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asasmal@microsec.in
20th June2011
<MCLI>
Microsec Research
Contents
Investment & Valuation Brief Company background YES Bank Launch Pad Version 2.0 (the take off ) Investment rationales Peer Analysis On the footsteps of leaders (Comparative study of Yes Bank with Axis & HDFC bank) Stock Cues Sensitivity Analysis Valuation & Recommendation Financial Projections Ratios Key concern to our call Appendix 1 (Typical YES bank branch) Appendix 2 (Macro Picture Light at the end of the tunnel!!) Note Analyst page Other Banking reports Disclaimer 2 3-4 5 6-20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
YES Bank
BUY
Market Data Current Market Price (INR) Target Price (INR) (18 months) Upside Potential (annualized) 52 Week High / Low (INR) Market Capitalization (In INR Mn) 282 358 18% 388/234 103263
Yes Bank has experienced unprecedented growth in the Indian banking sector since it started operations in late 2004. This is a significant achievement for a bank which had started late when compared to other new age private sector banks. The bank differentiated itself from other players in the industry through its unique 'knowledge banking approach', emphasis on technology, and human resources. The knowledge banking approach was its main pillar of differentiation and using this it provided specialized services to various sunrise industries through domain experts. We re-initiate coverage on Yes Bank with a BUY rating. Our rating underpins the banks strong business momentum, diversified revenue stream, strong assets quality, positive asset liability mismatch, strong institutional holding, superior cost efficiency, unique technology proposition, high pedigree of Human Capital, thrust on improving CASA driven by aggressive branch expansion plans and its superior and sustainable return ratios. However, heavy dependence on bulk deposits in a rising interest rate scenario slightly impedes our optimism. At the CMP of INR 282 the bank is trading at 1.82x FY13E BV. The bank delivered RoE of over 20% and RoA of 1.5% for FY11. We further expect the bank to deliver RoE of 20%+ on the back of increased leverage, however we may see some pressure on RoA due to moderation in earnings growth going forward on the back of rising loan loss provisions and rising cost. We have valued Yes bank on scenario model with different weightage given to each scenario and arrived at a weighted average target price of INR358 which is 2.3x its FY13E BV of INR 155.4. Our recommended target price is 27% above the current price. We expect this target price to be met with in 18 months from the date of release of this report. Key Risks - 1) Further rise in wholesale deposit cost. 2) Deferment of capital raising plans due to depressed market condition. 3) Lower than expected improvement in CASA. 3) Higher than anticipated rise in slippages due to more focus on the SME segment. 4) TTM P/BV is still at 30% premium to the average valuation in last rate hike g ) / p g cycle. (refer page 28)
Particulars (INR Mn) Total Income FY09 9462.00 FY10 13634.85 FY11 18702.01 FY12E 25514.30 FY13E 33904.26
NonShare Holding pattern% Institution s Promoter 13% Group Foreign 27% Financial Institution s / Banks Mutual 5% Funds 5% FII 45% Insurance Cos 5%
STOCK SCAN BSE Code NSE Code Bloomberg Ticker Reuters Ticker Face Value (INR) Equity Share Capital (INR. Mn.) Average P/E/PBV (3 yrs) Beta vs Sensex Average Daily Volmes (6 M) Dividend Yield (%) Stock Return (1 Yr)
140.0 130.0 120.0 120 0 110.0 100.0 90.0 80.0 70.0
532648 YESBANK YES IN YESB.BO 10 3471.5 15.9/2.76 1.35 3181850 0.84 6.25%
Growth%
NII
36.89%
5092.99
44.10%
7879.53
37.16%
12469.30
36.43%
16861.89
32.88%
22086.09
Growth%
Net Profit
54.1%
3,038
54.71%
4,777
58.25%
7,271
35.23%
9,561
30.98%
12,087
Growth%
EPS P/E * NIM% ROE (Reported till FY11)
Yes Bank SENSEX
51.90%
10.23 27.66 2.70% 20.70% 0.33 54.69 5.17 53.99 5.24
57.24%
14.06 20.12 2.80% 20.3% 0.06 90.95 3.11 90.25 3.14
52.22%
20.95 13.51 2.80% 21.7% 0.03 109.29 2.59 108.59 2.61
31.48%
