Yes bank

Stock Opportunities Not-so-Hidden Gems
81

Hardly. It is not capital that was raised. But with the recent rise in the stock, they can raise capital locally.

82

Hardtiget - Just to clarify, that 255 million $ is foreign currency debt and it will be used as deposits/loans. It’s not equity capital.

stockpicker123 - Major point to consider here is what shareholders (including Rana Kapoor and promotors) benefit from? If growth reduces from 25% to 20% for 2 years, it doesn’t make much difference to shareholders. But diluting equity at higher valuations does. Dilution at 3/4 X PB is any day better than diluting at messy 2 X PB.

And this is the reason Yes Bank did not raise capital in last 3+ years. It traded at 3 X PB for brief 3 months period this year. And when it was getting ready to raise capital, share price tanked.

It’s important to note following in capital markets (don’t know the author of this quote.)

“You do not raise money when you need it. You raise it when marketplace offers it”

This is principal used by every companies for IPO/QIP’ and ADR’s.

1 Like
83

Lot of private banks including Yes Bank, IndusInd, Axis and HDFC Bk have come up with quite strong Q2 numbers despite RBI measures and MTM losses. HDFC & Yes Bank have included full MTM loss in Q2 numbers and still manages 20+ % PAT growth.

Just shows how market can over react at some times. I wonder where are analysts and people who were shouting growth at 500+ and crying fraud at 250 in Yes Bank.

Despite this, there is not too much to cheer about banks yet. Interest rates are still gonna go up and banking stocks will still be under pressure. But for someone with 2 years view, things will be much better.

84

Highlights of Conf Call by Capital Market.

Rajat Monga, Senior Group President, Financial Markets & CFO addressed the call:

  • Net Interest Income (NII) growth was in line with the balance sheet, supported with steady NIM.
  • Base rate helped to improve the yields on advances, as 75% of the advance is linked to base rate helping with the flexibility to pass on the interest rates.
  • CASA ratio further increased to 20.4% at end September 2013, which was marginally impacted by shift of saving accounts deposits to term deposits with the higher interest rates in Q2FY014.
  • Higher base rate and increase in CASA ratio helped bank to maintain NIM steady on year-on-year basis at 2.9% and restrict the sequential decline in NIM at 10 bps in challenging environment.
  • Bank expects the RBI to normalize the interest policy stance with repo rate expected to become more of operating rate than MSF rate.
  • Loan growth of the bank moderated reflecting the challenging economic environment.
  • The credit deposit declined leading to some improvement in liquidity conditions for the bank.
  • Bank expects the customer asset growth of 20% in FY2014 and anticipates to restore NIM back to 3.0% level with ability to pass rates. CASA growth would mainly support the improvement in NIM.
  • Non-interest income was boosted by one-off gains of Rs 112 crore from mark-to-market gains on interest rates swaps.
  • As per the bank, some of the swap gains may unwind going forward based on the interest rate movement, same time investment provision will be reversed avoiding the impact.
  • Bank has fully recognized a one-time charge of Rs 112.6 crore on account of net depreciation on bond portfolio to the P&L statement during the quarter and has not carried the same into future quarters, even though permitted by RBI.
  • Apart from provision of Rs 112 crore for investment depreciation, bank has made provisions of Rs 35 crore as specific provisions, Rs 27 crore as contingent provisions and general provisions of Rs 4-5 crore in the quarter ended September 2013.
  • Provision coverage ratio reported at 85.3% for end September 2013 is excluding the counter cyclical provisions amounting to 0.4% of advances book.
  • NRI deposits of the bank stood at Rs 2500-3000 crore at end September 2013.
  • Bank has started to provide the data on wholesale deposit, a deposit above Rs 25 crore, which stood at 31.1% of the total deposits at end September 2013 (against 34.7% at end September 2012) and proposes to reduce the share of wholesale deposits going forward.
  • Bank has continued to expand branch network and proposes to increase the branch network to 600 branches by end March 2014 and 750 branches by end March 2015.
  • The saving account customers acquisition stands at 80-90 thousands per quarter.
  • Fresh slippages in the quarter ended stood at Rs 150 crore contributed by 5-6 accounts. However, bank has sold about Rs 140 crore (from 3 account) of these slippages to ARCs for Rs 94 crore against receipt of cash and securities receipt.
  • From FY14, Bank has started selling NPAs to ARC in return of cash and securities receipts. The outstanding securities stood at Rs 120 crore.
  • SLR-HTM book of the bank stood at Rs 20000 crore at end September 2013, which has the duration of 4 years.
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Conference Call by Capital Mkt
Rajat Monga, Senior Group President, Financial Markets & CFO addressed the call on 15th Jan:

