YES Bank, Shriram Transport shrug off rating downgrades, advance up to 7%

Shares of YES Bank and Shriram Transport Finance Company rallied up to 7 per cent on the BSE on Friday despite being downgraded by rating agencies. 

YES Bank climbed 10 per cent to Rs 53.50 from its early morning low of Rs 48.50 on the BSE. With today’s gain, the stock of private sector lender has bounced back 19 per cent from its Thursday’s low of Rs 45. A combined 285 million equity shares, representing 1 per cent of total equity of YES Bank, changed hands on the NSE and BSE till 02:08 pm. In comparison, the S&P BSE Sensex was trading flat at 41,670 points.

India Ratings and Research (Ind-Ra) has downgraded YES Bank’s Long-Term Issuer Rating from “A+” to “A”, owing to inadequate and slow equity infusion. The fresh capital is critical for providing sufficient cushion for the credit cost impact of its stressed asset pool. Ind-Ra has considered equity infusion of $1.0-1.2 billion in the next few weeks.

In a similar move, ICRA has downgraded rating on YES Bank’s tier-II bonds from “A+” to “A”. The downgrade is on the basis of continued uncertainty regarding the timing and extent of capital raise. The level of investor interest, amid correction in the stock and receipt of regulatory approvals, also remains a key monitorable, ICRA added.

According to analysts at JP Morgan, YES Bank’s valuations expected to remain range-bound until issues around fund-raising are addressed. The bank’s earnings normalisation is to start only from FY21. The corporate book seems to be well seasoned, been through a credit cycle downturn; though low level of seasoning in retail book, it added.

Shares of Shriram Transport Finance Company were up 4 per cent at Rs 1,182. The stock has gained 8 per cent in the past three trading days on the BSE.

The company on Monday, December 16, informed the stock exchanges that Fitch Ratings and S&P Global Ratings have affirmed the Company's Credit Ratings. Fitch Ratings has affirmed stable outlook and S&P Global Ratings has revised the outlook to 'negative' on weaker economic conditions from 'stable'.

S&P Global Ratings said a revision in outlook comes after slowdown in commercial vehicle sales hit NBFCs, making it difficult for these companies to raise funds. The rating agency also added that it expects the company’s growth and profitability to remain under pressure, given tight funding conditions.

“Shriram Transport Finance Company does not face meaningful competition in its core segment, as not many companies understand the used commercial-vehicle customer profile, which usually entails a lack of credit history and higher risk. Some fragmented competitors exist in regional pockets, which we believe are likely to shift towards organised non-bank finance lending over the long term,” Fitch Ratings said in a rating rationale.