26.91 10.52 2.53% 20.93% 0.09 128.54 2.20 127.84 2.21
26.42%
33.55 8.44 2.61% 21.59% 0.06 155.41 1.82 154.71 1.83
NNPA% BV
* All prices as on
17th
June11
Microsec Research
Company Background
Yes Bank limited (YBL), incorporated in 2003 by Rana Kapoor and Late Ashok Kapur, is a new age private sector bank. It is the only bank that has been awarded a greenfield license by the Reserve Bank of India (RBI) in the last 16 years. YBL offers a full range of products and services in areas of corporate and institutional banking, financial markets, investment banking, corporate finance, business and transaction banking, retail and wealth management across India. The bank is part of global thought leadership forums like the Clinton Global Initiative (CGI), Triple Bottom Line Investing (TBLI) and Tallberg Forum. Recently, it became the first Indian Bank to become a signatory with the United Nations Environment Programme (Financial Initiative). Yes Bank has partnered with various companies for delivering quality products and services namely Cash Tech, Cisco Systems, Gartner, Intel, i-flex, Reuters, VSNL, Wipro, De La Rue, Murex, Wincor Nixdorf and Sanovi. This new age private bank has global institutional investors like Rabobank, Franklin Templeton, AIF Capital and Fidelity, amongst others
Received RBI license for commercial banking Incorporation Maiden public offering of equity shares by the bank Launch of financial market business Shares issued at premium of Rs 259.5 to QIBs
NOV03
MAY04
AUG04
SEP04
OCT04
JUNE05
AUG07
JAN10
President & Global Head International Banking General Manager ICRA General President Indian Financial Institutions AGM Group President Corporate Finance and Development Banking Group President Transaction Banking Group, p g p, International Banking, Liabilities Product Mgt. President & Sr. Managing Director Investment Banking AGM, Corporate Banking - ICICI Bank Director Project Advisory & Infrastructure Mgmt - Rabo India Global Transaction Services Head - Caribbean, Central & Latin America, , , Citibank Executive Director, Head of Mergers & Acquisitions - Rabo India
Suresh Sethi S h S hi
Group President and Chief Risk Officer Executive Investment Banking, Kotak Mahindra Capital Company Director President & Chief Operating Officer Citibank N.A.
Equity History
Particulars 5-Jul-05 22-Dec-06 Issues IPO at INR 45 per share Private placement of 10 Mn shares at INR 120 to Swiss Reinsurance Private placement of 14.7 Mn shares at INR 225 to Gl b l T Global Tamarind F d P Ltd i d Fund Pte L d Issuance of 38.36mn shares to QIBs at INR269.5 Total amount raised (INR Mn) 3150 1200 Equity Capital Equity Dilution (INR Mn) (%) 2700 2800 35% 4%
7-Dec-07
3308
2947
5%
27-Jan-10
1033.8
3386.3
13%
% of Shares as on Mar'11
4.92 4.84 4.81 4.23 3.82 2.27 1.92 1 92 1.61 1.35 1.03
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At the end of Mar'11 Advances (INR Bn) Deposits (INR Bn) Balance sheet Size (INR Bn) 343.64 459.39 590.07
Branches Employees
214 3990
750 12000
36.77% 33.40%
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Investment rationale
Business Momentum to continue
YBLs loan book has grown at a CAGR of 52.9% over the last 5 years, which is well above the average industry growth rate during the same time period. Higher than industry growth led to a consistent improvement in market share for the bank. Market share stood at ~0.92% in FY11 as compared to 0.33% in FY07. Going h d FY07 G i ahead we expect the b k to continue growing at a pace hi h than that of the i d h bank i i higher h h f h industry and d have factored in a CAGR of 28% for FY11-13. The growth will be well supported by aggressive branch expansions, more penetration in the larger corporate segment & retail segment of the loan book. YES banks loan book growth aspiration (Version 2.0) is mainly driven by 1) increasing market share and 2) putting revenue growth ahead of increasing cost. However in the long run, this approach from YBL may change due to the need of faster improvements in some key metrics where its lags its larger peers.
