ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 23 September 2016 | 4

Current Reco : BUY COMPANY UPDATE

Previous Reco
CMP
: BUY
: INR1,246
YES Bank Limited
Target Price : INR1,401 Strong growth momentum to sustain; maintain BUY
Potential Return : 12%
YES Bank stock has corrected by 15% over past two weeks presumably as
the bank deferred its capital raising plan. We believe that bank is well on
Nitin Aggarwal, CFA track to deliver industry leading growth/return ratios even as it diversifies
+91 22 4031 3421 its asset book and adds granularity to its liability franchise. We believe that
nitin.aggarwal@antiquelimited.com
at current growth momentum bank will surpass 40% CASA mix in FY19 (one
year ahead of its guidance) while the normalization in savings rate and
Renish Patel
+91 22 4031 3426 improved asset mix will enable it to improve margins to ~3.75%. We expect
renish.patel@antiquelimited.com asset quality to remain stable and are building in ~60/65bps of credit cost
for FY17-18E respectively. We fine-tune our estimates particularly as we now
build in capital raising to happen at Rs1,250. Our sensitivity analysis further
shows that difference of Rs100 in capital raising price over our base case
Market data leads to an impact of tiny ~1.2% in FY18E ABV. Yes remains one of our
Sensex : 28,773 preferred pick in the private banking space and we estimate it to deliver
Sector : BANKS
34% earnings cagr over FY16-18E. We revise our PT to INR1,400/share (2.5x
Market Cap (INRbn) : 524.8
FY18e ABV).
Market Cap (USDbn) : 7.830
O/S Shares (m) : 421.0 Revenue growth on track: we expect NII to grow at 35% cagr over FY16-18E
52-wk HI/LO (INR) : 1450/632 Yes Bank reported 38% y-y growth in total revenue during 1Q FY17 led by strong traction in
Avg Daily Vol ('000) : 6,876
NII and Fee income. At the same time the opex increased by 31% y-y as bank opened 40
Bloomberg : YES IN
branches and continued with its aggressive hiring plan - added ~6,000 employees over past
Source: Bloomberg
two years. Yes Bank has thus made right investments over past few years which will enable it
Valuation to aggressively gain market share and grow its asset book to ~Rs5tn over next five years.
FY16 FY17e FY18e
EPS (INR) 60.6 75.6 95.8 Liability franchise has improved considerably; asset mix diversification to follow
BVPS (INR) 327.8 486.0 562.2 Yes Bank's CASA mix has improved by 760bps over past two years to 29.6% and bank has
P/E (x) 20.4 16.4 12.9 one of the highest SA per branch amongst its private peers. The bank has recently lowered its
P/ABV (x) 3.8 2.6 2.2 SA rate by 50bp on higher balances and we expect further moderation in savings cost as
RoE(%) 19.9 18.4 18.3
YES progresses towards its goal of 40% CASA mix thus enabling it to deliver ~3.75% margins.
Source: Bloomberg
We expect Yes Bank's asset mix to move in favour of Retail & Business Banking which together
Returns (%) will account for 45-50% of total advances vs 33% currently.
1m 3m 6m 12m
Asset quality remains steady; we expect stable outlook
Absolute (7) 16 50 70
Relative (10) 7 32 52 YES Bank has been able to maintain strong asset quality despite challenging environment
Source: Company, Antique owing to its strong structuring and underwriting capability. The same reflects in its robust
Shareholding pattern GNPL/NNPL ratio at 0.79%/0.29%. The bank has performed commendably in RBI's rigorous
AQR exercise and has guided for stable trends going ahead. We continue to believe that the
Promoters : 22% bank would be able to maintain its robust asset quality going forward even as we built in
Public : 78% credit cost of 60/65bp over FY17-18E. YES has floating provisions amounting to 30bp of
Others : 0%
total loans.
Source: Bloomberg
Capital raising deferred but not shelved
Price performance vs Nifty We believe that fundamentally nothing has changed for Yes Bank and expect it to raise
200 capital sooner than later to support its aggressive growth/market share gain ambitions. We
180
160 now build in capital raising to happen at Rs1,250 and our sensitivity analysis further shows
140
120 that difference of Rs100 in capital raising price over our base case leads to an impact of tiny
100
80 ~1.2% in FY18E ABV. Yes currently has a Tier-I ratio of 10.3% (CET1: 9.9%) and thus has
Sep-15 Jan-16 May-16 Sep-16 adequate room to raise AT-1 capital as well. We revise our PT to Rs1,400 (2.5x FY18e ABV).
YES Bank NIFTY
Maintain 'BUY'.
Source: Bloomberg, Indexed to 100
ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 23 September 2016 | 5

We analyze the capital raising trend of select banks and note that Yes Bank has not been a
capital guzzler as the cagr growth in securities premium account doesn't appear high in
context to the asset/loan growth that it has delivered
50% 48%
CAGR over FY08-16
45%
40%
34% 33%
35%
28% 27% 28%
30% 25% 24% 23%
25% 22%
19%
20%
14%
15%
10%
5%
0%
YES IIB Axis HDFC
Advances Total Assets Securities Premium
Source: Company, Antique

