This action might not be possible to undo. Are you sure you want to continue?
founded by Mr.87 20. Valuation & Recommendation At CMP of Rs.75x we arrive at a target price of Rs.70 168. Banks & Institutions 60. is India’s new age private sector Bank.5% 24.com Asset quality remains the best in the industry: The bank's asset quality remains healthy with one of the lowest proportion of stressed assets (0. 52.com Pradeep Mundra.email@example.com% 22.134.91 P/ABV (x) ROE % 2. It is Rs.3% 61. Research Associate (022‐39268078) pradeep.75x P/ABV of FY 2012E.7% 56.7 per share for FY 2012E and P/ABV target multiple of 2.8% Corporate Bodies 11. Management expects the bank’s total business to increase at a CAGR of 35% till FY 2015 with a total business size of Rs.25 lakh Crs.7% 478 718 941 1.00 26. Rana Kapoor and his highly competent top management team. 15% 34. we recommend BUY on the stock with a target price of Rs.617 Face Value (Rs.67 Adj.01x of its FY12E ABV.00 35. 2. Year NII (Rs.4% 52‐ wk HI/Low 388/233 Avg.370 indicating potential upside of 37%. volume BSE (Quarterly) 537.6% . Aggressive branch expansion plans in order to increase retail base: Yes Bank is expanding its retail base aggressively. The total balance sheet size of the bank is Rs. We have conservatively built in higher delinquencies given the fact that increased loans to retail and SME segment along with a significant credit growth may also result in higher slippages. 70.645 2.82 134.42 7. Financial advisory and transaction banking will continue to be the key focus areas for growth in non interest income.000 Crs with a total business 532648 (advances & deposits) of Rs.370. The bank plans to increase the number of branches to 750 by 2015 from 185 as on December 2010.0% 33.8% 36.1% 1.0% 3 Mth ‐26. 370 one of the banks which have the distinction of obtaining RBI’s Greenfield Banking banking license.568 2. Management has guided its loan growth to be around 2x the industry’s loan growth.01 1.6% FII.55 10. YES CMP (07/03/2011) Rs.5% higher growth and increase its low cost deposits thereby enhancing the 8.Initiating Coverage Yes Bank Ltd Recommendation BUY Yes Bank Ltd (Yes Bank). Nevertheless it is noteworthy to mention.99 2.236 54. Crs) 863 1.70 109. Yes Bank is recognized amongst the top five private banks in terms of business size and is one of the fastest growing banks in recent times. Consequently. 271. Non‐interest income continues to aid top‐line growth: We expect the bank’s fee income to expand further with an increase in business and to grow at a CAGR of 26% over FY 2010‐2013E. BVPS (Rs.169 1.22 13.390 Free Float (%) 73.0% 62. that even after factoring in an increase in NPAs it still remains low as compared to its peer group.3% 21.278 14.58 Shares o/s (in Crs) Relative Performance Snapshot 1 Mth 6.5% of total loan book).0% YES Bank SENSEX 140 120 100 80 Feb‐10 May‐10 Aug‐10 Nov‐10 Feb‐11 Shareholding Pattern as on 31/12/2010 Promoters Holding 26.000 Crs as on 31st December 2010. Crs) Growth % FY 2010A FY 2011E FY 2012E FY 2013E 788 1.8% bank’s CASA share.3% 63.mundra@nirmalbang. the stock is trading at 2.47 2.) 10 Dividend (FY 2010) Yes Bank Sensex 160 Investment Rationale Strong growth in advances to continue: Going forward we expect the Bank to continue to grow much ahead of the industry given that it is the youngest bank in the sector with low credit base and an aggressive growth strategy. Research Analyst (022‐39268178) silky.229 1.5% Public & others Silky Jain. 271 Target Sector Stock Details BSE Code NSE Code Bloomberg Code YES IN Market Cap (Rs. Crs) 9. Based on our estimated book value of Rs.) 90. Looking at the historical trend and Yes Bank’s growth phase we value it at 2.0% Profit before provisioning (Rs.096 Margin % PAT (Rs. Crs) EPS (Rs) P/E (x) 63. In our 1 Yr view. extensive branch expansion will strengthen its asset base leading to 9.4% 2.5% ‐12.31 18.60 20.
