yesbank_dolatcap_210613

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DOLATCAPITAL

IndiaResearch

June 21, 2013

Yes Bank

CMP:`````453 Target Price:`````565 Buy

Fianancials/Mana

gementMeetNote

BSE Sensex 18,774

NSE Nifty 5,668

Scrip Details

Equity `3586mn

Face Value `10/-

Market Cap `163bn

USD 2.8bn

52 week High / Low `547 / 322

Avg. Volume (no) 1,782,216

BSE Code 532648NSE Symbol YESBANK

Bloomberg Code YES IN

Reuters Code YESB.BO

Shareholding Pattern as on June12 (%)

Promoter 25.72

MF/Banks/FIs 13.23

FIIs 48.95

Public / Others 12.10

Sr. Analyst: Rajiv PathakTel : +9122 4096 9750E-mail: [email protected]

We recently met with the management of Yes Bank where the bank re-iterated

its earlier growth and credit costs targets. The recent issue related to the

appointment of promoter director/independent director should also come topass. Yes Bank should continue its current balance sheet growth rate of around

30% combined with stable asset quality. NIM is set to improve further aided by

lower cost of funds and improvement in CASA. The bank would be raising

equity capital in the next 6-9 months which would entail a dilution of around

15% on existing equity (almost similar to the last equity issuance).

Recent media reports on the Board level appointments showed the bank in bad

light. In our view, if the promoter director appointment would have been made,

the issue could still have been raised in the guise of nepotism. In our view, the

banks stand is pragmatic where the Board would decide on the appointment at

the meeting to be held on 27th J une. We find current valuation of 2.3x on FY14

BVPS attractive and maintain our Buy rating on the stock with target price of`565 based on PBR of 2.8x on our FY14 BVPS forecasts.

Following are the key highlights of our meeting:

Asset qual ity:

Asset quality should remain stable and currently the bank does not see any

major slippages. Also there are no major restructuring proposals in the pipeline.

Total restructured loans stood at Rs 1.8bn forming 0.4% of total loans.

The bank grades loans on scale of 1 to 10, where 1 is the best grade and 10 is

the default grade. When loans move to the 5th / 6thgrade, the bank puts them on

focus list which at current is 1% of total loans. The bank starts making excessprovisions on the same so as to minimize the profitability impact if these loans

were to slip into NPLs.

Currently except for few cases, there is no major asset quality threat in this

pool. The SME portfolio has been performing better than the mid corporate

portfolio, where the stress levels are relatively higher.

Balance sheet growth & NIM:

Loan growth should remain at around 25% for next year, driven by corporate

(mostly working capital and short term loans), SME and retail loans. Currently,

the higher rated corporate (AA and above) prefer credit substitutes for their

short term funding needs as the cost is lower by around 100bps.

While in the past, credit substitutes had shown a very high growth, going forward

as the economic growth improves and interest rates trend downwards,

incrementally the growth would be more loans driven than the substitutes. The

shift would also aid in improving NIM.

The traction in savings deposit continues to be robust and while the current

account deposits would grow in line with overall deposit growth, the savings

deposits should drive the overall CASA improvement. CASA stood at 18.9% in

Q4FY13 (CA 10%, SA 9%)Financials

Year NII PPP NP NIM (%) BV (`````

) ABV (`````

) RoAA (%) RoAE (%) P/B (x) P/ABV (x) P/E (x)FY12 16,156 15,402 9,770 2.6 132 132 1.5 23.1 3.42 3.43 16.4

FY13 22,188 21,417 13,007 2.7 162 162 1.5 24.8 2.80 2.80 12.5

FY14E 29,551 28,386 16,603 2.8 199 199 1.5 25.6 2.27 2.28 9.8

FY15E 37,627 35,908 20,817 3.0 248 246 1.5 26.0 1.83 1.84 7.8

Figures in `mn

Yes Bank relative to Sensex

80

90

100

110

120

130

140

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Yes Bank Sensex


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DOLATCAPITALIndia Research

J une 21, 2013 Yes Bank

The bank has mandates from 40 co-operative banks to provide debit card services

to their customers. These cooperative banks maintain funds in the form of current

account deposits with Yes Bank which is adjusted against the withdrawals by the

cooperative bank customers. In the interim period, Yes Bank does tend to benefit

from the float. However, there has not been sell-down of loans to the cooperative

banks.

