For Yes Bk, 730-710 area may be a good buying zone
Near term target may be 780-800
Decreasing fresh corporate exposoure and increasing retail lending
may help in the near term
CMP: 750
Either buy on sustained break out above 760 or wait for dips around: 730-720-710
TGT: 780-800* (1-3M)
TGT: 855-905-1025-1065 (12-24M)
TSL<690
Note: Consecutive closing below 690 for any reason, Yes Bk can fall up to 674*-640-620-595* and 560-520 zone in the alternative worst case scenario. But, time & price action suggests that 620-595 may be a very good demand zone for the stock in that scenario and one can again accumulate from there for better investment buying average.
Q2FY16 result of Yes Bk was above street estimates but lagged asset quality concerns. Q2 PAT was around Rs.610 cr against median expectation of Rs.593 cr, registered a growth of around 26% (YOY-482 & QOQ-551).
Q2 EPS was at 14.25 against consensus of 13.66 (YOY-11.38 & QOQ-12.85).
The bank may issue bonds in the coming months to raise $ 300-500 mln for funding its IFSC banking operation in GIFT city (Gujrat).
The bank may issue bonds in the coming months to raise $ 300-500 mln for funding its IFSC banking operation in GIFT city (Gujrat).
Q2 NII was at Rs.1108.5 cr against estimate of Rs.1085.80 cr; up by almost 29.5% YOY.
Although NIM was expanded by 0.10% to 3.3% on YOY basis, sequentially it was almost flat.
In Q2FY16, net NPA of Yes Bk shot up by around 49% sequentially and 194% on YOY basis to Rs.159 cr.
in Q2, provision for stressed assets (bad loans) although declined by 13% on YOY basis to around Rs.104 cr, it was increased by around 6% sequentially.
in Q2, provision for stressed assets (bad loans) although declined by 13% on YOY basis to around Rs.104 cr, it was increased by around 6% sequentially.
Thus in Q2, strong NII, other income (non-interest income grew by 22%) and operating profit (up by 25%) helped Yes Bk, but higher provisions and tax liability (up by 42%) limited its overall profitability.
In Q2FY16, Yes Bk's advances grew by around 29% & deposit increased by 24%. Corporate banking business accounted for almost 68% of total advance portfolio and the rest 32% constituted by retail & SME portfolio.
In Q2FY16, Yes Bk's advances grew by around 29% & deposit increased by 24%. Corporate banking business accounted for almost 68% of total advance portfolio and the rest 32% constituted by retail & SME portfolio.
The bank has also cut down overall corporate loan exposoure amid increasingly stretched corporate balance sheets and trying to diversify and expand into high margin, low risk retail & SME lending.
The bank has indicated a gradual increase in retail & SME loan portfolio from around projected 35% of total advances in FY-16 to 45% and around 60% of CASA from retails in next three to five years.
Yes Bk has also put out its controversial exposoure to some of the sensitive sectors this time after the UBS report fiasco some months ago. The bank has an exposoure of around 10%, 4% & 6% exposoure in electricity, metals (iron & steel) & EPC and commercial real estate as on Q2FY16 and has no exposure on SEBS (Discoms).
Thus for Yes Bk, around 25% of overall loan portfolio is exposed to the most sensitive (stressed) sectors of our economy.
But having said that, worst may be over for these sensitive core sectors of our economy which might be primarily caused by "past policy paralysis" and now things are moving quite rapidly, thanks to various reform initiatives by our Govt and active monitoring of the situation by the PMO itself. We may see gradual improvement in these sensitive sectors in the coming quarters.
We may also remember that in July'15, UBS published a report about Yes Bk with a concern of huge exposoure to some vulnerable corporate groups in the above sensitive sectors and their possible default. (NPL/Stressed assets). But the bank maintained that the data base used by UBS was not proper and although there were some sanctioned credit limits to some of the over stressed groups, actual disbursements were not happened and the bank is actively monitoring such accounts very closely. The bank and also some other analysts at Macquarie and BoFA-ML assured that "all is well" with Yes Bk and the "stressed assets" reports was exaggerated.