25 lakh Crs. RBI. 100% 80% 60% 50% 40% Yes Bank advances v/s industry advances 79% 60% 22% 20% 32% 17% 17% 22% 40% 21% 27% 20% 2011E 2012E 2013E 0% 2008 2009 2010 Yes Bank Advances Industry advances Source: Company data. The key knowledge sectors of Yes Bank include food and agri‐business. information technology. The bank developed its expertise in these key sectors to target high growth.8% (in 9MFY11) from 0.3% in FY 2007.3% YoY against approximately 24. In terms of business growth. telecommunications. 2. engineering and healthcare. Approximately 82% of the bank's advances are into the knowledge sectors (9MFY11). media and entertainment. Nirmal Bang Research 2011E 2012E Industry deposits 2013E Focus on Knowledge Banking approach provides an edge Yes Bank had identified some of the niche growth sectors right from its inception which were not a major focus area for other banks. RBI. HDFC Bank and Axis Bank had grown at CAGR of 94% of and 60% respectively in initial years (FY1995‐ FY2000). . the market share of the bank in advances has expanded to 0. Management expects the bank’s total business to increase at a CAGR of 35% till FY 2015 with a total business of Rs.5% YoY growth in the industry. the bank has maintained its guidance of ~60% loan growth and ~70% deposit growth in FY 2011. Yes Bank continues to follow the path of Axis Bank and HDFC Bank in its initial years of inception. Accordingly. infrastructure. For 9MFY11.Initiating Coverage Yes Bank Ltd Investment Rationale Strong growth in advances to continue Yes bank’s advances have grown at a CAGR of 52% over FY 2007‐FY 2010 compared to 19% CAGR growth in the industry. Going forward we expect the bank to continue to grow much ahead of the industry given that it is the youngest bank in the sector with low credit base and an aggressive growth strategy. Nirmal Bang Research 80% 61% Yes Bank deposits v/s industry deposits 66% 65% 60% 40% 41% 22% 20% 20% 22% 17% 17% 21% 28% 20% 0% 2008 2009 2010 Yes Bank Deposits Source: Company data. Axis Bank and HDFC Bank had also followed the similar growth pattern historically. Yes Bank’s advances grew 66. In addition. Management has guided that the bank’s loan growth would be around 2x the industry’s loan growth.
1% TMT. We believe that this will enable the bank to maintain its high growth in advances with minimal NPAs. This helps the bank to build strong customer relationships and also to cross‐sell its products more effectively.7% Healthcare. 14. However. 4. .8% Source: Company data. 22. Yes Bank will continue to focus loan growth in its specialized segments. Nirmal Bang Research Infrastructure & Logistics.Initiating Coverage Yes Bank Ltd The bank leverages the experience and knowledge of its management team to offer customized financial products to its clients. The knowledge‐banking approach helps having better risk evaluation system which is evident from its lower slippages and restructured assets.4% Engineering. In our view. Commercial loans constituted 23% whereas Branch banking constituted only 4% of the total loan portfolio of the bank as on FY 2009. Moreover the proportion of retail loans is also likely to expand to 30% by 2015.4% Agribusiness. 21. Going forward. Higher advances growth and higher CASA will enable the bank to protect its Net Interest Margins (NIMs). C&I loans constituted 73%. 18. the bank plans to increase the number of branches to 250 by June 2011 and 750 by 2015 from 185 in 9MFY11 representing a CAGR of 38%. 18.7% Aggressive branch expansion plans in order to increase retail base Yes Bank has always been dependent on Corporate & Institutional (C&I) loans and Commercial loans with very less contribution from retail segment (Branch banking). Yes Bank is now expanding its retail base aggressively which is evident from the fact that it has been successful in increasing the contribution of loans from branch banking from 4% in FY 2009 to 10% in Q3FY11. Going forward Management targets its loan mix to be at 40:30:30 from C&I. Commercial and Branch segment by FY 2015. Such extensive retail branch expansion strategy is also aimed to increase the bank’s CASA share. By adopting such aggressive branch expansion plans Management intends to increase its advances to retail and SME segment with a subsequent reduction from the C&I segment. Sectoral break up of lending portfolio as on 9MFY11 Food and Others. Going forward. this extensive branch expansion will strengthen its asset base and will add large number of customers.
