Initiating Coverage | Banking
July 18, 2018
Yes Bank
BUY
CMP
`380
Growth affirmed
Target Price
`435
Yes Bank (YES), incorporated in 2004, is a private Indian bank. It is promoted by
Investment Period
12 Months
Mr. Rana Kapoor with financial support of Rabobank and Global investor - AIF
Capital and Chrys Capital. Despite competition from well established private
Stock Info
banks, it has been able to grow its balance sheet at steady pace. The bank’s
Sector
Banking
advances have grown at healthy CAGR of 32% over FY2010-18. It has branch
Market Cap (` cr)
87,870
network of 1,100 (Q4FY18 end) and CASA ratio of 37%. Corporate lending forms
Beta
1.3
67.9% of advances and commercial/retail 32.1%.
52 Week High / Low
385/286
Avg. Daily Volume
7,01,397
Focus on high rated accounts leads to 54% credit growth in FY18: YES has been
Face Value (`)
2
able to grown its loan book at CAGR of 32% over FY2010-18. For FY18, credit
BSE Sensex
36,519
grew by 54% primarily led by corporate book, with a focus on high rated
Nifty
11,008
corporate accounts (overall corporate portfolio continues to be well rated with
Reuters Code
YESB.NS
nearly 80% portfolio rated ‘A’ or better). Business with high rated corporate would
Bloomberg Code
YES.IN
help YES to generate fee income and build retail liabilities (CASA). Consumer
lending in FY18 grew by 98% and contributes 12.2% of the total loan book.
Shareholding Pattern (%)
Improving asset quality and minimal impact of stress resolution: There was a large
Promoters
20.0
divergence in the bank’s GNPA reporting (`6,300cr) and RBI review of FY2017.
MF / Banks / Indian Fls
24.8
However, within short span of time, YES upgraded 47% of divergence accounts,
remaining accounts were either repaid or sold to ARC and classified as NPA.
FII / NRIs / OCBs
42.6
GNPA/NPA for Q4FY18 declined to
1.28%/0.64% from
1.52%
/0.81% in
Indian Public / Others
12.6
Q4FY17. Net stressed assets also declined to 1.7% from 2.25% of advances.
Exposure to RBI IBC list 1 is `320cr with 50% provision and to the IBC list 2 is
`650cr with 42% provision. However, YES Bank expects minimal impact due to RBI
Abs. (%)
3m 1yr
3yr
stress resolution frame work.
Sensex
5.8
14.6
28.4
CASA growth and rating improvement to support NIM: CASA deposit has grew at
Yes Bank
22.1
21.1
128.3
CAGR of 51% over FY2015-18 and 41% YoY taking the CASA ratio to 36.5%.
Recently, CARE has upgraded its rating to ‘AAA’ with stable outlook for YES Bank.
3-year price chart
These factors would support the bank’s target to achieve 4% NIM by March 2020.
400
Outlook & Valuation: We expect YES Bank to grow its advances at CAGR of 32%
300
over FY2018-20E. Improvement in CASA, rating up-gradation and in-house
200
priority sector lending would support NIM going forward. At CMP, YES trades at
100
2.4x FY20E P/ABV, which we believe is attractive considering growth prospects,
0
hence, we recommend BUY with a target price of `435 over the next 12 months.
Key Financials (Standalone)
Source: Company, Angel Research
Y/E March
FY15
FY16
FY17
FY18
FY19E
FY20E
NII
3,488
4,567
5,797
7,737
10,593
13,967
% Chg
28
31
27
33
37
32
Net Profit
2,005
2,539
3,330
4,225
5,951
7,851
% Chg
24
27
31
27
41
32
NIM (%)
3.1
3.3
3.4
3.3
3.2
3.2
EPS (`)
9
11
14
18
26
34
P/E (x)
44
35
26
21
15
11
Jaikishan Parmar
P/BV (x)
7.5
6.4
4.1
3.5
2.9
2.4
022 - 39357600 Ext: 6810
RoA (%)
1.6
1.7
1.8
1.6
1.6
1.6
RoE (%)
21
20
19
18
21
23
Source: Company, Angel Research; Note: CMP as of July 17, 2018
Please refer to important disclosures at the end of this report
1
Yes Bank | Initiating Coverage
Credit growth of 54% in FY18 with focus on high rated account
YES has been able to grown its loan book at CAGR of 32% over FY10-18. For
FY18 advance grew by 54% primarily led by corporate book with a focus on high
rated corporate. (Overall corporate portfolio continues to be well rated with nearly
80% portfolio rated ‘A’ or better). Healthy advance growth due to 1) large private
banks (ICICI & Axis bank) are reluctant to lend their large and mid corporate
portfolio owing to continues asset quality issues. 2) Many PSU banks are in pause
mode as RBI has placed them under Prompt Corrective Action (PCA) owing to
capital constraint and stubbornly high bad asset (GNPA).
