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Key Highlights
We recently met the management of Yes Bank. The purpose was to review the
business prospects and the version 2 plan in context of the current macro
environment and tight monetary policy.
The management of the bank is confident in achieving its goals of version 2 unlike
a situation in 2008-09 where plans of expansion where shelved due to the
macroeconomic environment. The bank has gained size from `229 bn in FY09 to
`590 bn in FY11 and the ability to successfully emerge from the previous adverse
interest rate cycle has enabled it to tide over the current high interest rate environment.
We also wanted to review our concern on scale and granularity of the bank. In that
context, top 20 depositors make up 18.3% of deposits and top 20 borrowers make
up 14% of the loan book ( top 5 borrowers would make up 7-8% of loan book).
While many of the large banks slowed down activity post crisis, Yes Bank used this
as an opportunity to build relationships with large and medium corporates. The
bank has 500-600 existing relationships with large corporates and a CRM of 2,000
corporates in the pipeline. This has enabled the bank to move from the last leg in
the consortium to becoming a consortium player.
Balance sheet and loan book growth continues to be on track and the management
has indicated a growth ~2x of the industry (35-40% for FY12E). Specific sectors of
growth over the next 2-3 quarters are life sciences, pharma and segments of
engineering, while food and agri will be driven by seasonal and cyclical trends of
monsoons, cropping patterns and commodity prices. We expect the loan book to
grow at a CAGR of 36% over FY11-13E with increasing focus on commercial (mid
corporates) and branch banking.
The bank is on track with its version 2 target of 250 branches in June 2011. New
branches will increasingly focus on commercial and branch banking activities and
the focus is towards building a liability franchise. Moving towards a hub and spoke
model, Yes Bank has the hub in place with the first 50 -75 branches and is expanding
to incorporate the spokes.
We believe that the gestation period of new branches for Yes Bank might be higher
as compared to 12-15 months for the industry owing to the fact that the bank is in a
build up phase for SME and branch banking activities. Thus despite a slower
growth in term deposits at a 34% CAGR over FY11-13E and a stronger CAGR in
CASA of 51% CAGR over FY11-13E we expect CASA share of ~13% in FY13E.
Our target of 50% CAGR in CASA is against management guidance of 60% over the next
2 years. The bank is using a B2B and a B2C model to build CASA base on its 150 new
branches and existing branches. However, active sourcing of SA will pick up pace post the
set up of 350 plus branches. Yes Bank has initiated a tie up with Bajaj Allianz for the issue
of co branded credit cards.The 6 mn customer base of Bajaj Allianz provides ample
opportunity to build a cutomer base of 50,000-60,000 for Yes Bank. However, this initiative
is still in a gestation period and will pick up post FY12.
The bank’s ALM is structured such that 78% of liabilities are <1 year and 49% of assets are
less than 1 year (based on the FY11). Thus the rising interest rate environment during
Q1FY12 would exert pressure on NIMs. We expect NIMs for FY12 to remain below 3%.
However, beyond the inflexion point of interest rates moving upwards we expect the 55%
floating loan book to even out rates at ~2.8-2.9%. Thus NIMs are likely to remain flat to
marginally negative.
We expect non-interest income to grow at 23% CAGR over FY11-13E. Lower liquidity is
likely to exert pressure on financial marketsand third party distribution income. However,
on the flip side, lack of equity market deals and underwriting fees is aiding the bank
through FA income. Scale and traction through branches and relationships continue to
expand trade and transaction banking income.
The bank had a CAR of 16.5% (March 2011) with a tier I capital of 9.7%. With a balance
sheet growth of 33% over FY11-13E, Tier I is likely to slip below 9% in FY12E. We believe
that the bank will have to raise capital towards the end of FY12 or Q1FY12. We have
factored in capital raising of `13.2 bn in Q1FY12 which will give a tier I headroom of 175-
200 bps. We also acknowledge that capital raising in the current environment might be a
challenge for the bank and a delay will impact the pace of growth at which the bank is
expected to grow over the next 2 years.
We have tweaked our FY12 and FY13 estimates and the change in ABV is largely on the
back of capital raising. The stock is trading at a P/ABV of 2.4x FY12E ABV and 1.7x FY13E
ABV. The 5 year average rolling 12 forward P/ABV is 2.6x and the 1 year average rolling P/
ABV is 2.2x. We have valued the stock at a 2.0x P/ABV (v/s 2.5x) which translates to a target
price of `368 per share (FY13).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Highlights
We recently met the management of Yes Bank. The purpose was to review the
business prospects and the version 2 plan in context of the current macro
environment and tight monetary policy.