Yes has utilised its capital levels very efficiently as RWA growth has been generally lower
than loan growth
90% 79%
80%
69%
70%
60%
50% 55% 36%
40% 32% 29% 30%
30% 38% 18% 35%
20% 11%
24% 29%
10% 21% 20%
14%
0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Loan grow th (%) Total asset grow th (%) RWA grow th (%)

Source: Company, Antique

Consumer banking contributes 11% to total advances

1QFY17
Consumer Banking,
9%

Micro & Small

Enterprise, 12%

Business Banking,
11%

Corporate banking,
68%

Source: Company, Antique

ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 23 September 2016 | 6

Consistent improvement in Retail liability franchise...CASA ratio expanded to 28% in FY16

from 19% in FY13
100%
90%
80% 46%
58% 52%
70% 67% 65%
60% 78% 78% 77%
50%
40% 26%
25%
30% 20%
18% 16%
20%
13% 11% 13% 28%
10% 19% 22% 23%
9% 11% 10% 15%
0%
2009 2010 2011 2012 2013 2014 2015 2016

CASA Retail Deposit Wholesale deposit

Source: Company, Antique

Funding mix - Retail+CASA contributes 55% to total deposit base; YES aims to take this
mix to 75% over next three years

10.0%
100%

25.0%

25.0%
30.0%
90%
40.0%
45.5%

80%

50.0%
70%

35.0%

35.0%
60% 34.0%
26.0%

50%
26.5%

40%
30%

40.0%

40.0%

40.0%
36.0%
34.0%

20%
28.0%

10%
0%
Yes Indusind Kotak ICICI HDFC Axis

CASA Retail Term Deposits Non Retail Deposits

Source: Company, Antique

Asset quality broadly remain stable

0.90
0.76
0.80 0.68
0.70
0.60
0.50 0.41
0.33 0.31
0.40 0.27 0.29
0.23 0.22
0.30 0.20
0.20 0.11 0.12
0.06 0.05 0.05
0.10 0.03 0.01
0.09
-
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

GNPA (%) NNPA (%)

Source: Company, Antique

ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 23 September 2016 | 7

Total revenue (ex treasury) as a % of total assets stands at 9.7% for YES...comparable to peers
13.0%

12.0%

11.0% 10.6%
9.9%
10.0% 9.5% 10.0%
9.7%
9.5%
9.0% 9.7%

8.0%
7.8% 8.0%
7.0%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
YES IIB Axis HDFC Kotak ICICI
Source: Company, Antique

Base rate: Lending rate for Yes Bank is higher by ~100-120bps as compared to peers...

12.0%
10.5% 10bps
-100bps -120bps -100bps -115bps
10.0%

8.0%

6.0%

4.0%

2.0%

0.0%
Yes Bank IIB Axis HDFC Kotak ICICI

Source: Company, Antique

... however, under MCLR method lending rate difference narrowed down to 10-40bps

10.0%
9.45% 30bps
9.8%
10bps
9.6%
-10bps
9.4%
9.2% -40bps -35bps
9.0%
8.8%
8.6%
8.4%
8.2%
8.0%
7.8%
Yes Bank IIB Axis HDFC Kotak ICICI

Source: Company, Antique

ANTIQUE STOCK BROKING LIMITED FROM THE RESEARCH DESK 23 September 2016 | 8

Financials
Profit and loss account (INRm) Capital Adequacy Ratio
Year-ended March 31 FY14 FY15 FY16 FY17e FY18e Year-ended March 31 FY14 FY15 FY16 FY17e FY18e
Interest Income 99,813 115,720 135,334 164,711 204,772 RWA (INRm) 765,969 1,034,022 1,329,499 1,666,926 2,058,487
Interest Expense 72,651 80,842 89,667 102,921 121,783 Tier I (%) 9.8 11.5 10.7 14.1 13.1
Net Interest Income 27,163 34,878 45,667 61,789 82,989 Tier II (%) 4.6 4.1 5.8 6.4 5.6
% NII Growth 22.4 28.4 30.9 35.3 34.3 Total CAR (%) 14.4 15.6 16.5 20.5 18.7
Non-interest income 17,216 20,465 27,122 33,631 42,038
Net Revenue 44,378 55,343 72,789 95,420 125,027 Business Ratios
Employees Expenses 7,844 9,797 12,968 16,340 20,425 Year-ended March 31 FY14 FY15 FY16 FY17e FY18e
Other Op. Expenses 9,655 13,050 16,796 21,034 26,477 Credit / Deposit(%) 75.0 82.9 87.9 90.1 89.3
Operating Profit 26,880 32,496 43,025 58,046 78,125 Investment / Deposit (%) 55.2 47.4 43.7 45.1 43.7
% OP Growth 25.5 20.9 32.4 34.9 34.6 CASA (%) 22.0 23.1 28.1 33.4 37.0
Tax 7,085 9,047 12,268 16,620 22,296 RoaA (%) 1.6 1.6 1.7 1.8 1.9
Total Provisions 3,617 3,395 5,363 7,681 10,561 Core RoE (%) 25.0 21.3 19.9 18.4 18.3
Net Profit 16,178 20,054 25,395 33,744 45,268 Dividend Yield (%) 0.8 0.9 1.0 1.2 1.6