Highlights:
  • Bank has posted the moderated net Interest Income growth of 14% in line with the advances growth. Bank has maintained the margins steady, despite challenging interest rate environment
  • Bank expects the customer assets growth to be in line with the industry growth around 14-15% for FY2014, while anticipate deposit growth to gain good traction rising 21% in FY2014.
  • Performance of the bank in the quarter ended December 2013 was mainly supported with the healthy contribution from non-interest income.
  • Cost-to-income ratio of the bank rose in the quarter ended December 2013, on account of one-off charges amounting to Rs 13-14 crore for securing US$150 million of credit line from IFC.
  • Fresh slippages of advances stood at Rs 140 crore in the quarter ended December 2013. Bank has also sold bad loans worth Rs 62 crore the ARCs, with the outstanding ARC book rising to Rs 180 crore at end December 2013. Bank expects most of the ARCs book to achieve resolution in 2014.
  • Bank did not conduct any fresh restructuring of advances in the quarter ended December 2013, while bank has reduced the restructured advances book with the strong recovery efforts. There is nil pipeline for restructuring of advances.
  • Bank continues to improve the liability profile, raising the share of retail deposits and CASA ratio.
  • Bank proposes to add 100-150 branches over next 12-15 months.
  • Provision for bad loans was higher at Rs 65-70 crore, while write-back of provisions for investment depreciation worth Rs 52 crore helped bank to reduce the overall provisions to Rs 13 crore in the quarter ended December 2013.
  • Duration of the AFS investment book of the bank stood at 2.5-3 years. The downward shift at the short end of the yield curve, helped bank to post appreciation in AFS investment book during the quarter ended December 2013.
  • On the other hand, the bank's swap contracts has the duration of 5-years and above. With the steady yield curve at long end, bank's swap losses were marginal at Rs 4-5 crore.
  • Outstanding counter-cyclical provisions of the bank stood at Rs 200 crore.
  • Borrowing of the bank stood at Rs 19000 crore at end December 2013. Foreign currency borrowings accounted for one-fourth of the total borrowings, refinancing amounted to one-fourth, repo & money market contributed one-fifth and capital instruments had one-third share in borrowings of the bank.
  • Bank expects improvement in NIM during Q4FY2014, despite factoring in seasonally tight quarter.
86

If this company so good then why it is not performing like other pvt bank like induaind bank or Axis bank.it is almost at lowest 52 week low. i think its NPA is going to increase in coming qr.Credit swiss is shown concern about its NPA

87

I hav attached daily chart of yes bank which kinda looks like flag and pennant for me - could someone confirm this?


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iamsorry.iamverynewtothisinvestmentworld.howdoesonereachanenterprisingvalueofabankingstock.withthenpatakenintoaccount

89

Don’t think calculating enterprise value for a banking stock makes sense.

You should look at adjusted book value which is book value - Net NPA.

Kupu contentarea

90

Nikhil,

How do you read Yes Bank’s earnings. Given that it has done fair enough in the tough economic situation, is it fair to assume that it would do 30% CAGR in eps for next 2-3 years ? Its CAR is currently around 18% which is not bad enough to churn out more loan disbursements. Also hearing some news of L&T finance merging itself or acquiring YES bank. Though it may be of speculative and is not feasible without RBI’s consent, how feasible do you think it is ?

