Yes Bank shares tumble after rallying 26% in the last five days – analysts recommend caution

• Yes Bank’s shares have rallied 26% in the last five days after the bank received approval from the Reserve Bank of India to raise funds.
• Global brokerage firm Morgan Stanley initiated coverage of Yes Bank, giving it an ‘underweight’ rating, saying that it is moving in the ‘right direction’.
• However, analysts recommend caution despite being optimistic about the bank’s prospects.

Yes Bank’s shares tumbled nearly 8% on Wednesday after rallying 26% in the last five days. This fall comes at a time when the bank has announced an investment of ₹8,896 crore by two private equity funds, the Carlyle Group and Verventa Holdings, an Advent group entity, for a 9.99% stake.

Yes Bank’s shares had rallied in the last five days after the bank received approval from the Reserve Bank of India to raise funds from the two private equity funds. This rally helped the bank’s shares hit a 52-week high of ₹24.75, with year-to-date gains of nearly 57%.


Initiating coverage of Yes Bank, global brokerage firm Morgan Stanley gave the private sector lender an ‘underweight’ rating.

“Yes Bank has focused on reducing asset quality challenges by accelerating provisions and cleaning up its balance sheet (organically as well as via asset sales). We expect its gross impaired loans to fall to 9% by end-F23 from a peak of 22% in March 2020,” said Morgan Stanley in its latest report.

Bank moving in the right direction, but analysts recommend caution

While remaining slightly optimistic about the bank’s prospects, analysts recommend caution.

Despite saying that the bank is moving in the ‘right direction’ post the 2020 NPA (non-performing assets) crisis, Morgan Stanley’s target price of ₹20.5 indicates a downside of 7% from the current market price of ₹22.05.

“Yes Bank's asset quality has improved, and we see further room for it to surprise on the upside in the next few years given a benign macro cycle,” the firm said, noting that it expects the pre-provisioning operating profit to grow at a compounded annual growth rate of over 50% between FY23-25.

However, the brokerage says that these gains are already priced in, which limits the upside potential at current estimations. A further rerating from here on would require “much stronger execution” in terms of funding and high margin retail assets, the brokerage said.

“We would like to see a more visible improvement in the earnings, though we do like the trajectory of the bank,” Hemali Dhame, associate vice president, research, Kotak Securities, told Business Insider India.

Another reason for caution is the fact that the three-year lock-in period for shares acquired by State Bank of India, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, among other investors, will expire in March 2023. These banks had picked up stakes in Yes Bank in March 2020 as part of its revival plan.

“If you're getting very excited about Yes Bank and all the stuff that's happening, remember that the 3 year lock-in for 75% of the pre-drama shares expires in March 2023,3 months from now,” Deepak Shenoy, founder and CEO of Capitalmind, said in a tweet.

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