Initiating Coverage Yes Bank Ltd 80% Break up of advances 60% 40% 20% 0% FY 2009 Commercial FY 2010 Branch 9MFY 11 Corporate and Institutional Source: Company data.9% 10. We expect CASA deposits to grow at a CAGR of 59% over FY 2010‐FY 2013.0% 0 0. However. we expect a marginal decline in NIMs in FY 2011E and FY 2012E. 15. YES Bank's CASA mix is inclined towards current account which constitutes approximately 85% of its low cost deposits.0% FY 2009 FY 2010 FY 2011EFY 2012EFY 2013E CASA Source: Company data.000 Rs. Consequently. The bank has historically relied more on wholesale deposits to ramp up loan growth. However. We believe that the increase in CASA deposits will protect the bank’s net interest margins in the current scenario of rising interest rates.2% till FY 2013.3% 14. we expect a gradual improvement in the bank’s CASA ratio from current 10.0% 12. in absolute numbers CASA has grown at 81% CAGR during FY 2007‐FY 2010. current account saving account (CASA) is amongst the lowest in the sector.5% 11.e.000 5. Nirmal Bang Research CASA to improve gradually Yes Bank's proportion of low cost deposits i. In addition relatively lower branches impacted the CASA mobilization of the bank.2% 15. Yes Bank is looking to derive value from planned branch expansion and increase penetration to improve its CASA ratio. Management wants to increase the CASA share to 30% by FY 2015.0% 5.7% 10.2% to 14. in Crs 10. Nirmal Bang Research CASA % .000 CASA (%) 8.
In addition the fact that increased loans to retail and SME segment with a significant credit growth may also result in higher slippages.68% Rs.8% 2.0% 0 FY 2009 FY 2010 FY 2011E FY 2012E FY 2013E NII NIMs Source: Company data.06% 0 0.40% 0. The bank’s provision coverage ratio stood at 76% as on December 2010.500 2. in Crs 200 100 0. Nevertheless it is noteworthy to mention.000 4. Even in this scenario.0% 2. there was no account overdue. the bank has been able to limit its operating expenses while maintaining the growth momentum. we expect that the bank would be able to maintain its asset quality.80% NPA Movement 0.Initiating Coverage Yes Bank Ltd 2.27% 0. Larger branch penetration will act as a catalyst between growth in CASA and more market share as well as improvement in NIMs.9% 1. However it would be unreasonable to assume further improvement and therefore we have conservatively built in higher delinquencies. . regardless of having large number of branch and employee additions. that even after factoring in an increase in NPAs it still remains low as compared to its peer group.09% 0. With focused loan growth within the specialized segments. Most of the bank's branches are comparatively new and yet to pick up in terms of productivity.500 Rs.7% 3. Nirmal Bang Research Asset quality remains the best in the industry The bank's asset quality remains healthy with one of the lowest proportion of stressed assets (0.20% 0.35% 0. 300 0. it does not have any exposure to the new 2G players.33% 0.0% 1. The banks restructured assets stand much lower than the peers.0% 500 0.3% 2. Nirmal Bang Research Cost to income ratio to remain attractive Management expects the branch network to increase to 250 by the end of June 2011 from the current levels of 185.45% 0.6% 2. Exposure to MFI sector is less than 1% of the loans and Management has stated that as on 9MFY11.11% 0. Also.39% 0. Productivity ratios of the bank remain as one of the best.5% of total loan book).0% Net interest margins 3.07% 0.60% 0.00% FY 2009 FY 2010 FY 2011E FY 2012E FY 2013E Gross NPA Net NPA GNPA (%) NNPA (%) Source: Company data. in Crs 2.000 1.