800.00 700.00 600.00 500.00 400.00 300.00 300 00 200.00 100.00 0.00 FY05 FY06 FY07 FY08 Advances (INR Bn) Ad B ) FY09 FY10 YoY D G Y Y Dep. Growth% h% FY11 FY12E YoY Ad G Y Y Adv. Growth% h% FY13E 459.39 343.64 562.88
749.03
400.0% 350.0% 300.0% 250.0% 200.0% 150.0% 150 0% 100.0% 50.0% 0.0%
35.0% 30.0% 25.0% 20.0% 20 0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%
161
50 0 FY06 FY07
50
FY08
FY09
FY10
Branch Concentration
Advances Segmentation
Corporate & Institutional banking
Clients
Typical Exposure
Comments
65.6%
Commercial Banking
INR 100-500 Mn
22.5%
Branch Banking
<= 2 Bn
INR 20-100 Mn
11.9%
Engineering 22%
Healthcare 5%
8%
5%
12%
69%
Commercial banking
Branch Banking
35% 30%
25% 25% 20% 16% 15% 10% 5% 0% Q4'08 Infra & Logistics Engineering Q4'09 Healthcare Q4'10 TMT Food & Agri businesses Q4'11 Others 18% 15% 17% 22% 22.70% 22 70% 20.70% 19.10% 16.90% 21.70% 18.10%
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Skilled p p people
LLB 1%
0-1 16%
2-5 59% PG 7%
B2B2C Strategy
Identifying current account rich corporate customers
Offering them salary a/c and various other wealth management products
Offering them superior cash management & liquidity management solution including a SB a/c
80% 70% Tied up with the corporates to tap a rich source of references 60% 50% 40% 30% 20% 10%
27% 18%
28% 19%
With larger share of Current account in YBLs overall CASA, economically the value of this 10% CASA is comparable to any bank which has 15-16% a y ba c as 5 6% CASA with more share from SA. Thus any event related to savings bank rate de-regulation will be structurally positive for this bank.
39.50%
Dependence on wholesale deposits may put NIMs under pressure in an increasing rate scenario
13.20% 7.50%
12.10%
10.90% 6.40%
10.30%
FD - C Corp banking
FD Commercial banking
FD- G Govt
CDs C
CASA
Q4'10
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350
80 70
275
60 50 40 30 20 10 0
YES banks newer branches are reaching the critical inflexion point where they can attract more customers due to their reach & faster productivity productivity. More and more newer branches are coming up in Tier-2 & Tier3 cities. These branches will reach break even faster than their Urban peers due to lower cost and less competition. All these will led to faster CASA mobilization in branch level with faster improvement for CASA/branch.
