Written by One of Japan’s biggest banks, SMBC, is gearing up to acquire a 20% stake in Yes Bank for ₹13,483 crore by buying shares held by SBI and other banks at the price of ₹21.50 per share. This transaction has strongly endorsed the turnaround story of Yes Bank in its 2020 rescue led by SBI along with others. SMBC will thus emerge as the largest shareholder and bring with it global know-how and operational improvements.
The stock price of Yes Bank rocketed up almost 10% following the announcement; however, it is now trading around ₹20, slightly off from the deal price. A PE ratio between 23.4 and 25.6 being substantially higher than the industry standard means it could also be perceived as overvalued. Most of the analysts are negative, with most of them giving the stock a rating of either “Sell” or “Strong Sell,” pointing towards valuation and past volatility.
SMBC coming in might set growth in motion and lift sentiment, but the risks remain, given Yes Bank’s checkered past and elevated valuation. If you incline more toward the risky end of the spectrum and are in it for the long haul, then having a small wink of faith along with the speculated upside arising from the turnaround might work. Conservative investors, however, would rather wait until there is an oil slick of profitable numbers along with real operational improvements. To conclude, SMBC’s investment is a boon, but at the levels, caution must be exercised.