the bank’s operating expenses are expected to increase significantly. financial advisory (investment banking and project advisory) and retail and other fees.500 Rs.0% 20. Therefore we expect fee income to grow at a CAGR of 26% over FY 2010‐FY 2013E.0% 20.2% 37.2% 34. Any delays in getting branch licenses from RBI could adversely impact valuations.0% FY 2009 Transaction Banking Retail and others FY 2010 FY 2011E FY 2012E Financial Advisory % of total income Source: Company data.0% FY 2009 FY 2010 FY 2011E FY 2012E FY 2013E Operating expenses Cost to income ratio Source: Company data. cost to income ratio of Yes Bank will still stand far lower than its peer group.2% 40.500 Cost to income ratio 44.0% 0 0.7% 50. in Crs Break up of non interest income 46.0% 0 0. More than expected slippages from the retail segment can have an impact on the company’s valuation and impact the target price. Management has indicated that it will make efforts to contain its cost to income ratio below 40% which it has been able to do so over the last eight quarters.000 38. financial markets (mainly treasury income).0% 30.7% 33.000 50. in Crs 1.0% 36. • Yes Bank's growth plans are dependent on obtaining branch licenses.7% 1.3% 37. Rs.Initiating Coverage Yes Bank Ltd Going forward. with the addition of number of branches and expansion of retail business.0% 500 10.0% 34. Nirmal Bang Research FY 2013E Financial Markets Risk Concerns • Lower than anticipated CASA movement can have an impact on NIMs. Despite the anticipated increase. Nirmal Bang Research Non‐interest income continues to aid top‐line growth Yes Bank's non‐interest income broadly comprises of income from transaction banking. Financial advisory and transaction banking will continue to be the key focus areas for growth in non interest income. Income from distribution of third party products will pick up once new branches become operational.7% 1.0% 30. 1.0% 40. We expect the bank’s fee income to expand further with an increase in business as the bank would be able to cross sell its products to larger customer base.0% 500 10.2% 42. • .
000 crs with a total business (advances & deposits) of Rs. 1.000 80% Business growth 71% 63% 56% 60% 41% 100. 1. in Crs 200. financial markets. Yes Bank offers corporate and institutional banking. 70. Media and Entertainment. branch banking. Nirmal Bang Research 20% 2010 Business 2011E 2012E Growth 2013E . 52. Information Technology and Infrastructure.Initiating Coverage Yes Bank Ltd Company Background Yes Bank.000 crs. Central and State Governments.000 Crs. The bank is recognized amongst the top five private banks in terms of business size and is one of the fastest growing banks in recent times. Public Sector Enterprises. Business Banking and Retail Banking customers together constitute the Branch Banking business. Multinational Companies and Financial Institutions. investment banking. business and transaction banking and wealth management services through its branch network spread across the country. The total numbers of branches as on 31st December 2010 were 185 across 149 cities. 100 crs to Rs.000 crs as on 31st December 2010. is India’s new age private sector Bank. • Commercial Banking: Yes Bank has institutionalized Commercial Banking (CB) to serve the specialized segment of companies generally with a turnover between Rs. Yes Bank has a balance sheet size of Rs. It began its operations in May 2004 and is one of the banks which have the distinction of obtaining RBI’s Greenfield banking license. Telecommunications. founded by Mr.000 40% 0 0% 2008 2009 Source: Company data. • Branch Banking: Branch Banking–Liabilities & Wealth Management. The bank provides financial solutions to the Large Corporate Groups. CB targets companies operating across the key emerging sectors like Food and Agribusiness. Rs. corporate finance. Business Yes Bank operates in three segments. Engineering.000 150. namely • Commercial and Institutional Banking: The Corporate & Institutional Banking (C&IB) division provides comprehensive financial and risk management solutions to clients generally with a turnover of over Rs. Life Sciences & Health Care. Rana Kapoor and his highly competent top management team.000 28% 26% 50.