Cost of funds on the bulk deposits and CDs have seen a decline and would aid in

improving the NIM which was flat QoQ at 3% in Q4FY13. For FY14, NIM can see

an almost 20bps improvement.

Fee income:

Non-interest income growth to remain strong driven by the advisory fees which

grew 62% YoY in Q4FY13. Almost 1/3rdof the advisory income (`1.7bn in Q4) was

derived from loan syndication and related businesses which still remains the prime

driver for the advisory income. Other fee income streams like third party distribution

and trade/guarantee fees would also support the high fee income growth going

forward.

Network:

Yes Bank held 146 branch licenses and plans to open around 30 branches per

quarter going forward. The bank would also increasingly focus on opening small

branches in smaller towns following a hub and spoke model. Loan appraisals are

all centralized at its processing and approval centers to mitigate the credit risks.

Cobrapost and fraudulent internet banking transaction :

The bank does not see any fallout from the Cobrapost operations, however the

recent case of fraudulent internet banking transaction impacting one of its corporate

customer had led to an increase in the enquiries and anxieties for some customers(both existing and target). The bank has strengthened its IT system processes

even further and allayed the apprehensions of the existing as well as target customers

and does not see an impact on new customer acquisitions.

Valuation

We believe that the bank is well placed to grow its balance sheet at CAGR of 24%

over the next two years. We believe that despite the rise in NPL that we are factoring

over the next two year, Yes Banks asset quality should remain amongst the best

in industry. Softening of bulk deposit rates over the next one year, improvement in

CASA should aid the NIM expansion. Despite the increase in credit cost; improving

NIM, high balance sheet growth, fee and treasury income growth should help drive

the 27% CAGR in net profit during FY13-15E. Current valuation of 2.3x on FY14BVPS attractive, maintain our Buy rating on the stock with target price of`565

based on PBR of 2.8x on our FY14 BVPS forecasts.


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DOLATCAPITALIndia Research

J une 21, 2013 Yes Bank

IMPORTANT RATIOS

Particulars Mar12 Mar13 Mar14E Mar15E

DPS (`) 4 6 8 9

Book Value (`) 132 162 199 248

Adjusted Book Value (`) 132 162 199 246

EPS (`) 28 36 46 58

Payout (%) 16.2 18.5 18.1 16.4

Tier 1 (%) 9.9 9.5 8.9 8.1

CAR (%) 17.9 18.3 16.3 14.3

Net interest margin (%) 2.6 2.7 2.8 3.0

Credit Spread (%) 1.9 2.1 2.4 2.7

Cost-to-income (%) 37.7 38.4 36.8 36.0

Growth (%)