The management of the bank is confident in achieving its goals of version 2 unlike
a situation in 2008-09 where plans of expansion where shelved due to the
macroeconomic environment. The bank has gained size from `229 bn in FY09 to
`590 bn in FY11 and the ability to successfully emerge from the previous adverse
interest rate cycle has enabled it to tide over the current high interest rate environment.
We also wanted to review our concern on scale and granularity of the bank. In that
context, top 20 depositors make up 18.3% of deposits and top 20 borrowers make
up 14% of the loan book ( top 5 borrowers would make up 7-8% of loan book).
While many of the large banks slowed down activity post crisis, Yes Bank used this
as an opportunity to build relationships with large and medium corporates. The
bank has 500-600 existing relationships with large corporates and a CRM of 2,000
corporates in the pipeline. This has enabled the bank to move from the last leg in
the consortium to becoming a consortium player.
Balance sheet and loan book growth continues to be on track and the management
has indicated a growth ~2x of the industry (35-40% for FY12E). Specific sectors of
growth over the next 2-3 quarters are life sciences, pharma and segments of
engineering, while food and agri will be driven by seasonal and cyclical trends of
monsoons, cropping patterns and commodity prices. We expect the loan book to
grow at a CAGR of 36% over FY11-13E with increasing focus on commercial (mid
corporates) and branch banking.
The bank is on track with its version 2 target of 250 branches in June 2011. New
branches will increasingly focus on commercial and branch banking activities and
the focus is towards building a liability franchise. Moving towards a hub and spoke
model, Yes Bank has the hub in place with the first 50 -75 branches and is expanding
to incorporate the spokes.
We believe that the gestation period of new branches for Yes Bank might be higher
as compared to 12-15 months for the industry owing to the fact that the bank is in a
build up phase for SME and branch banking activities. Thus despite a slower
growth in term deposits at a 34% CAGR over FY11-13E and a stronger CAGR in
CASA of 51% CAGR over FY11-13E we expect CASA share of ~13% in FY13E.
Our target of 50% CAGR in CASA is against management guidance of 60% over the next
2 years. The bank is using a B2B and a B2C model to build CASA base on its 150 new
branches and existing branches. However, active sourcing of SA will pick up pace post the
set up of 350 plus branches. Yes Bank has initiated a tie up with Bajaj Allianz for the issue
of co branded credit cards.The 6 mn customer base of Bajaj Allianz provides ample
opportunity to build a cutomer base of 50,000-60,000 for Yes Bank. However, this initiative
is still in a gestation period and will pick up post FY12.
The bank’s ALM is structured such that 78% of liabilities are <1 year and 49% of assets are
less than 1 year (based on the FY11). Thus the rising interest rate environment during
Q1FY12 would exert pressure on NIMs. We expect NIMs for FY12 to remain below 3%.
However, beyond the inflexion point of interest rates moving upwards we expect the 55%
floating loan book to even out rates at ~2.8-2.9%. Thus NIMs are likely to remain flat to
marginally negative.
We expect non-interest income to grow at 23% CAGR over FY11-13E. Lower liquidity is
likely to exert pressure on financial marketsand third party distribution income. However,
on the flip side, lack of equity market deals and underwriting fees is aiding the bank
through FA income. Scale and traction through branches and relationships continue to
expand trade and transaction banking income.
The bank had a CAR of 16.5% (March 2011) with a tier I capital of 9.7%. With a balance
sheet growth of 33% over FY11-13E, Tier I is likely to slip below 9% in FY12E. We believe
that the bank will have to raise capital towards the end of FY12 or Q1FY12. We have
factored in capital raising of `13.2 bn in Q1FY12 which will give a tier I headroom of 175-
200 bps. We also acknowledge that capital raising in the current environment might be a
challenge for the bank and a delay will impact the pace of growth at which the bank is
expected to grow over the next 2 years.
We have tweaked our FY12 and FY13 estimates and the change in ABV is largely on the
back of capital raising. The stock is trading at a P/ABV of 2.4x FY12E ABV and 1.7x FY13E
ABV. The 5 year average rolling 12 forward P/ABV is 2.6x and the 1 year average rolling P/
ABV is 2.2x. We have valued the stock at a 2.0x P/ABV (v/s 2.5x) which translates to a target
price of `368 per share (FY13).
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