54 18.648 79.8% 41.3% 19. ING Vysya Bank.92 385 3.09% 0.6% 1.133 76.3% 1.5% 1. Crs) EPS (Rs.4% 0.9% 21.9% 1.36% 70. PE and P/BV multiples of Yes Bank looks fairly attractive as compared to some of its peers.23% 0. Cost to income ratio of Yes Bank is most attractive among the peer group though it is likely to increase going forward.8% in 9MFY11 which is similar to the market share expansion of Axis Bank & HDFC Bank (HDFC Bank 0. Return on Equity (ROE) and ROA of Yes Bank is the highest amongst the peer group.5% 13. Resulting from the lowest cost to income ratio.67 3.3% 1.5% 27.66% 0.29% 82.055 3.1% in FY 2005 to 0.135 437 10.5% 46.5% 13.1% 33.) Adj BVPS (Rs.5% 23.33 3.9% 12.05 15.25 4.8% 0.2% 50.8% 47.4% 78.37 107 2.5% 985 295 24.4% 2.143 664 19.8% 10.2% 6. Yes Bank's market share in advances expanded from 0.06% 76.33 12.0% 19.66 1.20% 81.9% 1.3% 81.7% 10.5% 1.64% 76. Income Statement (TTM) Net interest income (Rs.1% 78.57 12. Yes Bank enjoys the best asset quality in the industry and has the lowest NPA’s amongst its peers.7% 61. Crs) Net profit (Rs.0% 84.16 16. Although we expect the bank to experience higher delinquencies going forward but we still believe that the NPAs will stand far lower than its peer group.) Net Interest Margins (NIM) % CASA % Cost‐income ratio % Gross NPA % Net NPA % Provision coverage ratio % Loan‐deposit ratio % Return on Equity (RoE) % Return on Assets (RoA) % P/E (x) P/ABV (x) Capital Adequacy Ratio (CAR) % Company data.4% and Axis Bank 0.5% 16.4% 1.33 79 3.21% 0.7% 13.7% 79. On the valuation front. We believe that Yes Bank will continue to outgrow its peers in terms of growth and business expansion.29 519 4. Capital Adequacy Ratio (CAR) is also highest amongst the peer group.11% 0. We have noticed that Yes Bank is following the path of Axis Bank and HDFC Bank in its growth strategy since its inception.Initiating Coverage Yes Bank Ltd Peer Comparison We are comparing Yes Bank with Axis Bank.4% 26.3% 42. HDFC Bank and IndusInd Bank.2% 36.6% over FY 1995‐FY 2000).6% .49 197 3. The bank's advances have grown at a CAGR of 101% (FY 2005‐FY 2010) whereas HDFC Bank and Axis Bank had grown at CAGR of 94% of and 60% respectively in initial years (FY 1995‐FY 2000).99 2.321 3. Nirmal Bang Research Yes Bank Axis Bank ING Vysya Bank HDFC Bank IndusInd Bank 1.
7 per share for FY 2012E and P/BV target multiple of 2. We remain positive on the bank in the long term owing to the exponential growth in its balance sheet with a diversified fee income and superior return ratios.5x‐3. with business and CASA expected to improve going forward and scope to improve other income. 500 P/BV ‐ Forward 400 300 200 100 0 Mar‐06 Dec‐06 Yes Bank Oct‐07 PBV 1.0 Oct‐10 PBV 3. We recommend BUY on the stock with target price of Rs.75x P/ABV of FY 2012E.134.370 indicating a potential upside of 37%.75x we arrive at a target price of Rs. The company has historically traded in the range of 2.5 .01x of its FY12E ABV.370. bank definitely deserves higher valuation multiple compared to its peers. In addition. 271. Looking at the historical trend and Yes Bank’s growth phase we value it at 2. At CMP of Rs. Based on our estimated book value of Rs.0x (as shown in the P/BV Band below) except when market conditions were bad. while maintaining spreads and asset quality. Nirmal Bang Research Apr‐09 PBV 2.Initiating Coverage Yes Bank Ltd Valuation and Recommendation Yes Bank continues to grow at a healthy pace. the stock is trading at 2.5 Jan‐10 PBV 3.0 Source: Company data.5 Jul‐08 PBV 2.