The management is quite confident this time of retaining its NIM of around 3.3% in the coming quarters on the back of incremental flow in low cost CASA and cut in its deposit rates (due to base rate cut transmissions) in the coming quarters.Though Yes Bk is mainly "wholesale funded", its NIM is well managed within 2.8-3.3% even considering new base rate calculation method.
Over the past few years, Yes Bk was restructuring itself and taking various initiatives for greater thrust in retail business & lending. The bank aims to have 2500 branches by FY-20 from present strength of 730 branches. For rapid expansion in retail lending, physical branches is very necessary at key locations.
In India, as recovery is still in very nascent stage and there is no visible impacts in earnings as expected (although, some margin expansion is happening), corporates are still shying away from fresh big ticket borrowing from banks and banks are also not very enthusiastic to increase exposoure to them at this point of time. So , all banks, specially private ones are increasingly giving more thrust towards retail & SME lending, where chances of big ticket default is very low and there are plenty of good quality manageable borrowers too !!
As par some leading experts, there is huge scope of retail business & lending in India for the banks as the segment is "barely scratched" so far. Corporate business & lending will gradually grow up for the banks from FY-17 onwards amid hopes of real economic recovery.
Some analysts are also concerned about future of Yes Bk because of relatively higher credit costs & lower ROE and large corporate bond portfolio along with substantial exposoure in stressed assets (NPL).
In Q2FY16, the actual credit cost was 0.54% and the management has guided a range of 0.50-0.70% of the same in the coming quarters (FY-16). The bank has also maintained that the apparent sharp jump in net NPA(s) was because of relatively lower base effect and the absolute number is not very significant (only Rs.52 cr).
In Q2, the bank's cost to income ratio was at 41% which was well within the guided range of 40-42%. The bank is also confident to maintain this ratio despite in investment mode. (Continuing branch additions and investment in digital & back-office network for increased retail banking thrust). The bank has guided to improve its cost to income ratio to 37-38% range in the next three to five years amid hopes of good retail banking revenues.
Regarding stressed assets management, the bank does not believe in selling loans at steep discount to ARCS (like some other private counterparts). It has an in-house expertise, called ARMY (Asset reconstruction management by Yes Bankers) for the same purpose and thus the bank did not sale any loans (stressed assets) to the ARCS in the last four quarters. The bank want to solve their own problems regarding stressed assets with the help of this ARMY and not very inclined to outsource (sell) the same to external ARCS. As par management, this is a long term strategic decision of the bank Certainly, the active engagement of the ARMY is very helpful in recovering/reconstructing stressed assets in some of the sensitive/highly indebted corporate sectors and may be more helpful for retail exposures in the coming years.
Thus, Yes Bk being a relatively "new generation bank", is very careful about its loan portfolio and its asset quality is expected to be in manageable levels in the coming quarters. The bank is also targeting a healthy credit growth of around 21% (CAGR). This, along with strong core operating performance, robust professional management and higher yielding retail loan, may make Yes Bk an ideal portfolio stock in the private banking space.
The bank has indicated a gradual increase in retail & SME loan portfolio from around projected 35% of total advances in FY-16 to 45% and around 60% of CASA from retails in next three to five years.
Yes Bk has also put out its controversial exposoure to some of the sensitive sectors this time after the UBS report fiasco some months ago. The bank has an exposoure of around 10%, 4% & 6% exposoure in electricity, metals (iron & steel) & EPC and commercial real estate as on Q2FY16 and has no exposure on SEBS (Discoms).
Thus for Yes Bk, around 25% of overall loan portfolio is exposed to the most sensitive (stressed) sectors of our economy.
But having said that, worst may be over for these sensitive core sectors of our economy which might be primarily caused by "past policy paralysis" and now things are moving quite rapidly, thanks to various reform initiatives by our Govt and active monitoring of the situation by the PMO itself. We may see gradual improvement in these sensitive sectors in the coming quarters.
We may also remember that in July'15, UBS published a report about Yes Bk with a concern of huge exposoure to some vulnerable corporate groups in the above sensitive sectors and their possible default. (NPL/Stressed assets). But the bank maintained that the data base used by UBS was not proper and although there were some sanctioned credit limits to some of the over stressed groups, actual disbursements were not happened and the bank is actively monitoring such accounts very closely. The bank and also some other analysts at Macquarie and BoFA-ML assured that "all is well" with Yes Bk and the "stressed assets" reports was exaggerated.