50 0
FY06
FY07
FY08
FY09
FY10
FY11
FY12E
FY13E
No of branches
Expansion (RHS)
Term Deposits
77465.3
121445.0
655402.9
42.74
FY10
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3YR+ Dep. as % of 3YR + adv 3YR+ Borr. as % of 3YR+ adv 8.90% 75.80%
FY10
78.50%
21.50% 21 50%
Infra Exposure
Term Loans
5.80% 7.90%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10% Assets Fixed 10.50% Liabilities Floating 90% 89.50%
CP 3month
CP 6month
CP 12 month
CD 3month
CD 6month
CD 12month
15.00% 14.00% 13.00% 12.00% 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%
11.30%
2.60%
2.70%
2.80%
2.80%
2.53%
2.61%
FY08
FY09
FY10
FY11
FY12E
FY13E
% yield on advances
% yield on investments
Cost of deposits%
Borrowing cost%
NIM%
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500.0% 450.0% 400.0% 350.0% 300.0% 250.0% 200.0% 200 0% 150.0% 100.0% 50.0% 0.0%
In Mn 900.0 800.0 700.0 600.0 600 0 500.0 400.0 300.0 200.0 100.0 0.0 Q2'10 Q3'10 Q4'10 Financial Markets Q1'11 Financial Advisory Q2'11 Q3'11 Q4'11
Transaction Banking
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Financial Advisory
45.3%
30%
Financials markets
14.5%
30%
Fx/derivatives/rates. Driven by strong corporate relationships. A key driver of growth, going forward, given the branch scale building up Insurance and MF growth because of low base and expanding reach, despite challenging environment
Transaction banking
31.4%
30%
Branch banking
8.8%
10%
Unique cross selling opportunities give multiple & diversified revenue streams
Knowledge Sectors Food & Agri Life Sciences Engineering TMT Infrastructure Clients segment Agro Chemicals Drugs Electric comp. IT/Telecom Wind Energy Credit products Financial Markets Transaction Banking Advisory Services
45.0%
39.75% 38.00%
35.0%
36.35%
18.23%
19.76%
22.12%
22.05%
18.74%
FY08
FY09
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Cost/Assets (%)
FY06
FY07
FY08
FY09
FY10
FY11
FY12E
FY13E
Employee/Branch
Cost/Assets% (FY11) 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 1.15% 1.96% 1.63% 2.40% 2 40%
47.90%
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Credit Cost%
FY09
FY10
FY11
FY12E
FY13E
FY09
GNPA (Rs m)
FY10
NNPA (Rs m)
FY11
FY12E
GNPA Ratio (RHS)
FY13E
NNPA Ratio (RHS)
Provision Coverage Ratio 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 10 0 0.0 FY09 FY10 FY11 FY12E FY13E 500 1100 900 700 1700 1500 1300
Restructured assets
Q2'10
Q3'10
Q4'10
Q1'11
Q2'11
Q3'11
Q4'11
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20
15
10
FY06
FY07
FY08
FY10
FY11
Networth
Strong RoE(Cal) despite regular capital raising. RoAs may come down under pressure due to increase in cost/assets & Loan loss provisions (LLPs)