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Rajat Monga, Senior Group President, Financial Markets & CFO addressed the call:

Highlights By Capital Mkt;
  • Bank has been performing consistently, despite challenging macroeconomic environment.
  • Bank has completed the tenth financial year of operation, while emerging as the fourth largest private sector bank in terms of business volume.
  • Bank has been consolidating its balance sheet for last three years, while improving the composition in favour of retail assets and liabilities.
  • Bank has further improved the share of CASA deposits and retail fixed deposits, while reduced share of wholesale deposits in the total deposits base in FY2014.
  • NIM improved back to pre-RBI monetary tightening actions in mid-July 2013 level of 3% in Q4FY2014. The improvement in NIM was aided by sharp 17-18 bps decline in cost of funds, against 13-14 bps fall in yields on assets in Q4FY2014 on sequential basis.
  • Bank proposes to open 100-150 new branches during FY2015. Bank will continue to invest in branches and employees with focus on improving the productivity.
  • Bank has targeted the deposits as well as advances growth of 20% each for FY2015. Bank proposes to further increase in the retail mix of deposits as well as advances in FY2015.
  • With the focus on retail business, bank expects the expense ratio (%) to be in early 40's during FY2015.
  • Bank proposes to improve the CASA ratio to 26-27% in FY2015 from 22% at end FY2014. As per the bank, the major focus would be generating more saving account deposits, while current account deposits will also rise.
  • The weighted average cost of the banks saving bank deposits stands at slightly above 7%.
  • Bank has sold bad loans worth Rs 12 crore in Q4FY2014 and Rs 148 crore in FY2014 to asset reconstruction companies (ARCs( against the loans worth Rs 165 crore. The outstanding ARCs book of the banks stands at RS 175 crore at end March 2014.
  • Bank is witnessing improving asset quality trends, while it is expecting to reduce 50% of existing Gross NPAs, while also expects the resolution of 50% of advances sold to ARCs in FY2015.
  • Bank expects the credit cost to be better in FY2015 compared to FY2014 with improving asset quality.
  • Bank focuses on recoveries and resolution of bad loans and do not prefer restructuring of advances.
  • Restructured asset book eased to Rs 100.9 crore (0.18% of the advances) at end March 2014 from Rs 107.18 crore (0.21% of the advances) at end December 2013.
  • Fresh slippages of advances stood at Rs 50 crore, while bank has recorded recoveries and upgradations of Rs 70 crore in the quarter ended March 2014. During FY2014, the fresh slippages were Rs 398 crore, while recoveries and upgradations were lower at Rs 320 crore.
  • Bank has missed the priority sector lending (PSL) target of 40% of total advances by 2% due to shortfall in direct agriculture lending. The RIDF investment book of the bank stood at Rs 2500 crore at end March 2014.
  • Bank proposes to increase the dividend payout slowly to 20%, while exceed 20% only if the ROE rises sharply.
  • As per the bank, economy will take time to stabilize with the watch on monsoon and election outcome, while lending opportunities will also take time to crystallize.
  • Bank does not require any capital raising in FY2015, while the advances growth of sharply above 20% would only require capital raising.
92

Sandeep,

The results were decent taking a tough FY14 into consideration. The key point for Yes Bank in FY15 & 16 will be raising capital and retail presence. The equity raising is only way the investors can make over sized gains here. Else it’ll be a 22% grower + dividends.

Assuming economy improves from here on, Yes Bank can raise capital and can grow at 30% for couple years. Valuations shall also expand if this happens. Overall I think stock can double in 2 years.

Personally I am still invested but not too happy with promoter feud and overall business model leaning towards corporate loans. If the valuation gap with IndusInd reduces, I might exit partially and not wait for that extra 20% gain.