Exhibit 1: Credit Growth (YoY)
Exhibit 2: Nearly 80% portfolio rated A or better...
60%
54%
(%)
FY15
FY16
FY17
FY18
50%
AAA
20.3
18.4
20.9
23.2
40%
36%
35%
AA
14.9
18.5
15.6
13.3
30%
30%
24%
A
41.6
39.6
39.6
42.9
18%
20%
BBB
20.8
21.7
21.8
18.5
11%
10%
BB & below
2.5
1.8
2
2.2
0%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Total
100
100
100
100
Source: Company
Source: Company
YES has been focusing to improve retail business, incremental high rated lending
to abate NIM for short term. However, it would help bank to build CASA and
generation of fees income. Core retail advance grew by 98% in FY18 which
constitute 12.2% of loan book (7.3% in 1QFY16).
Exhibit 3: Loan Mix
Exhibit 4: CASA Trend
Segment
FY15
FY16
FY17
FY18
CA (%)
SA (%)
CASA (%)
FY12
9.9
5.1
15.0
Corporate banking
68
65.1
67.7
67.9
FY13
10.0
9.0
18.9
Medium Ent
14.1
11.1
10.5
9.7
FY14
9.5
12.6
22.0
FY15
9.3
13.8
23.1
SME
10.6
13
12.3
10.3
FY16
9.8
18.3
28.1
Retail Banking
7.3
10.8
9.5
12.2
FY17
13.4
22.9
36.3
Total
100
100
100
100.1
FY18
14.4
22.1
36.5
Source: Company
Source: Company
We believe expect YES to grow its loan book at CAGR of 33% over FY18-20E.
Present asset quality issue for certain corporate lender would help banks with
stronger balance sheet to grow faster than industry. Moreover, NCLT resolution of
large account would also create fresh demand for credit. We believe proper
understanding of at least some of these accounts, balance sheet strength and the
inability of several corporate-focused lenders to lend would propel YES Bank
advance.
July 18, 2018
2
Yes Bank | Initiating Coverage
Improving asset quality and minimal impact of stress resolution:
At the end of FY2017, the RBI judged the bank’s gross NPAs at `8,373cr. The
bank, however, had reported gross NPAs at `2,018cr. The consequent divergence
was at
`6,355cr or three times the reported amount. However, bank’s
management acted immediately and 47% of the divergence amount had been
upgraded in the first half of the year. Another 27% of that amount was repaid,
while 19% was classified as NPA at the end of the September quarter. Much of the
remaining amount was sold to asset reconstruction companies.
GNPA/NPA for Q4FY18 declined to 1.28%/0.64% from 1.52%/0.81% in Q4FY17.
Net stressed asset also declined to 1.7% (Q4FY18) from 2.25% (Q3FY18) of
advances. Exposure to RBI IBC list 1 is `320cr with 50% provision and to the IBC
list 2 is `650cr with 42% provision. However, YES Bank expects minimal impact
due to RBI stress resolution frame work.
Exhibit 5: GNPA & NPA Trend
Asset Quality (%)
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
Gross NPAs
0.20
0.31
0.41
0.76
1.52
1.28
1.25
1.25
Gross NPAs (`in cr)
94
175
313
749
2,019
2,627
3,435
4,465
Net NPAs
0.01
0.05
0.12
0.29
0.81
0.64
0.55
0.50
Net NPAs (`in cr)
7
26
88
284
1,072
1,313
1,511
1,786
Credit Cost on Advance
0.46
0.65
0.45
0.55
0.60
0.76
0.70
0.70
Provision Coverage
0.93
0.85
0.72
0.62
0.47
0.50
0.56
0.60
Source: Company
Exhibit 6: Exposure to sensitive sectors
Sensitive Sector
Total (%)
A or Above (%)
Iron & Steel
2.0
1.5
Electricity
2.7
telecom
2.2
1.9
Gems & jewelry
1.4
0.9
Source: Company
Standard restructured portfolio was flat qoq at `91cr in Q4FY208 (16bps of loans)
from `90.3cr in 3QFY18, while SDR portfolio declined to 0 from `362cr in 3Q.
During the quarter, YES sold 2 NPA accounts to an ARC, SR book declined to
0.92% from 1.07% of advances in 3QFY18. Standard S4A exposure declined to
`139cr from `154cr in 3QFY18.
CASA growth and rating improvement to support NIM: CASA deposit grew at
CAGR of 51% over FY15-18 and 41% YoY taking the CASA ratio to 36.5%.
