Company Background
Yes Bank is the one of the youngest new generation private sector banks with an assets size of more
than ~Rs 70 bn. At present, the bank caters to its client base with a branch network of 356 and more
than 600 ATM across the country. The bank has a very ambitious plan with a strategic roadmap to
achieve the balance sheet size of Rs 1,500 bn with a pan India branch network of 900 and employee
base of 12,750 by 2015.
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Investment Rational
⇒ Performance across the segments to continue going forward
Yes Bank’s track record is above the industry standard across the business segments and we expect
this trend to continue going forward. We expect banks advance and deposit base to grow at a CAGR
of more than 25% between FY12 and FY15 while earnings of the bank is expected to grow at a CAGR
of more than 35% during the same period.
⇒ Continuous improve in CASA would lead to strong earning growth and stable NIM
YBL’s Version 2 has a target CASA ratio of 30% till FY15 which is currently stood at 15%. With continuous
increase in CASA ratio, YBL would be able to minimize its cost of funding which would eventually
enhance the NIM of the bank from the current level of 2.7% to 3% level in the coming years. However,
YBL’s strategic loan book distribution (more inclined to working capital funding) gives its an edge
over its peer in terms of yield and quality of asset as well as helps the bank to maintain the NIM at
higher level. YBL’s higher other income and low operating cost would also help the bank to sustain the
margin in the long run.
⇒ High Quality assets with strong ROE & RoA
YBL has consistently delivered higher returns in term of both RoE and RoA and expected to maintain
at current level going forward. We expect YBL to sustain its RoE well above the 23% mark while RoA
of the bank would remain above the current level of 1.5%. In Addition, YBL is well capitalized with a
total CAR of 17.9% with high quality of assets where its GNPA and NNPA expected to stands at 0.5%
and 0.2% level which is amongst the best in the industry. Moreover, we expect YBL’s PCR (Provision
Coverage Ratio) to remain above the 75% level which further boost the confidence about the bank’s
quality of assets.
Valuation and Outlook
Considering strong CASA growth, higher NIM, superior asset quality and healthy return ratios, we expect
YBL to deliver outstanding performance in the coming years. We expect YBL’s advances and
deposit base to grow at a CAGR of more than 25% from FY12 to FY15E. We estimate FY13E and
FY14E Net income to stand at Rs 33.6 bn and Rs 43.1 bn respectively. We initiate the company with a
“BUY” rating and have valued the company on Gordon Growth Model to arrive at a Target price of Rs
407 (around ~2.1x times FY14E ABV.) implying an upside of 22% from current levels.
Outlook
Considering the recent easing in inflation coupled with overall deceleration in economic growth rate,
we expect some change in interest rate policy in favor of market to boost the overall economy. With
occurrence of any such an event, we expect, YBL would continue to outperform the industry performance
with its strategic growth plan. Going forward we expect with the current low base and rapid
branch expansion, YBL would be able to achieve a CAGR growth of more than 25% in its deposit as
well as advances in the next three years. In addition, with a stable NIM of 2.8% to 3% in the next two
year, YBL’s bottom-line will expected to increase with a 3 years CAGR of more than 35%. We expect
net profit margin of the bank would be well above the 15% range till FY15 with a earning growth of
33% CAGR 3years CAGR). We expect YBL to deliver EPS of Rs 36.3, Rs 44 and Rs 65 in FY13e ,
FY14 and FY15 respectively. In top of all this, we assume YBL would be able to sustain its RoE above
25% mark with a RoA > 1.5% in the coming years. However we expect, there would be some marginal
increase in the bank’s gross non performing asset (GNPA) and net non performing asset (NNPA)
but YBL’s higher provision in terms of its non performing asset, would continue to provide confidence
about its quality of assets. The banks current CAR of 17.9% is at quite comfortable level as per the
regulatory requirement but considering the gradual implication of Basel III, we assume YBL will increase
its core equity capital base in the near future. As per the estimation the management of YBL
has indicated a capital raising plan of USD 400-USD 500 mn (RS 22 bn to RS 27.5 bn) through QIP or
GDR during the end of December 2013.
Price Origination
We have valued the bank on the basis “Gordon Growth model” to arrive at our price target. We have
estimated a adjusted BV of Rs 160 for FY13 and Rs 195 for FY14. According to the assumption applied
in the valuation method, we arrive at a price target of Rs 407 with a P/BV multiple of 2.1x for
FY14. Last 5 years historical trend signals that the stock has been trading at P/BV multiple of more
than 2.5x one year forward. Being at the conservative side, we took lower P/BV of 2.1x. At CMP, the
stock is trading at P/BV of 1.7x of its estimated ABV of FY14E. We set our target price for Yes Bank at
Rs 407 with factoring all the above growth rate and market dynamic.
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