The Journey of Yes Bank: Will It Reach Rs 50 in 2024?
As an SEO professional, analyzing stock prices and financial trends is a significant part of my job. Recently, a question about Yes Bank's share price has come up, specifically whether or not it will touch Rs 50 by 2024. After delving deep into the historical and current data, my conclusion is that the chances are slim. However, let's break down the fundamentals and technicals to understand why.
A Lesson in Investment Comeback
Recently, during the festival of Diwali, I learned an important lesson about the joy of revaluation of stocks. There is a unique kind of satisfaction felt by investors who experience gains in the same stocks they had previously lost significant amounts of money in. This sentiment is somewhat paradoxical, but it's a reality in the investing world. I saw a friend who had lost substantial money in Suzlon now rejoicing in his new found gains. This phenomenon is deeply emotional and psychologically interesting. As for Yes Bank, I cannot predict with certainty whether it will reach Rs 50, but let's discuss the metrics and principles that would need to align for this to happen.
Foundational Principles for Stock Price Analysis
To analyze the potential for Yes Bank's share price to hit Rs 50, it is crucial to examine both fundamental and technical metrics. For a bank, Non-Performing Assets (NPA), profit growth, and Return on Equity (ROE) are key metrics to monitor. Relative valuations, particularly the Price to Book (P/B) ratio, can help determine whether a bank is overvalued or undervalued compared to its peers.
NPA and Profit Performance
Currently, Yes Bank's NPA stands at around 2%, significantly down from 12% after selling off some bad loans to a Special Purpose Vehicle (SPV) and other investors. This substantial improvement is positive, indicating a healthier financial position. However, profit decline in March 23 compared to March 22 can be attributed to increased provisions and a rise in bad loans. These factors are critical in determining the bank's future performance.
Price to Book (P/B) Ratio
The current P/B ratio for Yes Bank is approximately 1.3 to 1.4, which is relatively lower compared to the Kolkata Wholesale Index of Commercial Banks (TJI Banks), which has an average P/B ratio of around 2. This suggests that Yes Bank is currently undervalued relative to its peers. To understand what it would take for Yes Bank to reach the Rs 50 mark, we need to revisit some basic financial calculations.
Reasoning Backward
Starting with the formula for P/B ratio: P/B Price / Book Value. Rearranging this, we get: Price P/B X Book Value per Share. For Yes Bank to trade at Rs 50 per share, we need to figure out the required P/B ratio. Assuming an annual Book Value growth of 20%, the Book Value per Share by September 2024 would be 17.28. Therefore, the required P/B ratio is 50 / 17.28, which equals approximately 2.89.
Assumptions and Realism
While this number might seem high, it is not entirely unrealistic given the current credit cycle's improvement. Given Yes Bank's competitive market and the Credit Cycle's favorability, a 20% growth in Book Value in one year is a reasonable assumption. This optimistic growth would mean that Yes Bank would need to trade at a P/B ratio of 2.89 to achieve the Rs 50 mark.
Comparative Analysis
For reference, HDFC Bank, one of the leading banks in India, trades at a P/B ratio of 2.95. While this does not make the case for Yes Bank hitting Rs 50, it provides a benchmark to understand the optimism needed for such an increase.
In conclusion, while the scenario of Yes Bank reaching Rs 50 per share within the next year is hopeful for investors, the current market conditions and historical data suggest that the probability is low. However, staying informed and keeping a close eye on the bank's performance and market metrics will be key in monitoring any potential changes.
Watch the video analysis on this topic from my YouTube channel for a more detailed overview.