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YES Bank's management in a meeting last week stated its ability to maintain : (1) credit quality in
the infrastructure loan book; and (2) NIMs in spite of a toughened macroeconomic environment.
With valuations having corrected to 2.0x FY12F BV, we retain our Buy call.
Infrastructure exposure largely working capital led:
YES had a Rs41bn loan exposure (7.7% of total) to the infrastructure sector as of March 2011
with power accounting for the largest share (Rs 24bn) followed by roads (Rs 7bn).
Nearly 60% of power sector loans were a mix of working capital loans and loans with recourse to
the operating company. Being short dated these loans had lower pricing and credit risk. The rest
were a mix of brown field (30%) and green field exposures (10%) to a diverse mix of sub-sectors
Ticket size of an average infrastructure loan stood in the Rs750m-1,000m range. Loans of larger
ticket sizes were typically sold down with YES retaining between 10-15% of origination. Such selldowns result in 0.5-1% fee (of the sale) for YES
As per the management, the bank's infrastructure loans had average tenor of 18-24 months,
making it a shorter tenor book than typical plain vanilla infrastructure exposures for peers.
NIMs to remain stable
Within YES's Rs331bn loan book (as of June 2011), 60% of loans were linked to either the base
rate or the bank's PLR. This resulted in more frequent re-pricing to reflect the rising rate
environment. The rest were fixed rate loans but had a average duration of ~1 year.
We think a matching of short dated loans with short dated (and wholesale) liabilities allows for a
better transmission of interest rates and gives YES pricing flexibility. However, if wholesale rates
remain at elevated levels, FY12 credit growth could be lower than our estimates.
Valuations attractive; Retain Buy
We think valuations at 2.0x FY12F BV factor in YES's relatively inferior funding franchise and any
credit quality stress from a deteriorating macroeconomic environment. We retain 'Buy'. Over a
longer period of time, the bank's ability to mitigate these risks through a more diversified funding
base is likely to drive the stock's re-rating. Recent hires in retail banking bode well for this.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
YES Bank's management in a meeting last week stated its ability to maintain : (1) credit quality in
the infrastructure loan book; and (2) NIMs in spite of a toughened macroeconomic environment.
With valuations having corrected to 2.0x FY12F BV, we retain our Buy call.
Infrastructure exposure largely working capital led:
YES had a Rs41bn loan exposure (7.7% of total) to the infrastructure sector as of March 2011
with power accounting for the largest share (Rs 24bn) followed by roads (Rs 7bn).
Nearly 60% of power sector loans were a mix of working capital loans and loans with recourse to
the operating company. Being short dated these loans had lower pricing and credit risk. The rest
were a mix of brown field (30%) and green field exposures (10%) to a diverse mix of sub-sectors
Ticket size of an average infrastructure loan stood in the Rs750m-1,000m range. Loans of larger
ticket sizes were typically sold down with YES retaining between 10-15% of origination. Such selldowns result in 0.5-1% fee (of the sale) for YES
As per the management, the bank's infrastructure loans had average tenor of 18-24 months,
making it a shorter tenor book than typical plain vanilla infrastructure exposures for peers.
NIMs to remain stable
Within YES's Rs331bn loan book (as of June 2011), 60% of loans were linked to either the base
rate or the bank's PLR. This resulted in more frequent re-pricing to reflect the rising rate
environment. The rest were fixed rate loans but had a average duration of ~1 year.
We think a matching of short dated loans with short dated (and wholesale) liabilities allows for a
better transmission of interest rates and gives YES pricing flexibility. However, if wholesale rates
remain at elevated levels, FY12 credit growth could be lower than our estimates.
Valuations attractive; Retain Buy
We think valuations at 2.0x FY12F BV factor in YES's relatively inferior funding franchise and any
credit quality stress from a deteriorating macroeconomic environment. We retain 'Buy'. Over a
longer period of time, the bank's ability to mitigate these risks through a more diversified funding
base is likely to drive the stock's re-rating. Recent hires in retail banking bode well for this.
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