25.00% 20.00% 15.00% 1.50% 10.00% 5.00% 0.00% FY09 FY10 RoE% FY11 FY12E RoA% (RHS) FY13E 1.40% 1.70%
1.60%
1.30%
RoA Decomposition Yield on Assets Less: Cost of Assets Net Interest Income Other Income Less: Operating Exp Less: Provisions Less: Tax RoA
FY09 10.04% 7.48% 2.55% 2.19% 2.10% 2 10% 0.31% 0.81% 1.52%
FY10 7.99% 5.34% 2.66% 1.94% 1.69% 1 69% 0.46% 0.84% 1.61%
FY11 8.47% 5.86% 2.61% 1.31% 1.43% 1 43% 0.21% 0.77% 1.52%
FY12E 8.97% 6.43% 2.53% 1.30% 1.46% 1 46% 0.20% 0.74% 1.44%
FY13E 9.00% 6.39% 2.61% 1.39% 1.59% 1 59% 0.25% 0.73% 1.43%
Peer Analysis
Particulars (In Mn) Net Interest Income* CAGR Growth (5 yrs) (%) PAT* CAGR Growth (5 yrs) (%) EPS* BVS** Deposits (in bn)** Advances (in bn)** No of Branches** Mkt Cap (in bn) Key Ratios CASA%* SA%* NIM (%)* GNPA (%)** NNPA (%)** Restructured Assets % ( ) PCR(%)* CAR (%)* Mkt Cap / Branch (in bn) Div Yield (%) * ROA (%)* ROE (%)* Valuations Price P/E P/BV P/E (5 YR Avg) P/BV (5 YR Avg) Prem/(Disc) on P/E Prem/(Disc) on P/BV Yes Bank 12469.20 64.25 7271.30 66.61 66 61 20.95 109.30 459.39 343.64 214 104.5 ICICI Bank 90169.00 7.97 51513.80 13.44 13 44 44.72 451 2256.02 2163.66 2529 1251.09 HDFC Bank 105431.30 29.84 39263.90 36.18 36 18 84.40 541 2085.86 1599.83 1825 1112.62 Axis Bank 65629.90 43.15 33884.90 50.58 50 58 82.54 441.00 1892.38 1424.08 1390 526.40 ING Vysya Bank 10065.20 16.73 3186.50 37.59 37 59 26.34 208.3 301.94 236.02 500 41.10 Indusind Bank 13764.90 50.07 5773.20 70.56 70 56 12.39 80.08 343.65 261.66 245 123.01
10.34 1.8 2.8 0.23 0.03 0.2 88.6 16.5 0.49 0.84 1.5 21.0
45 29.6 2.6 4.47 1.11 1.2 76 19.54 0.49 1.29 1.3 11.0
52.7 30.4 4.2 1.05 0.20 0.3 83 16.2 0.61 0.69 1.6 17.0
41.1 21.6 3.7 1.01 0.26 1.4 81 12.65 0.38 1.10 1.6 19.0
34.6 17.7 2.85 2.30 0.39 0.3 83.4 12.94 0.08 0.87 1.0 12.0
27.2 8.9 3.5 1.01 0.28 0.3 72.6 15.89 0.50 0.76 1.3 14.6
Return summary Axis Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. IndusInd Bank Ltd. ING Vysya Bank Ltd. Ltd Yes Bank Ltd.
NII G%
PAT G%
EPS G%
NII G%
PAT G%
EPS G%
NII G%
PAT G%
Deposts G%
Advan G%
ABV G%
Deposits G%
Advances G%
ABV G%
Deposits G%
Advances G%
ABV G%
20th June2011
Microsec Research
Stock Cues
Bulk Deals
STK EXCHANGE NSE NSE NSE NSE NSE BSE BSE BSE NSE BSE BSE BSE NSE NSE BSE Deal Date 20-Jan-11 13-Jan-11 13-Jan-11 13-Jan-11 30-Dec-10 22-Jun-10 22 J 10 22-Jun-10 22-Jun-10 22-Jun-10 09-Dec-09 05-Jun-09 05-Jun-09 05-May-09 22-Apr-09 22-Apr-09 p Client Name DIRECT INVESTMENT LIMITED MORGAN STANLEY MAURITIUS COMPANY LTD TAMARIND FUND PTE LIMITED MORGAN STANLEY MAURITIUS COMPANY LTD MORGAN STANLEY MAURITIUS COMPANY LTD LIFE INSURANCE CORPORATION OF INDIA RABOBANK INTERNATIONAL HOLDING B V CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED RABOBANK INTERNATIONAL HOLDING B V NATIONAL PENSION