Lot of fear and pessimism over Yes Bank price fall. Lot of reasons being given for current low valuations. All these reasons were known to market when stock was trading above 500 for few months. So I don’t agree with reason like “market knows something that we don’t”. Yes bank has always been most to fall and quickest to rise. Check the 2009 price action. It traded at PB of 1 for some time. It’s also riskier compared to other private banks and most volatile too.
As a 3+ years investor in Yes Bank and one following it very closely, I am trying to give some points for fall and my overall thoughts.
This is bad time for banks. specially after RBI regulations. And it’s no surprise Yes Bank stock was hit most.
1). Yes Bank CASA is among lowest in private banking space. Even in CASA, real low cost current accounts are just 10%. The banks depends a lot on wholesale and bulk borrowing.
2). The loan book is almost entirely corporate and SME. Which in current economy is under pressure.
3). It holds lot of bonds/credit substitutes other than SLR securities. If yields remain elevated, there is risk of some MTM losses from Q3FY14 onwards.
4). It’s leveraged a lot and with current price, there is no hope of capital raising.
5). Inter-Promotor feud thats ongoing does not reflect well for bank.
Despite all these negative points, I think the price correction is more than it should have been. But that has always been the case with Yes Bank stock. Despite this hue and cry some investors in panic might think there is nothing good about the bank. The same set of investors were cheering bank at price above 500 and will do so again in couple years.
The bank has following positives
1). It’s trying to grow branch network, retail presence and CASA. It’s going well with CASA mopping and will slowly get into retail lending too. This will help improve overall liability franchise and NIM’s in future.
2). It’s consistently doing ROA of 1.5/1.6% and with it’s high leverage the ROE is above 25% giving enough room for 25% loan book growth.
3). It has shown capability for managing growth for past few years. It sailed well though recession, microfinance crisis and bad economy. So management has to be given some credit for achievements so far.
4). It will raise equity whenever market price permits. That may be 1 year or even 2 years away. But overall we have a 25% grower which can easily grow at this rate for 10 years. It’s a personal choice whether to stomach risk and pick it at cheap valuations or not.