2.5%, up 90 basis points year-on-year and 10 bps sequentially.
The bank’s provisions and contingencies dropped sharply by 94.7% YoY to ₹271 crore in Q4 FY22, while it dropped 27.7% as compared to the previous quarter. On the asset quality front, the gross non-performing assets (GNPA) ratio dropped to 13.9%, down from 14.7% in the previous quarter. Net NPA (NNPA) too fell to 4.5% as compared to 5.3% in the December quarter of 2021.
For the full financial year 2021-22, the bank reported a profit of ₹3,462 crore, compared with a loss of ₹3,462 crore in FY21 and a loss of ₹22,715 crore in FY20. This is the first time since FY19 that the bank has closed the financial year with a net profit. However, NII fell 12.5% to ₹6,498 crore compared to the previous fiscal.
Commenting on financial performance, Prashant Kumar, MD and CEO, YES Bank says, “This transformation journey taking place at YES Bank has resulted into a sustained improvement in balance sheet growth, accelerated granularisation, improving asset quality trends, enhanced liquidity, and stronger capital position over the past two years. While the core operating profitability of the franchise continues to improve, the drag from legacy stressed assets has significantly reduced, resulting into net profitability.”
“The bank continues to invest in its digital infrastructure in its quest to retain its dominant place in the country’s digital payments and fintech ecosystem. The bank has built up significant momentum in the new business generation, while continuing to invest in its platform and people to build a differentiated franchise that delivers sustainable and profitable growth in a responsible manner,” says Kumar.
Analyst view on Q4 results
Domestic brokerage ICICI Securities has maintained “Hold” rating on YES Bank stock with a revised target price of ₹14 per share, saying that core performance points to stabilisation. “The revamped leadership (leveraging on the backing of leading shareholder banks, changed governance and underwriting framework) is stabilising and turning around YES Bank from its downcycle. This is evident from its better-than-expected operating performance since past three quarters,” the brokerage said in its report.
The agency, however, remained concerned about bad loans, which continued to remain significantly higher. “YES Bank's cumulative gross non-performing exposure and restructured advances are still equivalent to 22.8% of advances plus corporate investments (vs 23.5%/24.3%/25.5% in Q3/Q2/Q1FY22). On this stressed pool, it carries coverage of 63%,” the report highlighted.