SERVICE FRANKLIN TEMPLETON MUTUAL FUND MAGS FINVEST PVT LTD RUSSELL AIF CAPITAL INC ABHI AMBI FINANCIAL SERVICES LTD ABHI AMBI FINANCIAL SERVICES LTD Transaction SELL BUY SELL SELL BUY BUY SELL BUY SELL BUY BUY SELL SELL BUY BUY Qty ('000) 1945 4830 8075 154 1802 6250 31050 3065 6250 1812 1500 2000 2200 2453 1640 Trade Price (INR) 273.90 265.07 265.15 269.06 308.64 263.00 263 00 263.33 263.00 263.40 266.00 135.00 136.63 83.45 82.52 84.62 Value (INR Bn) 0.53 1.28 2.14 0.04 0.56 1.64 1 64 8.18 0.81 1.65 0.48 0.20 0.27 0.18 0.20 0.14
Hist Volatility (60D) - Volatility increases in the last 6 months 120 100 80 60 40 20
3-Dec-07 3-Jun-08 3-Dec-08 3-Jun-09 3-Dec-09 3-Jun-10 3-Dec-10 3-Jun-11
Avg Deliverable Volume on NSE (Monthly)% 60.00 50.00 40.00 30.00 20.00 20 00 10.00 0.00
30-Apr-07 30-Apr-08 30-Apr-09 30-Apr-10 30-Apr-11
Yes Bank Ltd. MF Holdings Fund Name Baroda Pioneer Mutual Fund JPMorgan Mutual Fund UTI Mutual Fund Bharti AXA Mutual Fund Axis Mutual Fund Benchmark Mutual Fund Birla Sun Life Mutual Fund DSP BlackRock Mutual Fund Franklin Templeton Mutual Fund ICICI Prudential Mutual Fund IDBI Mutual Fund IDFC Mutual Fund ING Vysya Mutual Fund JM Financial Mutual Fund Kotak Mahindra Mutual Fund L&T Mutual Fund LIC Nomura Mutual Fund Mirae Asset Mutual Fund Motilal Oswal Mutual Fund Principal Mutual Fund Religare Mutual Fund SBI Mutual Fund Sahara Mutual Fund Sundaram Mutual Fund Tata Mutual Fund
May-11 0.00 0.00 0 00 0.00 0.00 0.00 2.01 2.04 1.03 1.14 1.99 2.10 2 10 2.90 2.07 4.29 1.29 3.11 1.07 1.16 2.30 1.22 2.11 2.18 3.90 1.24 1.21
Hold Percentage (%) Apr-11 Mar-11 Feb-11 0.33 0.73 0.62 3.97 3 97 0.35 0.74 1.97 0.00 1.32 1.02 1.50 2.12 2.14 2 14 2.67 3.07 4.01 1.07 1.67 1.05 0.87 2.29 1.20 1.47 2.32 2.60 1.44 1.21 2.60 2 60 0.52 1.46 1.87 2.32 1.74 0.73 2.03 2.19 2.31 2 31 1.89 1.75 5.59 1.11 1.87 1.07 0.90 2.35 1.22 1.14 2.75 0.00 2.01 0.00 2.25 2 25 0.63 1.26 0.00 2.00 1.39 0.65 1.90 2.00 2.11 2 11 2.66 1.73 0.00 1.05 2.46 0.96 0.81 2.04 1.06 1.01 2.43 NA 0.00 NA
Jan-11 0.63 0.00 0 00 0.68 1.07 NA 2.13 0.00 0.64 1.97 1.97 2.02 2 02 2.21 1.68 4.14 1.14 2.56 0.94 1.08 0.00 1.04 0.00 3.47 NA 1.12 NA
50% of AMCs has increased its stake in YES bank as on May2011. Most of the bulk deals in the recent past pp p g happened around the 260-270 price range. It may act as a key accumulation zone for long term investing. FII share has came down in last 3 quarters, which has been lapped up by domestic Insurance companies. Stock price volatility in last rate hike and global y g y crisis was very high which made this stock very risky in that time. 60D(days) volatility is on the rise in recent time. Decline in deliverable volume makes the stock price range bound in recent past.