Balance sheet (INRm) Key assumptions

Year-ended March 31 FY14 FY15 FY16 FY17e FY18e Year-ended March 31 FY14 FY15 FY16 FY17e FY18e
Capital 3,606 4,177 4,205 4,725 4,725 Deposit
Reserves and Surplus 67,611 112,622 133,661 224,929 260,941 Deposit growth (%) 10.8 22.9 22.5 25.1 27.2
Deposits 741,920 911,758 1,117,195 1,397,611 1,777,762 Cost of deposits (%) 8.0 7.9 7.1 7.2 6.8
Borrowings 213,143 262,204 316,590 389,516 486,161 Advances
Other Liabilities & Provisions 63,877 70,942 80,983 98,799 120,535 Advances growth (%) 18.4 35.8 30.0 28.2 26.1
Total liabilities 1,090,158 1,361,704 1,652,634 2,115,580 2,650,124 Yield on advances (%) 12.7 12.2 11.2 11.0 10.8
Cash & Balances with RBI 45,416 52,407 57,762 78,634 99,613 Investments
Bal. with banks/ call money 13,501 23,165 24,423 23,233 29,431 Investments growth (%) (4.7) 5.6 13.0 28.9 23.4
Investment 409,504 432,285 488,385 629,752 777,337 Yield on investments (%) 8.2 8.0 7.6 7.3 7.3
Loans and advances 556,330 755,498 982,099 1,259,051 1,587,664
Fixed Assets 2,935 3,190 4,707 5,837 7,238
Earnings Ratios
Other Assets 62,473 95,160 95,259 119,073 148,842
Year-ended March 31 FY14 FY15 FY16 FY17e FY18e
Interest Inc. / Avg.assets (%) 9.6 9.4 9.0 8.7 8.6
Total assets 1,090,158 1,361,704 1,652,634 2,115,580 2,650,124
Interest Exp./ Avg. assets (%) 7.0 6.6 5.9 5.5 5.1
Per share data (INR) NIM (%) 2.6 2.8 3.0 3.3 3.5
Year-ended March 31 FY14 FY15 FY16 FY17e FY18e Int. exp/ Int earned (%) 72.8 69.9 66.3 62.5 59.5
Book value per share (INR) 197.5 279.6 327.8 486.0 562.2 Oth. Inc./ Tot. Inc. (%) 38.8 37.0 37.3 35.2 33.6
Adj. BVPS (INR) 196.5 277.3 321.9 478.5 553.9 Staff exp/Total opt. exp (%) 44.8 42.9 43.6 43.7 43.5
Price/ Adj. Book value 6.3 4.5 3.8 2.6 2.2 Cost/ Income Ratio (%) 39.4 41.3 40.9 39.2 37.5
EPS(INR) 45.0 51.5 60.6 75.6 95.8 Prov./ Operating Profit (%) 13.5 10.4 12.5 13.2 13.5
P/E Ratio 27.5 24.0 20.4 16.4 12.9 Loan loss prov./Avg. loans (bps) 26.5 19.8 57.3 60.0 65.0

Asset Quality RoA decomposition

Year-ended March 31 FY14 FY15 FY16 FY17e FY18e Year-ended March 31 FY14 FY15 FY16 FY17e FY18e
Gross NPA (INRm) 1,749 3,134 7,490 10,454 13,188 Interest income/Assets 9.6 9.4 9.0 8.7 8.6
Gross NPA (%) 0.31 0.41 0.76 0.83 0.83 Interest expenses/Assets 7.0 6.6 5.9 5.5 5.1
Net NPA (INRm) 261 877 2,845 4,122 4,496 Net interest income/Assets 2.6 2.8 3.0 3.3 3.5
Net NPA (%) 0.05 0.12 0.29 0.33 0.28 Treasury income/Assets 0.2 0.1 0.2 - -
% coverage of NPA 85.1 72.0 62.0 60.6 65.9 Other Inc. from operations/Assets 1.7 1.7 1.8 1.8 1.8
Total income/Assets 4.3 4.5 4.8 5.1 5.2
Source: Company, Antique
Employee expenses/Assets 0.8 0.8 0.9 0.9 0.9
Other operating expenses/Assets 0.9 1.1 1.1 1.1 1.1
Operating profit/Assets 2.6 2.7 2.9 3.1 3.3
Tax/Assets 0.7 0.7 0.8 0.9 0.9
Loan loss provisions/Assets 0.3 0.3 0.4 0.4 0.4
Net profit/Assets 1.6 1.6 1.7 1.8 1.9
Source: Company Antique