NII 30 37 33 27

Non-interest income 38 47 22 20

Operating cost 37 43 24 22

PPOP 29 39 33 26

Provisions (8) 139 84 33

PAT 34 33 28 25Networth 23 24 23 24

Deposits 7 36 29 33

Loans 11 24 30 33

Total Assets 25 35 21 24

ROAA breakdown

Gross Interest spread 2.4 2.6 2.7 2.8

Less Provisions 0.1 0.2 0.4 0.4

Net Interest spread 2.3 2.3 2.3 2.4

Less Overheads 1.4 1.5 1.5 1.5

Net spread 0.9 0.8 0.8 0.9

Other income 1.3 1.5 1.4 1.4

Less Tax 0.7 0.7 0.7 0.7

ROAA 1.5 1.5 1.5 1.5

ROAE 23.1 24.8 25.6 26.0

Valuation

Price Earnings (x) 16.4 12.5 9.8 7.8

Price to Book Value (x) 3.42 2.80 2.27 1.83

Price to Adjusted BV (x) 3.43 2.80 2.28 1.84

Dividend Yield (%) 0.9 1.3 1.7 1.9

Asset Quali ty

Gross NPLs 839 943 2,171 3,479

Net NPLs 175 70 174 418

Provision coverage ratio (%) 79.2 92.6 92.0 88.0

Gross NPLs (%) 0.2 0.2 0.4 0.4Net NPLs (%) 0.1 0.0 0.0 0.1

Assum pt io ns

Yield on Advances (%) 12.2 12.7 12.0 11.5

Yield on Investment (%) 7.9 8.1 7.6 7.1

Cost of Deposits (%) 8.1 7.9 6.9 6.3

Growth in credit book (%) 10.5 23.7 30.0 33.0

Growth in Deposits (%) 7.0 36.2 29.3 33.2

Growth in Investments (%) 47.4 54.8 12.0 12.0

Gross slippages ratio (%) 0.2 0.6 0.6 0.6

Credit Cost (%) 0.14 0.52 0.70 0.71

E-estimates

INCOME STATEMENT `````mn


Interest Income 63,074 82,940 100,043 118,926

Interest Expenses 46,917 60,752 70,492 81,299

Net Interest Income 16,156 22,188 29,551 37,627

CEB 7,677 10,762 12,376 14,852

Profits on sale of investments 379 1,557 2,024 2,428

Profits on foreign exchange 268 667 833 1,017

Other operating income 248 (411) 150 173

Total other income 8,571 12,574 15,383 18,469

Total Income 24,727 34,762 44,934 56,096

Salaries 4,752 6,555 8,129 9,917

Other operating costs 4,574 6,790 8,420 10,272

Total Overheads 9,325 13,345 16,548 20,189

Profit before provisions 15,402 21,417 28,386 35,908

Total provisions 902 2,160 3,970 5,295

Profit before tax 14,500 19,257 24,416 30,613

Tax 4,730 6,251 7,813 9,796

Reported Net profit 9,770 13,007 16,603 20,817

BALANCE SHEET


Cash with RBI and Call Money 35,855 40,658 42,690 51,229

Investments 277,574 429,760 481,332 539,091

Advances 379,886 469,996 610,994 812,623

Fixed Assets 1,771 2,296 2,640 3,168

Other Assets 41,535 48,333 65,887 91,676

Total Assets 736,621 991,042 1,203,543 1,497,786

Demand Deposits 48,884 66,649 86,643 113,503

Savings Deposits 25,038 60,227 84,318 115,515

Term Deposits 417,596 542,681 694,631 923,859

Total Deposits 491,517 669,556 865,592 1,152,878Borrowings 141,565 209,221 209,522 198,660

Other Liabilities & Provisions 56,773 54,187 56,897 57,466

Equity 3,530 3,586 3,586 3,586

Reserves 43,236 54,491 67,946 85,196

Total Equity 46,766 58,077 71,532 88,783

Total Liab & Equity 736,621 991,042 1,203,543 1,497,786

E-estimates


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DOLATCAPITAL

This report contains a compilation of publicly available information, internally developed data and other sources believed to be reliable. While

all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable, we do not take

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BUY Upside above 20%

ACCUMULATE Upside above 5% and up to 20%

REDUCE Upside of upto 5% or downside of upto 15%

SELL Downside of more than 15%

Analyst Sector/Industry/Coverage E-mail Tel.+91-22-4096 9700

Amit Khurana, CFA Co-Head Equities and Director - Research [email protected] 91-22-40969745

Amit Purohit Consumer [email protected] 91-22-40969724

Milind Bhangale Pharma [email protected] 91-22-40969731

Mayur Milak Auto & Auto Ancillary [email protected] 91-22-40969749

Nehal Shah Midcaps & Agrochem [email protected] 91-22-40969753

Priyank Chandra Oil & Gas [email protected] 91-22-40969737

Rahul Jain IT Services [email protected] 91-22-40969754

Rajiv Pathak Financials [email protected] 91-22-40969750Ram Modi Metals & Mining [email protected] 91-22-40969756

Prachi Save Derivatives [email protected] 91-22-40969733

Associates Sector/Industry/Coverage E-mail Tel.+91-22-4096 9700

Dhaval S. Shah Capital Goods [email protected] 91-22-40969726

Pranav J oshi Financials [email protected] 91-22-40969706

Manish Raj Metals & Mining [email protected] 91-22-40969725

Equity Sales/Trading Designation E-mail Tel.+91-22-4096 9797

Purvag Shah Principal [email protected] 91-22-40969747

Vikram Babulkar Co-Head Equities and Head of Equity Sales [email protected] 91-22-40969746

Kapil Yadav AVP - Institutional Sales [email protected] 91-22-40969735

Parthiv Dalal AVP - Institutional Sales [email protected] 91-22-40969705

J atin Padharia Institutional Sales - FII [email protected] 91-22-40969748

Chirag Makati AVP - Sales Trading [email protected] 91-22-40969702

Aadil R. Sethna Head of Derivatives [email protected] 91-22-40969708

P. Sridhar Head Sales - Trading [email protected] 91-22-40969728

Chandrakant Ware Senior Sales Trader [email protected] 91-22-40969707

J itendra Tolani Sales Trader [email protected] 91-22-40969734

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