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Deposit growth% RoE Sensitivity (FY13E) 20% 22% Loan growth% 24% 26% 28% 22% 19.92% 20.23% 20.54% 20.85% 21.17% 24% 19.52% 19.83% 20.14% 20.45% 20.77% 26% 19.12% 19.43% 19.74% 20.05% 20.37% Slippage ratio% 1.50% 20% 22% Loan growth% 24% 26% 28% 21.01% 21.26% 21 26% 21.51% 21.76% 22.02% 1.75% 20.71% 20.94% 20 94% 21.19% 21.43% 21.67% 2.00% 20.39% 20.62% 20 62% 20.87% 21.11% 21.35% 2.25% 20.07% 20.30% 20 30% 20.55% 20.79% 21.03% 2.50% 19.76% 19.98% 19 98% 20.23% 20.47% 20.71% 28% 18.72% 19.03% 19.34% 19.65% 19.97% 30% 18.32% 18.63% 18.94% 19.25% 19.57%
RoE Sensitivity (FY13E) 10.00% 10.50% Yield on Advances% 11.00% 11.50% 12.00%
Cost of deposits % 6.00% 21.13% 22.50% 23.79% 25.02% 26.18% 6.50% 19.37% 20.80% 22.23% 23.54% 24.78% 7.00% 17.49% 19.03% 20.56% 21.96% 23.28% 7.50% 15.45% 17.11% 18.76% 20.27% 21.69% 8.00% 13.25% 15.04% 16.83% 18.45% 19.98%
Target Price Analysis FY13 Expected Bear Case Loan growth% Deposit growth% YoA% CoD% Slippage Ratio% BV Target Multiple Target (INR) Weightage (%) Final Weighted average Target Price 24.00% 26.00% 10.50% 7.50% 2.25% 138.21 2 276 35% Base Case 26.00% 28.00% 11.30% 7.00% 2.00% 155.4 2.5 389 50% Bull Case 28.00% 30.00% 11.50% 6.50% 1.75% 161.3 2.75 444 15%
Valuation not very cheap nor expensive tracking long term mean
45000.0 40000.0 35000.0 30000.0 25000.0 25000 0 20000.0 15000.0 10000.0 5000.0 0.0
P/BV(x) +1 S.D.
900
1200
P/BV Band
P/E Band
1000 800 600 400 200 0
P/BV of 3.00
25 20th June2011
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Change (%)
Non Interest Income Net Income
54.10%
4,369 9,462
54.70%
5,755 13,635
58.2%
6,233 18,702
35.2%
8,652 25,514
31.0%
11,818 33,904
Change (%)
Operating Expenses Pre Provision Profits
36.90%
4,185 5,277
44.10%
5,002 8,633
37.2%
6,798 11,904
36.4%
9,695 15,819
32.9%
13,477 20,427
Change (%)
Provisions (excl tax) PBT Tax
50.70% 50 70%
617 4,659 1,621
63.60% 63 60%
1,368 7,265 2,487
37.9% 37 9%
982.12 10,922 3,650
32.9% 32 9%
1,333 14,486 4,925
29.1% 29 1%
2,114 18,313 6,227
34.80%
3,038
34.20%
4,777
33.4%
7,271
34.0%
9,561
34.0%
12,087
Change (%)
EPS (INR)
51.90%
10.23 10 23
57.20%
14.06 14 06
52.2%
20.95 20 95
31.5%
26.91 26 91
26.4%
33.55 33 55
Balance Sheet Equity Share Capital Reserves & Surplus Net Worth Deposits
(INR Million) FY09 2,970 13,272 16,242 16 242 161,694 FY10 3,397 27,499 30,896 30 896 267,986 FY11 3,471 34,469 37,941 37 941 459,389 FY12E 3,553.0 42,118 45,671 45 671 585,181 FY13E 3,603.0 52,391 55,994 55 994 749,032
Change (%)
Borrowings Other Liabilities & Prov. Total Liabilities
21.80%
37,017 14,055 229,008
65.70%
47,491 17,453 363,825
71.4%
66,909 26,232 590,471
27.4%
80,291 29,628 740,771
28.0%
96,349 52,851 954,226
19,227 71,170
26,732 102,099
41,742 188,288
55,834 218,745
68,709 299,412
Change (%)
Loans
39.70%
124,031
43.50%
221,931
84.4%
343,636
16.2%
446,727
36.9%
562,876
Change (%)
Fixed Assets Other Assets Total Assets
31.50%
1,311 13,269 13 269 229,008
78.90%
1,155 11,907 11 907 363,825
54.8%
1,324 15,480 15 480 590,471
30.0%
2,342 17,123 17 123 740,771
26.0%
3,904 19,324 954,226
Key concerns
