Share prices of YES Bank ruled firm on Tuesday ahead of the banks board meet to decide on future course of action as the RBI allowed the current CEO and MD Rana Kapoor to continue till only January-end.The scrip was up 1.75 per cent at Rs 230.20 at around 9.40 am while the BSE Sensex was down 217 points at 36,087 at around the same time.Kapoor, who has been the managing director and CEO since the banks inception in 2004, had sought a three-year extension till August 31, 2021.
However, the regulator did not agree to the request and permitted him to stay on till January 2019.Ahead of the board meeting, the bank said it has performed consistently under Kapoor's leadership.HSBC Global Research maintained Buy rating on YES Bank with a target price of Rs 378, indicating an upside of more than 60 per cent against the current market price.Current valuation appears inexpensive though there is a lack of near-term positive catalysts.
However, looking at episodes affecting ICICI Bank and Axis Bank (regulatory intervention at CEO level followed by the board coming up with an alternative succession plan) suggest that a decisive step taken by the board to ensure a relatively orderly succession could alleviate currently heightened concerns.
We maintain our Buy rating with a lowered target price of Rs 378 (earlier Rs 434) due to our earnings cuts, HSBC said.According to ICICIdirect, Kapoor has played a significant role in building the banking franchise, which has commanded a premium.
"Post his exit, the attached premium is bound to be wiped out.
A change in leadership entails risk of balance sheet clean-up, which will impact profitability," it said further.Brokerage firm Elara Capital in a report stated, Considering the regulator's view on top management and board, the banks earnings and return ratios would not command similar multiples.
And now, there exists a high probability of lesser earnings growth and lower return ratios.
Our take is YES Bank would deliver EPS growth of 7 per cent and 32 per cent YoY and RoE at 16.4 per cent and 18.8 per cent in FY19 and FY20, respectively.
Elara revised the target price for YES Bank to Rs 380, from Rs 500 earlier.