Despite all the noise and volatility, Yes Bank has a few things going for it. It has an established network of 1,200 branches and well established corporate relationships. The new management is focusing on building a granular liability franchise. This could well emerge as one of the bank's biggest assets. Investors should not miss the progress it has made in scaling up the liability franchise; savings deposits as a percentage of liabilities have increased from 5% in FY12 to ~19% in H1FY20 with 3mn saving accounts. Furthermore at its current valuation of 0.8x FY21 estimated book value, Yes Bank could have a wide range of suitors.
While fixing the bad loan process could be a long drawn process, the sources of stress have been identified, and the management has indicated that resolutions on the major stressed accounts have made sufficient progress. The overhang of Rana Kapoor’s pledged shares on the stock price is also over as he sold his 20 million shares. Ravneet Gill announced that the board will meet on Friday 29th November to consider and approve raising funds by issuing equity or equity linked securities.
The issue price of these securities would be higher of the two; either 6 month average price, or 2 week average price. The 6 month average is close to Rs. 95. The closing price on November 28th was Rs. 70.4. Furthermore, if one were to take a cue from insiders, Sudeep Bhambare, Head of Internal Audit of Yes Bank acquired 16,500 shares from the open market between Nov. 7th and Nov. 21st. At a market cap/deposit ratio of less than 10%, sufficient pessimism has been built into the stock price. Given how volatile and speculative the stock has been over the last year, it would not be prudent to bet the house on Yes Bank. However one should certainly consider allocating a small percentage of one's portfolio to play the risk-reward that the stock offers at the moment.
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