o Disproportionate rise in wholesale deposit cost may depress NIMs more than expected. Every 10 bps rise in cost of deposits is expected to depress RoE by almost 20-25 bps. o Lower than anticipated CASA improvement may depress margin in high interest rate scenario scenario. o 55-60% of the YES banks loan book is still in PLR. With over 60% of YBLs clients are formed by corporates, the transition from BPLR to Base rate may be a key challenge for retaining clients. o Increasing focus on SME segment (almost 10% of the current loan book) in the increasing rate scenario may increase slippages. Every 100 bps rise in slippages is expected to depress RoE by almost 120 bps. o Capital raising program can expose the bank to capital market cycle We cant rule out possibility of cycle. can t deferment of capital raising program due to subdued or depressed market condition. In that case the Banks growth plan will suffer. o Higher foreign share holding at 50.4% (FII+FDI) (as on March11) may put some pressure on stock prices in case of foreign money outflow from domestic market. o Global macro economic instability with weakening economic datas from developed countries and debt crisis in PIIGS also act as a risk. o In the last rate hike cycle, YES bank has traded at an average valuation of 2x TTM BV. Currently its trading at TTM P/BV of 2.72. If the current inflationary situation persists and RBI continues with its rate hike cycle, we may see negative pressure on the stock price. It can go substantially lowers than the current level.
Appendix 1
YES Branch
Appendix -2
Macro Headwinds at the peak Light at the end of the tunnel ?!!
1000
Liquidity (INR Bn) remained in the deficit mode for most of last financial year
-1000
May
Oct-08
Oct-09
Oct-10
Feb-09
Feb-10
Dec-08
Dec-09
Dec-10
Feb-11 Jan-11
Apr-09
Apr-10
Apr-11 Mar-11
Jun-10
-2.00%
Light at the end of the Tunnel !!! End of QE2 in June 2011 and less possibility of QE3 may show some speculative funds outflow from global commodities which may cool down the prices a bit. Interest rate hardening cycle in two of the most powerful emerging countries has resulted in slowdown in industrial activities. This may further add to some cooling down in commodity prices which may lead to lower inflation.
20 15 10 5 0
Mar-09 May-09 Mar-10 Dec-08 May-10 Oct-08 Nov-09
Aug-09
Aug-10
Jun-09
-5
30 20th June2011
Microsec Research
Nov-10
Apr-08
Aug-08
Jul-09
Sep-09
Jul-10
Sep-10
Jun-08
Jan-10
Jun-11
Jul-08
Note
Fundamental Research Name Nitin Prakash Daga Naveen Vyas Nitesh Goenka Abhisek Sasmal Sutapa Roy Gargi Deb G iD b Ravi Gupta
Sectors IT, Telecom & Entertainment Midcaps, Market Strategies Metals & Mining BFSI Economy Agriculture & Ph A i l Pharma Midcaps
Designation AVP-Research AVP-Research Sr. Research Analyst Research Analyst Research Analyst Executive R E i Research h Executive Research VP Sr. Manager
Email ID npdaga@microsec.in nvyas@microsec.in ngoenka@microsec.in asasmal@microsec.in s-roy@microsec.in gdeb@microsec.in d b@ i i rgupta@microsec.in vpagaria@microsec.in rksaha@microsec.in rlilaramani@microsec.in lil m ni@mi in dmittal@microsec.in
Technical & Derivative Research Vinit Pagaria Derivatives & Technical Ranajit Saha` Institutional Desk Rajiv Lilaramani Dhruva Mittal PMS Division Siddharth Sedani Sarmistha Rudra PMS Research PMS Technical Institutional Equities Institutional Equities Technical Research
ssedani@microsec.in srudra@microsec.in
Research: Financial Planning Division Shrivardhan Kedia FPD Products Research-Support Subhabrata Boral
Manager Research
skedia@microsec.in
Research Support
Executive
sboral@microsec.in
** Rating Scale
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