The management is quite confident this time of retaining its NIM of around 3.3% in the coming quarters on the back of incremental flow in low cost CASA and cut in its deposit rates (due to base rate cut transmissions) in the coming quarters.Though Yes Bk is mainly "wholesale funded", its NIM is well managed within 2.8-3.3% even considering new base rate calculation method.
Over the past few years, Yes Bk was restructuring itself and taking various initiatives for greater thrust in retail business & lending. The bank aims to have 2500 branches by FY-20 from present strength of 730 branches. For rapid expansion in retail lending, physical branches is very necessary at key locations.
In India, as recovery is still in very nascent stage and there is no visible impacts in earnings as expected (although, some margin expansion is happening), corporates are still shying away from fresh big ticket borrowing from banks and banks are also not very enthusiastic to increase exposoure to them at this point of time. So , all banks, specially private ones are increasingly giving more thrust towards retail & SME lending, where chances of big ticket default is very low and there are plenty of good quality manageable borrowers too !!
As par some leading experts, there is huge scope of retail business & lending in India for the banks as the segment is "barely scratched" so far. Corporate business & lending will gradually grow up for the banks from FY-17 onwards amid hopes of real economic recovery.
Some analysts are also concerned about future of Yes Bk because of relatively higher credit costs & lower ROE and large corporate bond portfolio along with substantial exposoure in stressed assets (NPL).
In Q2FY16, the actual credit cost was 0.54% and the management has guided a range of 0.50-0.70% of the same in the coming quarters (FY-16). The bank has also maintained that the apparent sharp jump in net NPA(s) was because of relatively lower base effect and the absolute number is not very significant (only Rs.52 cr).
In Q2, the bank's cost to income ratio was at 41% which was well within the guided range of 40-42%. The bank is also confident to maintain this ratio despite in investment mode. (Continuing branch additions and investment in digital & back-office network for increased retail banking thrust). The bank has guided to improve its cost to income ratio to 37-38% range in the next three to five years amid hopes of good retail banking revenues.
Regarding stressed assets management, the bank does not believe in selling loans at steep discount to ARCS (like some other private counterparts). It has an in-house expertise, called ARMY (Asset reconstruction management by Yes Bankers) for the same purpose and thus the bank did not sale any loans (stressed assets) to the ARCS in the last four quarters. The bank want to solve their own problems regarding stressed assets with the help of this ARMY and not very inclined to outsource (sell) the same to external ARCS. As par management, this is a long term strategic decision of the bank Certainly, the active engagement of the ARMY is very helpful in recovering/reconstructing stressed assets in some of the sensitive/highly indebted corporate sectors and may be more helpful for retail exposures in the coming years.
Thus, Yes Bk being a relatively "new generation bank", is very careful about its loan portfolio and its asset quality is expected to be in manageable levels in the coming quarters. The bank is also targeting a healthy credit growth of around 21% (CAGR). This, along with strong core operating performance, robust professional management and higher yielding retail loan, may make Yes Bk an ideal portfolio stock in the private banking space.
As par BG metrics & current market parameters:
(Based on TTM & FWD EPS)
Present median valuation of Yes Bank may be around: 835 (FY:15/TTM)
Projected fair valuations of Yes Bank might be around: 870-945-1005 (FY:16-18/FWD)
(It is now available at comparatively lower PE of around 14 against industry average of around 20).
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| YESBANK | 51.57 | 278.69 | 18 | 838.08 | 830.89 | 834.48 | 756.66 | 743.73 |
| YESBANK | 55.75 | 367.95 | 18 | 871.38 | 863.91 | 867.64 | 756.66 | 743.73 |
| YESBANK | 65.55 | 485.75 | 18 | 944.87 | 936.76 | 940.82 | 756.66 | 743.73 |
| YESBANK | 74.35 | 641.95 | 18 | 1006.30 | 997.66 | 1001.98 | 756.66 | 743.73 |
Analytical Charts:
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