YES Bank Q4 preview: NPAs, new management strategy key factors to watch

The bank's estimates for its non-performing assets will be closely watched by investors as the bank is expected to provide for the bad debt created under the beleaguered IL&FS account

India’s fourth largest private sector bank, YES Bank, is set to announce its fourth quarter results for the financial year 2018 – 19 (Q4FY19) on Friday amid expectations of up to 7 per cent decline in net profit on a yearly basis.

While analysts at ICICI Securities expect a 6.8 per cent decline in net profit at Rs 1,099.3 crore YoY from Rs 1,179.44 crore (Q4FY18), Elara Capital expects the profit at Rs 1,095 crore, a dip of 7.2 per cent. On quarterly basis, however, both the brokerages peg the net profit growth at around 9 per cent.

“Healthy traction in business is expected to continue for YES Bank. Deposits are expected to increase 27.1 per cent YoY to Rs 2,55,101 crore, while 27.7 per cent YoY increase is estimated in advances to Rs 2,59,884 crore,” ICICI Securities said in a preview note.

Analysts at Edelweiss Securities, however, were optimistic about the profit growth and said that a decline of only 0.3 per cent is expected.

 “Growth is likely to moderate from the higher levels seen in earlier quarters, albeit still much higher than the industry (average),” they said.

The brokerage firm estimated a net profit of Rs 1,176.4 crore at the end of the March quarter, which was a jump of 17.4 per cent on quarterly basis. Profit at the end of December quarter was Rs 1,001.9 crore.

Margins

Analysts also expect near 30 per cent jump in the bank’s Net Interest Income (NII) at around Rs 2,797 crore during the recently conclude quarter on the back of a healthy growth in deposits and advances.

“We expect Net Interest Margin (NIM) to pick up to 3.4 per cent due to Marginal Cost of funds-based Lending Rate (MCLR) increase and pricing power shifting toward banks. Consequently, NII growth is expected to remain robust at 28 per cent YoY,” brokerage firm Motilal Oswal said in its result preview note.

Non-performing assets

The bank’s estimates for its non-performing assets (NPA) will be closely watched by brokerages and individual investors alike as the bank is expected to provide for bad debt created under the beleaguered IL&FS’ account.

“With accretion in gross NPA (GNPA) to continue, credit cost is seen tad higher at 23 bps in lieu of exposure to IL&FS. Overall, the asset quality is expected to remain stable with GNPA ratio at 2.3 per cent,” ICICI Securities said.

Motilal Oswal too estimates the bank’s GNPA ratio at 2.1 per cent and NNPA ratio at 1.2 per cent.

Management commentary

The bank’s “new management strategy” is also one of the key factors to watch out for, especially after Ravneet Gill took over as the managing director and chief executive officer (MD & CEO) in March 2019.

YES Bank remained top gainer on BSE Sensex on Thursday, rallying around 4.2 per cent ahead of the result. Heavy buying was seen in the stock after reports suggested that Gill was looking at a complete overhaul of the top brass.

The stock has risen close to 32 per cent in 2019 so far, outperforming Nifty50 as well as Nifty Bank indices over the last one year. While the benchmark Nifty50 index has gained over 9 per cent, Nifty Bank and Nifty Private Bank indices have risen 18 per cent each during the same period.

According to reports, “management overhaul was being planned to remedy corporate governance lapses, lax risk management and credit disbursal policies”. The bank, however, has refuted this.