Recently, CARE has upgraded the bank’s rating to ‘AAA’ with stable outlook. These
factors would support YES Bank’s target to achieve 4% NIM by March 2020.
July 18, 2018
3
Yes Bank | Initiating Coverage
Outlook & Valuation: We expect YES Bank to grow its advances at CAGR of 32%
over FY2018-20E. Improvement in CASA, rating up-gradation and in-house
priority sector lending would support NIM going forward. At CMP, YES trades at
2.4x FY20E P/ABV, which we believe is attractive considering growth prospects,
hence, we recommend BUY with a target price of `435 over the next 12 months.
Exhibit 7: One year forward P/B
3.50
P/BV
Avg. P/BV
+1STD
-1STD
3.00
2.6
2.50
2.5
2.1
2.00
1.50
1.6
1.00
0.50
0.00
Source: Company
Exhibit 8: DuPont Analysis (%)
Particular
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
Interest Income
9.5
9.6
9.6
9.4
9.0
8.6
7.7
7.8
7.9
Interest Expenses
7.1
7.0
7.0
6.6
5.9
5.6
4.8
4.9
5.0
NII
2.4
2.6
2.6
2.8
3.0
3.0
2.9
2.9
2.9
- Prov
0.1
0.3
0.3
0.3
0.4
0.4
0.6
0.5
0.5
Adj NII
2.3
2.3
2.3
2.6
2.7
2.6
2.3
2.4
2.4
Total Other Income
1.3
1.5
1.7
1.7
1.8
2.2
2.0
2.0
2.0
Total Income
3.6
3.8
3.9
4.2
4.5
4.8
4.3
4.4
4.4
Opex
1.4
1.5
1.7
1.9
2.0
2.2
2.0
2.0
2.0
PBT
2.2
2.2
2.2
2.4
2.5
2.7
2.3
2.4
2.4
TAX
0.7
0.7
0.7
0.7
0.8
0.9
0.7
0.8
0.8
RoA
1.5
1.5
1.6
1.6
1.7
1.8
1.6
1.6
1.6
Leverage
15.7
16.5
16.1
13.0
11.8
10.6
11.0
12.9
14.1
RoE
23.1
24.8
25.0
21.3
19.9
18.6
17.7
21.1
23.2
Source: Company,
July 18, 2018
4
Yes Bank | Initiating Coverage
Key risks
If the bank takes longer time to build its retail portfolio and increase CASA, then it
could adversely impact NIMs.
Higher than expected slippages would increase credit cost and impact the
profitability of the bank.
Lower-than-expected loan growth and loss of key management personnel poses a
risk for the bank’s performance.
Company Background
Yes Bank (YES), incorporated in 2004, is a private Indian bank. It is promoted by
Mr. Rana Kapoor with financial support of Rabobank and Global investor - AIF
Capital and Chrys Capital. Despite competition from well established private
banks, it has been able to grow its balance sheet at steady pace. The bank’s
advances have grown at healthy CAGR of 32% over FY2010-18. It has branch
network of 1,100 (Q4FY18 end) and CASA ratio of 37%. Corporate lending forms
67.9% of advances and commercial/retail 32.1%.
Key management Personnel
Mr. Ashok Chawla has been on the Board of Yes Bank since March 05, 2016 and
was appointed as Independent Director of the Bank by the Shareholders in 12th
Annual General Meeting (AGM) on June 07, 2016 for a period of five years. Prior
to joining Yes Bank, Mr. Chawla was the Chairman of the Competition
Commission of India (CCI). He has obtained Masters in Economics from the Delhi
School of Economics in 1972 and joined the Indian Administrative Service in 1973.
Mr. Rana Kapoor has been serving as the Managing Director & CEO of the Bank
since September 01, 2004. He holds an MBA degree from Rutgers’ University in
New Jersey, U.S.A. (1980), and Bachelor’s degree in Economics (Honours) from
the University of Delhi (1977).
Mr.Raj Ahuja has been appointed as CFO in April 2018. Prior to joining Yes Bank,
Raj was CFO and Head of Enterprise functions at Reliance Jio Infocomm Ltd. He
has over 26 years of rich experience in managing finance and allied areas,
operations, compliance and regulatory aspects.
July 18, 2018
5
Yes Bank | Initiating Coverage
Income Statement
Y/E March ( `cr)
FY15
FY16
FY17
FY18
FY19E
FY20E
Net Interest Income
3,488
4,567
5,797
7,737
10,593
13,967
- YoY Growth (%)
28
31
27
33
37
32
Other Income
2,046
2,712
4,157
5,224
7,414
9,796
- YoY Growth (%)
19
33
53
26
42
32
Operating Income
5,534
7,279
9,954
12,961
18,007
23,763
- YoY Growth (%)
25
32
37
30
39
32
Operating Expenses
2,285
2,976
4,117
5,213
7,202
9,545
- YoY Growth (%)
31
30
38
27
38
33
Pre - Provision Profit
3,250
4,302
5,838
7,748
10,805
14,218
- YoY Growth (%)
21
32
36
33
39
32
Prov. & Cont.
