Interesting and detailed analysis of the current situation.
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Falling rupee will cause RBI to raise interest rates. Banks will have trouble passing higher interest rates to borrowers as rates are going up due to falling currency rather than higher demand for loans. NIMs will drop to some extent. Thatâs the reason bank stocks are on back foot. I donât see this situation changing anytime soon.
Disc: Invested.
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Well, rupee has been falling since the beginning of the year and keeping that in mind the RBI has already raised interest rates twice in the last 2 meetings. I do not believe they will raise again in the Oct meeting. They would wait and watch on how inflation plays out in the coming months.
Disc: Invested
That maybe the case but no other large cap bank stock has falling 20% in 1 month. Yes Bank was 405 now its 328.
A lot of factors can be contributing to the fall. Uncertainty over Rana Kapoor term, RBI punishing Yes Bank for divergence, Last FY RBI divergence report should come soon, rising interest rates, okayish result in last quarter and over bought counter.
So youâre saying the stock moved up 20+% last month on an âokayishâ result? Everything else except the uncertainty over Rana Kapoorâs term was true even then. Besides, if you compare the top 5 banks, Yes Bank is the only one available at a trailing P/B of about 3.
@jainnitinp I have no idea why did the stock moved up so much in the last month but I am sure the results were not excellent as they are spreading the bond losses over next few quarters. Even the NIMs are on a declining trend.
Yes Bank trading at a 3 P/B is fair imo considering their retail loan book is smaller compared to the other top banks and they keep on hiding/not admitting their NPAs time to time. I guess the discount will vanish if RBI gives them a clean chit in the upcoming divergence report. I feel rest other factors wonât matter then.
Disc: Bought good quantity today and will buy further on dips.
Well, you also need to look at several other parameters besides just PAT and NIMs to do a holistic review.
Overall advances grew 53% (2nd qtr in a row) and the retail loan book grew more than 100%.
Other income grew by 50%
C/I ratio improved from 42 to 37%
RoE was up from 17 to 19%
Besides, the bank has also given a guidance on improvement in NIMs over the next 3-4 quarters.
As regards NPA divergence, this is what ICICI Securities had to say in the article I have posted earlier:
RBIâs retrospective audits have only demonstrated that the eventual impact on both balance sheet and P&L was not as large as reported initially. The addition to NPLs was a fraction (19% and 16% for FY16, 17) of the gross amount reported as the remainder was either repaid, sold down or upgraded to standard subsequent to the year-end.
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There was some bad news on the power sector front to which Yes Bank has exposure:
Some of the power firms have been referred to NCLT for insolvency proceedings and as we know the recovery rates are very low in IBC.
Shooting in the dark here but that could be the reason for underperformance on the counter?
Disc.: invested
@AKGupta, most of Yes bankâs conventional power exposure is in the Power transmission and power distribution space and some financial instruments. I donât think it faces any significant challenge there. I think they hardly have any exposure to thermal power generation assets as far as my memory serves (these points very clarified in the years 2016 and 2017) and hence they should broadly be unaffected by NCALT developments in this area. Also, the recent increase in portfolio has been due to renewable energy sector loans given out by Yes bank. Most of those are operational.
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Agreed, analysed last two results of comoany, total exposure to power sector has reduced to 3% of total book which is very good. Still unable to gulpnthe fact that just because rana kapoor is not confirmed the extension bank has been besten down bad and blue. Its massive opporunity presented for investors. Going foreward, goverment will find it difficult to infuse more capital in PSBâs, all corporate lending will be done by private only, can be bought for very long term.
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Iâve shared the links in my post. Which other links you mean?
Sorry, the statement is from sachit and I meant requesting him.
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this is the screenshot of distribution of advances for Yes Bank after Q1 FY18âŚ
electricity sector has been shown as 8.7%
thanx
Possibly Electricity (8.7%) âŚI am just guessing here as thatâs the closest to power.
Rajat Monga is bullish on thermal power sector during previous concallâŚ
It seems that Yes Bank has a good exposure to thermal power sectorâŚlets see how the story unfolds in next qtr results but its very clear that Yes bank deserves a good discount in the valuation as compared to HDFC bank due to retail advance size differenceâŚhowever they accept the importance of good share of retail advances and they are working towards itâŚ
The power sector event and uncertainity over rana kapoor may drag the stock even below 300âŚits better to waitand watch rather than trying to catch the falling knifeâŚ
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From 20-Aug-18 till 7-Sep-18, the Yes Bank stock has fallen by 18%. The RBI has recently communicated approval of Rana Kapoorâs role as MD/CEO of Yes Bank.
I guess it is now opportunity to pick up the stock. Read:
I call the situation Yes Bank is in today a âlow risk, high uncertaintyâ situation as explained by Mohnish Pabrai in his book the Dhando Investor.
The Bank is performing quite well and there are tailwinds for the Pvt banking space. PSBs are fast losing market share to Pvt. Players and this is expected to accelerate further.
YB is focusing on developing its retail franchise and the numbers are showing the efforts too. NPA divergence issue has been resolved with either recovery, upgradation to standard or sale to ARC. Bank has paid the penalty for that too.
Lots of focus on digital - partnership with Paisabazaar etc. (AR is filled with digital egs.)
All in all, itâs a decently performing large sized bank with significant promoter ownership (20%). Itâs kind of unrealistic to expect Mr RK wonât continue to have a very important say in Yes Bank (through a proxy or some other means) even if he is ultimately asked to leave by RBI.
On top of this, the price at which it is available today, compared to peers, is quite attractive. So itâs a low risk situation.
But significant exposure to the power sector, which is in doldrums with no light visible yet at the end of the tunnel, and position of Mr. RK along with doubts about how successful retail efforts will be, lend a high degree of uncertainty about the future.
In situations of low risk and high uncertainty, Mr. Pabrai mentions, itâs wise for investors to go big. This is one of those situations, in my opinion, where one can follow the dictum âfew bets, big bets & assured betsâ.
Disc. Views biased.
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The focus on retail growth continues to be unwavering.