Kupu contentarea

95

Yes Bank has managed to raise $500 million (INR 2943 Cr) at Rs. 550 per share. The share sale offer received $2.5 billion worth of bids. The book value after this sale becomes 243 per share.

With this capital, banks balance sheet has become stronger with much less leverage. Bank can now easily grow loans at 25-30% for couple of years if there is demand.

Key things to watch here will be CASA, retail expansion and stressed loans.

Kupu contentarea

96

Rajat Monga, S.G.P, Financial Markets & CFO add the call.Highlights by Capital Mkt:

  • Bank has successfully completed the Qualified Institutions Placement(QIP) issue of US$ 500 million in June 2014, which would take care of advances growth for next two years.As per the bank, the capital funds from QIP issue would help NIMs improve by around 10-15 bps in Q2FY2015.

  • The non-interest income of the bank was lower in Q1FY2015 on account of higher base of Q1FY2014 containing the extra-ordinary income in terms of treasury gains of Rs 100-125 crore.The rise in expense ratio in Q1FY2015 was mainly contributed by salary hike for employees.

  • The fresh slippages of advances stood at Rs 115 crore, while bank has recorded recoveries and upgradations of Rs 85 crore along with write-offs of Rs 10 crore in Q1FY2015.Bank has made provisions of Rs 20 crore for standard advances, Rs 18 crore for NPAs, Rs 12 crore as counter cyclical buffer provisions. However, bank has also made provision of Rs 19 crore towards exposures of entities to Unhedged Foreign Currency as per RBI guidelines. Meanwhile, Bank has written back Rs 26 crore of investment related provisions.

  • Bank has assessed clients to unhedged foreign currency at Rs 76 crore overall, which bank has spread over four quarters of FY2015.The outstanding floating provisions of the bank stand at 40 bps of loans at end June 2014.

  • Capital adequacy of the bank is reported after including the impact of higher risk weights for operational risks, unhedged foreign currency exposure of clients and newer RBI guidelines.

  • Securities receipts book of the bank against sales of assets to Asset Reconstruction Companies stands at Rs 175 crore at end June 2014.Bank expects the advances growth of 23% for FY2015, while sees the credit substitute book declining.

  • Bank is anticipating the balance sheet growth at 15-18% for FY2015.

97

This is a very interesting statement:The rise in expense ratio in Q1FY2015 was mainly contributed by salary hike for employees.

Did some scuttlebutt and came to know that these hikes have not happened and are expected to happen this month or next!!!

Regards,

98

The higher base statement holds true for Q1FY14 where Q1 profit had grown at 38% last year. So this year growth of 10% is not too bad. But there sure is growth slowdown for Banks. Even HDFC Bk, Kotak & Axis Bk reflected this.

Compare this to IndusInd Bank who had shown 42% PAT growth in last year Q1. Even with higher base, they managed to grow PAT at 26% this year. Thats really commendable in my opinion.

Kupu contentarea

99

Last 4 quarters’ PAT -

371cr, 415cr, 430cr, 439cr

Net NPA - Practically zero

Capital raise through QIP at 550/- per share = 3000 cr.

Old book value = 172.8/-

New book value in july after capital raise = 253.5/-

Quarterly interest on QIP money alone (3000cr) comes to around 100 cr.

So Q2 PAT could be 550 Cr (50% jump yoy from 371 Cr)

Could be the best time to load up Yes Bank.

100

The interest on QIP money or increase in NIM due to it will be a one off thing. That extra 100 Cr will not come every quarter. Yes Bank is well capitalized for growth is only conclusion we can make at this point.

101

Right. In addition to what you mentioned, its also a good short term play on Q2 results.

102

Profits cannot be increased by generating interest income income directly on capital because fresh shares would have been issued to raise the QIP money. So at an EPS level it would result in a drop in profitability. Banks do not lend out their capital. They use the capital to borrow money through deposits,etc and lend it out growing their loan book over time.

Like Nikhil said, the only conclusion that can be made is thatYes Bank is well capitalized at this point.