339
536
793
1,554
1,923
2,500
- YoY Growth (%)
(6)
58
48
96
24
30
Profit Before Tax
2,910
3,766
5,044
6,194
8,882
11,718
- YoY Growth (%)
25
29
34
23
43
32
Prov. for Taxation
905
1,227
1,714
1,970
2,931
3,867
- as a % of PBT
31
33
34
32
33
33
PAT
2,005
2,539
3,330
4,225
5,951
7,851
- YoY Growth (%)
24
27
31
27
41
32
Source: Company
Balance Sheet
Y/E March (` cr)
FY15
FY16
FY17
FY18
FY19E
FY20E
Equity
418
421
456
461
461
461
Reserve & Surplus
11,262
13,366
21,598
25,298
30,177
36,615
Networth
11,680
13,787
22,054
25,758
30,638
37,076
Deposits
91,176
1,11,720
1,42,874
2,00,738
2,66,370
3,53,319
- Growth (%)
23
23
28
41
33
33
Borrowings
26,220
31,659
38,607
74,894
1,00,357
1,29,461
Other Liab. & Prov.
7,094
8,098
11,525
11,056
18,797
21,198
Total Liabilities
1,36,170
1,65,263
2,15,060
3,12,446
4,16,163
5,41,053
Cash Balances
5,241
5,776
6,952
11,426
15,181
20,140
Bank Balances
2,317
2,442
12,597
13,309
17,517
23,238
Investments
43,228
48,838
50,032
68,399
91,086
1,20,839
Advances
75,550
98,210
1,32,263
2,03,534
2,74,771
3,57,202
- Growth (%)
36
30
35
54
35
30
Fixed Assets
319
471
684
832
1,168
1,549
Other Assets
9,516
9,526
12,532
14,946
16,441
18,085
Total Assets
1,36,170
1,65,263
2,15,060
3,12,446
4,16,163
5,41,053
Source: Company
July 18, 2018
6
Yes Bank | Initiating Coverage
Exhibit 9: Key Ratio
Y/E March (` cr)
FY15
FY16
FY17
FY18
FY19E
FY20E
Profitability ratios (%)
NIMs
3.1
3.3
3.4
3.3
3.2
3.2
Cost to Income Ratio
41.3
40.9
41.4
40.2
40.0
40.2
RoA
1.6
1.7
1.8
1.6
1.6
1.6
RoE
21.3
19.9
18.6
17.7
21.1
23.2
B/S ratios (%)
CASA Ratio
0.23
0.28
0.36
0.36
0.38
0.39
Credit/Deposit Ratio
0.8
0.9
0.9
1.0
1.0
1.0
Asset Quality (%)
Gross NPAs
0.41
0.76
1.52
1.28
1.25
1.25
Gross NPAs (Amt)
313
749
2,018
2,626
3,434
4,465
Net NPAs
0.12
0.29
0.81
0.64
0.55
0.50
Net NPAs (Amt)
87
284
1,072
1,312
1,511
1,786
Credit Cost on Advance
0.45
0.55
0.60
0.76
0.70
0.70
Provision Coverage
72%
62%
47%
50%
56%
60%
Per Share Data (`)
EPS
8.7
11.0
14.5
18.3
25.8
34.1
BV
50.7
59.9
95.8
111.8
133.0
161.0
ABVPS (75% cover.)
50.7
59.4
93.3
109.0
130.2
158.1
DPS
1.8
2.0
2.4
2.7
4.7
6.1
Valuation Ratios
PER (x)
43.7
34.5
26.3
20.8
14.7
11.2
P/BV
7.5
6.4
4.0
3.4
2.9
2.4
P/ABVPS (x)
7.5
6.4
4.1
3.5
2.9
2.4
Dividend Yield
0.5
0.5
0.6
0.7
1.2
1.6
Note - Valuation done on closing price of 17/07/2018
July 18, 2018
7
Yes Bank | Initiating Coverage
Research Team Tel: 022 - 39357800
DISCLAIMER
Angel Broking Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited, Bombay
Stock Exchange Limited and Metropolitan Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and
Portfolio Manager and Investment Adviser with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking
Limited is a registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration
number INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for
accessing /dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed
public offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the
contrary view, if any
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Disclosure of Interest Statement
Yes Bank
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
July 18, 2018
8
