PremiumYes Bank's asset quality has improved since the NPA crisis in 2020. The two new CEOs since January 2019 at the bank - Ravneet Gill and Prashant Kumar - have helped the bank fix its governance framework while adequately providing for legacy stressed assets, said Morgan Stanley in its latest report.
"We expect strong cyclical improvement over the next few years. Having cleaned its balance sheet, we expect Yes Bank's loan growth and margin profile to improve as the macro recovery gains pace. Yes Bank's recent strategic decision around the sale of stressed assets to asset reconstruction company (ARCs) will help clean up its balance sheet," said the report by Morgan Stanley's Research team.
Yes Bank stock has been in an uptrend for past few days but has fallen in today's trade.
At 11.30 am, the stock was down 5.85%, or ₹1.35, to ₹22.60 from the previous close of ₹23.95 on BSE. In last one month, the Yes Bank stock has gained 33% and in last 6 months it is up around 79% on BSE. In 2022 so far, the share price of Yes Bank has increased 62%.
Yes Bank share price on Tuesday hit 2-year high of ₹22.80 apiece on NSE, logging around 27% rise from its Thursday close of ₹17.75.
Banking stocks, in general, have been gaining in this quarter with Bank Nifty hitting record high this week on expectations of slower pace of increase in benchmark interest rate by various global central banks.
Why Underweight?
Morgan Stanley has handed out an 'underweight' rating to the stock saying that the return on asset (RoA) recovery beyond 1% will be gradual. It expects the stock to reach the RoA of 1% by FY25, which is currently in the price for the stock.
It prefers large banks over Yes Bank. Morgan Stanley sees much better risk-reward at peer banks such as Federal Bank, AU Small Finance Bank and IndusInd Bank.
Also read: Has Yes Bank bottomed out?
"Current valuations at 1.6x F24 book are already pricing in strong earnings over next few years. Much stronger execution on funding and/or high margin retail assets could lead us to revisit our thesis."
Private sector lender Yes Bank on Tuesday said its board has approved allotment of 361.61 crore equity shares and 255.97 crore warrants to private equity majors – The Carlyle Group and Advent – following the Reserve Bank of India's nod for the same.
Target price for the stock
Morgan Stanley's bull case target price for the stock is at ₹34.50 and base case target is at ₹20.50, which is about ₹2 lower than the today's trading price.
“Yes Bank shares have given a breakout at ₹18 levels and the stock is still looking positive on chart pattern. One can start accumulating Yes Bank shares in the ₹20-18 zone maintaining stop loss at ₹16 for short term; target of ₹28 to ₹30. High risk traders may maintain stop loss at ₹17," said Anuj Gupta, Vice President -Research at IIFL Securities.