Yes Bank share price retreats despite FAB, MUFG interest

on Jul 10, 2024
  • First Abu Dhabi Bank is considering taking a big stake in Yes Bank.
  • Other interested companies are Mitsubishi UFJ Financial Group.
  • Yes Bank is implementing a turnaround strategy.

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Yes Bank share price has suffered a harsh reversal this week, becoming one of the worst performers in India. The stock, which jumped to a high of ₹27.44 last week, has dropped by almost 10% to ₹24.60.

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Yes Bank is attracting bids

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Yes Bank is attracting attention from other Asian banks as it seeks to sell a stake to boost its balance sheet.

According to Bloomberg, First Abu Dhabi Bank (FAB) is one of those interested and is prepared to take as much as 51% stake in the company. At that valuation, it means that it would need to spend at least $5 billion.

Other companies that are interested in the company are Mitsubishi UFJ Financial Group (MUFG) and Sumitomo. Such a sale would benefit State Bank of India (SBI), which is the biggest shareholder with a 24% stake. 

A key hindrance to a potential deal is that its chairman, Dinesh Khara’s tenure ends in August and he will likely be replaced by Challa Sreenivasulu Setty. 

Yes Bank’s turnaround is continuing

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The interest of Yes Bank by Asian companies comes at a time when there is an ongoing frenzy of deals in India, one of the fastest-growing economies.

At the same time,many Asian and Middle East banks are considering expanding overseas to diversify their earnings. For example, Mitsubishi Bank is said to eye a minority stake in HDFC Bank while First Abu Dhabi Bank has courted Standard Chartered before.

The fact that foreign companies are considering a bid for Yes Bank is a sign that the company is doing well after being rescued in 2020.

As part of the rescue plan, the company was forced to sell a stake in the biggest Indian banks like ICICI, HDFC, and SBI. Some of these banks have pared back their stakes after the lock up period ended.

The company also created bad bank with some of its riskiest loans and sold it to JC Flowers, a restructuring expert. As a result, the remaining bank was less riskier than how it was before 2020.

Yes Bank also sold shares and raised funds from private equity companies like Advent and Carlyle. As a result, the company had a strong balance sheet as it continues its turnaround strategy.

At the same time, Yes Bank is said to be about to implement broad layoffs in a bid to save operational costs. 

The most recent results showed that Yes Bank’s net profit in the previous quarter rose by 123% YoY to ₹4.52 billion. For the year, the company made ₹12.5 billion, a 74% annualised increase while deposits continued rising. 

Yes Bank share price forecast

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Yes Bank share price

YES chart by TradingView

I wrote about Yes Bank last week and warned that it could suffer a reversal, which has happened. The stock has dropped below the 38.2% Fibonacci Retracement point.

Most importantly, despite the retreat, the stock remains above the 50-day and 100-day Exponential Moving Averages (EMA). It has also remained between the lower and the first support of the Andrew’s pitchfork tool. 

At the same time, the MACD indicator has pointed upwards and crossed the neutral point at zero. The Relative Strength Index (RSI) has moved from the overbought point to 68.

The stock has also formed a small inverse head and shoulders pattern. Therefore, there is a likelihood that the stock will have a bullish breakout as investors wait for its stake sale. 

If this happens, the next point to watch will be at INR 27.44, its highest point this month. A move above that level will point to more upside as buyers target the key psychological point at INR 30.

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