Yes bank annual report
I was reading the Q4 con call and realized that Yes Bank has done equity write off 454cr. from reserves. @ISHWAR can you comment on this?
Thanks to @Worldlywiseinvestors and SOIC Course on Fraud Accounting
My name is Manhar, I am the one posting from ISHWAR account. So if you go through the previous post I( meaning ISHWAR) have already mentioned that it has done a provision after showing profit.
Now there are two ways you can see this thing.
1st way Q4 FY2022 was a loss of 110cr. Because they showed a profit of 365cr and did provision of 475cr from reserve after showing profit
2nd Yes they did a provision of 475cr which is bad but the way they did was smart. According to me their priority was showing profit which they did and meanwhile did provisioning as well. Now if you see there is no major issue in decreasing their BOOK value but it would have been an issue if profits were going to be reduced.
This year if the transferring of asset happens successfully then the ADD 2000-cr to book value. Then they are raising EQUITY which is again going to increase the reserve and surplus. They have 9200cr of DEFFERED TAX ASSET so provision for TAX adds to reserve and surplus again and at last next year NET PROFIT which I expect it to be 2200 to 2500cr again adds to book value. So I see lot of money coming into BOOKS so taking out 475cr is fine. But overall shareholder money has been reduce, which is BAD but the way they managed it good is what I am trying to emphasize.
I have gone through the complete annual report and would like to point out my observation.
According to RBI macro stress test for credit risk the GNPA ratio of SCB may go up to 8.1% form 6.9% but if you see YESBANK is confident of having less slippage than FY2022. They had slippage of 5796cr in FY2022 and in FY2023 they have a target of less than 2% on entire advance. Next year their advance might be MAX at 210000cr so 2% of this comes out to be 4200cr.
There are two major reasons for this.
- They have a Retail and corporate mix of 60:40. So they have a granular loan book so, I don’t see any big default here. They have given a guidance of taking this MIX to 64:36. This is the reason they have 24000 employee because the more granular you do the more staff you need and this is also the reason last year they grew advances by 8% only. Because for disbursing 1000cr loan 1 corporate account is more than enough but you need 10000 to 100000 retail account to disburse same loan.
2 They are playing extremally safe. They are growing their advances slowly. Their 61 to 90 days overdue loan was at 4661cr on 31march 2021 and currently at 1264cr on 31march 2022.
My overall point here is last year they did provision of 1667cr from operational profit. this year I feel it is going to be not more than 1400cr from operational profit.
Their balance sheet is going to be above 3.4 lakh cr even after transferring its asset to ARC. So management target of 0.75% ROA comes out to be 2500cr NET profit. They had this target as 1% which they have reduced to 0.75%.
They have opened 52 branches last year and have an employee strength of 24346. They have Provision coverage of 72% but when i include technical write-off it is at 81%.
Now I saw an interesting thing. The bank considers its capital as 40397cr but on papers it is at 33730cr. This is because they have differed TAX asset of 9200cr.
The GUIDANCE FOR THIS YEAR IS
1 CASA more than 35%. They are going to achieve this. They are number 1 in UPI and NEFT. Now they don’t make a lot of money here but they get huge Customer DATA which can be converted into CASA. That is why despite having a bad image in market it grew its DEPOSIT by 21% last year.
2 Advance growth of 15%. 25% in retail and 10% in corporate. So this year I am expecting Advances to increase more than 20000cr which is going to Add close to 800 to 1000cr of NET INTREST income. I feel the cost of capital for this 20000cr is going to be low because they are raising equity that is why I took a NIM of 4% to 5%.
3 Recovery above 5000 cr in this cash recovery is going to be around 2500cr now this helps in setting off major part of slippages. and then 0.75% of ROA which is achievable so, EPS of around 0.85.
Overall I feel last year performance was better than expected and bank is on track in achieving all the targets set by management.
I have also posted an article on OPPORTUNITY IN BANKING which further increase my confidence in this stock because I feel it has huge sectoral tail winds. Opportunity in banking industary
Disclosure- Invested and is 85% of my portfolio
Based on the article below, can we say that banks with higher contingent liabilities would be more vulnerable in a volatile economic regime (now) ?
first rule of investing in not to put all eggs in one basket. and if you have 85% in yes bank !! then god help you… yes bank should be < 5% of anyone’s portfolio. it is very high risk with moderate returns. banks should not be analysed by same metrics like manufacturing companies. banks are the most levered entities as they borrow to lend keep only part of the borrowings as statutory deposits with RBI. CAR is 13 to 15% of banks - which means it is leverage is 6X - much higher than manufacturing and other companies.
Thankyou very much for your views.
My THINKING here is a bit different. I might be wrong but ready to learn from my mistake.
I am more focused on how much I loose than how much i make. I know when i have to exit if thing go wrong which according to me should not happen. I feel if you need to make big in stock market you need to make your own rules.
As time is passing my confidence in this counter is just increasing. This bank has litrealy been saved from being finished. It is backed by government of india. We have to see this bank in a little different way unlike others. I feel there is a lot of political angle here as well. I personally feel in banks measuring how much leveraged they are might not be appropriate because bank is build on back of liability.
My major reason to invest here is limited down side. IF YOU see dispite market fall it is still hovering at the same price
4 I see yesbank in a different way. To me it a 3.2l cr size bank ,6th largest private bank, backed by government, available at just 30000cr market cap. Major reason for lower market cap is huge NPA which is going to be cleared, huge loss,so last year was complete profit for yesbank and last heavy dilution which can be fixed with a reverse split.
I Feel by end of this financila year it should be touching 20 atleast once. I am no one to predict and i migh be wrong but i am pretty confident that it is not going to be below my average price. My aim in stock market is to just avoid losing money making will happen automatically if the first part is done properly.
@manhar Appreciate your conviction in the bank. It might suit you as you are still quite young (my assumption ) and the risk appetite could be high. Of course you stand to gain more reward if it plays out well.
Given that you had done in-depth research, I am very curious to understand your options / considerations on other investment opportunities before you went overweight on Yes Bank. Eg: how would you equate levering a position in ICICI equity comparing to buying plain Yes bank equity shares? Or, how about buying call options?
@Aarti What would make you change your mind about return prospects of Yes Bank? Shouldn’t the portfolio allocation be based on certain performance targets of Yes Bank?
For me, it is trend in GNPA, provisioning, contingent liabilities etc on one hand vs consumer growth, (digital) tech development, partnerships and other positive news on another. If above are taken care, would this still be considered moderate returns?
Or, is your view on financial sector as a whole to be within X% of one’s portfolio due to the inherent risks (we dont know what we dont know)?