After fall in banks index, I started looking at Yes Bank. For last 10 years, there is a constant equity dilution by the company. Some of it may be employee stock plans but not all of it looks so.
key to looking at dilution is how much growth is achieved in per share value. Book Value , EPS and div per share
roe will also anull dilution effect for you while analyzing comp.
major point to note about yes bank and other private sector bank likes of indus ind is that equity raising happens at price to book of 2 or more so it enhances book value
So it makes 675cr profit in a quarter and the market keeps ignoring. What is the basis of this re-rating? You need to ask does Mr. market know something that you don’t?
Would suggest you to plot PEs of YB and HDFC since IPO. You might find that it used to trade at premium to HDFC Bank in initial days. It has been de-rated and might be trading in line with ICICI or Axis now. One crisis in 2008 taught many that it is not that hunky dory here. I feel that Mr. Market is waiting for another crisis which will confirm many rumours and bring down valuations in line with DCB! I have strong feeling that it is another ICICI in the making with bloated assets having substantial skeletons disclosed after getting slap on the wrist.
Sumit, everyone is entitled to have an opinion but your point abt 2008 crisis is incorrect.
There’s already a lot of stress in commodites, discom sectors but YB is managing well still.
Go through the thread in case you haven’t, mentioning points of loans to higher rated cos. Backed by good collaterals, growing retail lending, growing deposit base, growing casa %age, growing NIMs to get the overall picture.
I dont think one can have better people running a bank than Rana Kapoor or Rajat Monga.
Well, facts are facts you can’t say valuation is cheap and the market is very bullish at the same time. I had enough arguments on this thread. Don’t have anything new to add but the stock has got cheaper since then. It is a quality organisation built over the decade but…This stock will rally 50% the day RK is kicked out from YB. BTW I made 7 bagger in YB and sold in 2011 so I have been tracking it closely for long time now.
Disc: I am a Yes Bank shareholder for the last seven years.
I am taking a risk, and I know that this is not HDFC. Still a largely wholesale bank.
If one plots provisions vs advances with a three year lag (today’s provisions to 2012 advances), we will see why Yes Bank is not HDFC Bank. You can still get identical x% annualized returns from two companies in a 5 year period even if their return metrics like RoE and RoA are y and 2y respectively, if the starting valuations are different. But if you are taking a 20 year period, it will be significantly different.
Remember 2008 crisis proved that retail banking was lousy with credit card and personal loans.
ICICI went down then. Then came the wholesale bubble and HDFC Bank started giving out credit cards. Now, everyone is talking corporate loan NPAs and ICICI is going down now as well.
In a nutshell, HDFC Bank knows what it is doing (a value investor). ICICI Bank is plain dumb and a follower (just like an average retail investor). Yes Bank is somewhere in between (lets say a MF).
YB’s deposit base and advances are growing at higher rate due to the smaller base. So if one is plotting provisions vs advances for comparison, the lag period for advances for YB should be less than what one is taking for hdfc. So if you’re taking 3 yrs lag for advances for hdfc bank, u should take maybe a 2 yr lag for YB.
long term RoE for YB(21.6%) is greater than that of hdfc bank (18.x%). (Courtesy screener.in)
NIMs and retail lending as a percentage of total is showing great trends of improvement for YB
Well, I remember at one point of time there were more than 50 analysts covering YB so the nos. you are giving out is not only known, dissected but digested by the market as well. Sounds funny but someone told me that one can do simple linear extrapolation with surprise element as addition factor to find next quarterly nos. of YB.
The linear extrapolation for PAT is equally or more valid for ajanta Pharma as well as for HDFC. The (negative) ‘surprise’ part you r looking for is becoming less and less likely with the set of improving parameters. As an investor, I am sure people will feel more and more secure while holding YB in the light of improving parameters.
No, that’s why I want it to be compared with the same time lag.
Yes (Year 0) cannot be subsidized by Yes (Year 2/3)'s advances, especially when a good part of Year 2/3 is funded by new capital. Advances growing faster can hide the NPA problem. What I am saying compare a year’s advances and see how much is in bad state after three years. That gives the ability to assess loan quality by the bank on level playing ground.
Else, you will always have a bank growing on new capital, writing new loans and effectively asking everyone to forget its past loans quality issue. Looks like I am talking about ICICI from 2004-07 / 2010-12
@ Piggyway… Ur argument is compelling…its bringing out the detail which is really informative.
But I have question. Should there be pressure on asset quality, will it not show up somewhere?
At least in restructured loans?? Also the absolute value of GNPA in terms of crores of rupees is pretty paltry wrt NP.
All this should be a source of comfort. Isn’t it??