363 500 257 243 863 137 726 249 478 14. 10 Sept. Crs) Interest earned Interest expended Net interest income Non interest income Total income Operating expenses Staff costs Other Op Exp Operating profit Provisions Profit before tax Taxes Net profit Earnings per share Quarterly (Rs.9% 76.60 7.35% 0.855 686 360 326 1.5% 135.4 131 444 163 281 17 264 88 176 4.1% 8.9% 65.39% 0.7% 54.0% 7.31 BVPS Adjusted BVPS Dividend Per Share Dividend yield 90.99 18.278 35. 10 June.750 3.8% 10.7% 170.3% 37.2% 64.42 1.7% 35.7% 2.7% 37.370 1.394 4.907 629 1.161 62.0% 22.6% 78.1% 2.323 90.0% 11.352 340 3.138 63.139 2.07% 1.5% 0.7% 2.8% Source: Company data.0% 35.4% 8.642 49.9 4.7% Gross NPA 0.112 71.915 340 4.0% 37.2% 2.099 3.87 20.0% 50.7% 57.3% 38.562 139 1.3 Yield Ratios Avg Yield on Assets Yield on Advances Yield on Investments Cost of Int Bearing Liab Cost of Deposits Net Interest Spread NIM Balance Sheet Ratios 8.9% .82 1.3% 21.4% 12.0% 38.920 52. Crs) FY 2010 FY 2011E FY 2012E FY 2013E Deposits 26.4% 2.47 13.191 6.521 3.00 26.46 2. 10 Balance Sheet (Rs.3 Mar.2% Loan‐deposit ratio 82.3% 0.7% 7.6% Per Share Data Growth Ratios Advances Growth Deposit Growth NII Growth PAT Growth FY 2010 FY 2011E FY 2012E FY 2013E 78.096 189 1.67 FY 2010 FY 2011E FY 2012E FY 2013E Cost / Income Ratio Net profit margin 36.91 2.250 7.8% 6.3% 2.6% CAR Provision cov ratio RONW 20.210 22.526 6.9% 80.1 144 406 157 249 13 236 80 156 4.5% 14.Initiating Coverage Yes Bank Ltd Financials Profitability (Rs.55 2.077 359 718 20.582 788 576 1.9% 9.70 2.473 2. 10 Dec.4% 10.0% 36.0% 26.06% 1.11% 1.00 2.447 79.00 0.7% 37.193 115 1.673 10.056) (11.0% 13.2% 5.236 1.407 3.8% 31.519 951 516 435 1.404 463 941 26.968) (8.09% 1.0% 7.271 1.8% 2. Nirmal Bang Research FY 2010 FY 2011E FY 2012E FY 2013E FY 2010 FY 2011E FY 2012E FY 2013E EPS 14.00 35.0% Valuation Ratios P/BV P/ABV P/E Profitability Ratios FY 2010 FY 2011E FY 2012E FY 2013E 2.568 164 1.0 6.645 874 2.8% 80.759 340 5.542 Net interest income 244 262 313 323 Key Ratios Non interest income Total income Operating expenses Operating profit Provisions Profit before tax Taxes Net profit Earnings per share 160 404 147 258 43 215 75 140 4.4% 33.0% 14.739 27.818) (4.356 2.6% 10.50 0.61 134.745 33.111 175 1.683 21.909 1.4% 16.799 44.98 2.8% 56.9% 76.730 35. Crs) FY 2010 FY 2011E FY 2012E FY 2013E 2.747 56.96 90.749 1.50 0.9% 20.4% 39.6% 78.229 626 1.59 1.303 739 564 2.099 76.5% 8.399 1.31 109.45% Net NPA Return on Assets CASA 0.290 2.9% 28.9 162 485 174 311 25 286 95 191 5.0 8.9% 0.418 15.962 (of which CASA) (2.444 5.607 76.2% 11.313 8.22 2.383 56.383 2.8% 7.01 10.378 Total assets 36.169 92 1.8% 41.267 4.6% 11.542 4.749 1.2% 6.163 3.5% 79.293 340 2.355) Borrowings Other liab and prov Total liabilities Equity Share Capital Reserves and Surplus Net worth Total liab and equity Cash and bank bal Investments Advances Fixed assets Other assets 4.50 0.724 159 1.27% 0.521 96.6% 10.090 36.784 96.6% 2.6% 10.70 1.26 168.8% 110.9% 7.2% 60.5% 24.1% 6.
Nirmal Bang Research. errors or omissions in this connection. represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information. This document. Nirmal Bang Research. its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document. This document is not to be considered as an offer to sell or a solicitation to buy any securities.Initiating Coverage Yes Bank Ltd NOTE Disclaimer This Document has been prepared by Nirmal Bang Research (Nirmal Bang Securities PVT LTD). . at best. analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable.The information. its directors. officers or employees shall not in anyway be responsible for the contents stated herein. This document is meant for the use of the intended recipient only.