Yes bank

manhar · July 18, 2022, 8:18am

Hi divyansh
Thankyou for your kind words. You have asked me on current book and cost of fund. Since the questions are not very elaborated my answers might be off topic because my interpretation of the question might be wrong.

CURRENT BOOK
I have a broad view for the overall banking industry here. I feel the next 5 to 7 years banks with more granular book will be outperforming banks who are heavy on corporate segment. Just to give a LIVE example , ICICI bank has a retail/msme: corporate mix of 70:30 and hdfc bank has 44:56 ( My numbers migh be wrong but try understanding the context). S o if you see last six quarters ICICI bank has been beating the estimates and it has outperformed bank nifty. Just compare ICICI share price and HDFC as well. One more major benefit of granular loan book is that you wont get big NPA at once and also try understanding the psychology of retailers and corporate institute when it comes to loan repayment.

The overall point is yes bank has retail corporate mix of 60:40 and they plan it to take it to 65:35 by this financial year. This is the reason they have 25000 employee. You need more manpower if you are heavy on retail segment. If you see yesbank total overdue bucket at 31st march 2021 was 13703cr and on 31st march 2022 it is 5747. almost reduced by 8000cr. Yes bank slippages for FY 2021 was 12000cr and for FY 2022 is 5700cr and this will further go down. After transferring 50000cr NPA their advance book looks strong and stable.

COST OF FUND
Their cost of fund is 5.1% and cost of deposit is 4.8%. They have reduced this by 90bps from last financial year. They have to work on their COST of fund because for a bank of this size these cost are not good. I feel they cannot reduce cost by reducing deposit rates because they might loose deposits, they will have to increase their CASA ratio. In this interest upcycle they just have to keep in mind that they should not be increasing deposit rates too much and will have to be moderately aggressive on advances which I feel they are doing that is why this time we can see a higher NIM from yesbank close to 3%

Aarti · July 18, 2022, 12:46pm

Aarti · July 18, 2022, 12:54pm

CASA is down.
Total deposits down.
CDs are up (which fill the liquidity gap) - most likely from some PSU banks. do banks disclose the names of CD subscribers.
LCR down substantially.
banks/ FIs are not so fully understood by retail investors as they are different from manufacturing companies. institutional investors understand these numbers better. If institutional investors are not investing in a bank then retail investors should stay away.
in yes bank’s case better to wait for results and see perfomance numbers.

dj123 · July 18, 2022, 3:33pm

Carlyle and advent are big names , this makes the case of yes bank even more interesting. The amount of dilution expected is arnd 10 % , so the valuation expected is around 10 billion dollars.
Best
Divyansh
Disc : trackn posn and interested

dj123 · July 18, 2022, 3:36pm

10 % stake each for both , so valuation of around 5 billion dollars , 20 % above approx c mcap… Looks interesting

manhar · July 19, 2022, 5:43am

I am very sure now that yes bank is going to clean books by September. I was doubtful earlier but now pretty confident. They are just buying 9.99% stake as of now and later will increase it to 20%. As per rbi no special approval is required to buy stake up to 9.99%. Yes bank did not want to delay this any more that is the reason they compromised a little bit here. They are going to get close to 11100cr now earlier it was 12100cr reason being is earlier they were transferring 52000cr and now it is only 48000c.

They will be raising money Immediately after the asset are transferred. Now I feel the price at which they will be raising money is going to be 16rs. Let me explain below
$1 billion for 20% stake. which means valuing yesbank at $5 billion. Now $5 billion/ 2500cr shares is approximately 16rs. If they are raising money at 16rs that means a dilution of 500cr shares. Now yesbank cannot dilute more than 390cr shares because as per the restructure scheme SBI share holding cannot go below 26% before 2023. So what I feel is yesbank is going to dilute it shares by 250cr and rest can be through any other instruments.

Now there are very interesting points in the above article.

Their gross NPA is likely to be below 2% and they are demanding $50 million as a guarantee.

2.The article says that the NET carrying value of the Asset is 8300cr and they are receiving 11100cr for 8300cr. I don’t know how the accounting is going to happen here. It is like yesbank giving 8300cr and getting 11100cr. So the excess amount has to be increase in the liability side as well to balance the balance sheet. So if JC flower recovers 11100cr then 15% is going to go to them so the balance is 9435cr and remember that the profit which JC flower will make 20% of that comes back to yesbank. As of now lets concrete on 9435cr which is 1135cr more than Net carrying value. I might be wrong because this is the largest asset transferring but I feel this will go into book value.

If they raise money at 16rs it will add 40paisa to book value. If the excess form ARC goes to book value it adds another 37 paisa. If yesbank gives 2200cr of net profit it adds 80 paisa to book value. Current book value is 13.5 and by FY 23 end it can be at 15.07rs.

A bank with 2% GNPA and balance sheet size of almost 3.4l cr. 6th largest private bank deserves what kind of multiple to its book value 1 or 1.5 or 2 I leave this to all of you.

sandeeptv · July 21, 2022, 1:08am

Am wondering, they have board approval to raise 10,000 Cr via debt recently. Doesn’t that translate to about 1.2 billion USD.

Also given the colossal number of shares outstanding might they issue debt to potential names like Carlyle and Advent (recent article on 1 billion being raised) that is convertible to equity at a later stage and then maybe over time end up doing a reverse stock split to reduce shares outstanding, thereby giving more value to their share price and get it out of this penny stock pricing?

To issue more equity and subsequent dilution at this stage would not seem prudent at all, correct?

manhar · July 22, 2022, 6:35am

Hi guys
There is a big update on yes bank regarding capital raising. Pleases go through the above article. Let me summarize the above article.
They are raising money through warrants and preferential shares which will get converted into equity later. This conversion into equity is generally after 18months and lies in the hand of the PE firm to convert or not.

Now there is lot of technicality here so I might be wrong please do correct me. They might issue warrants/preferential shares at 14 or 15rs but this does not mean they will have a dilution of equity at 14 or 15.
Let me just tell you the working of warrant. Both the parties decide a price at which it will be converted into equity in future. Suppose they decide a price of 18 after 18months and yes bank share price is at 25 after 18months the PE firm converts them at discount.
In preferential share it gets converted at an average share price of last 6months( I might be wrong here). SO my point is they are getting money without any immediate dilution. Moreover if you have noticed Carlyle is already an investor of SBI cards and they will be selling their stake from SBI cards and investing it into yes bank. SBI and Carlyle already have a good understanding.
Moreover yes bank already has a soft approval from RBI. So it is highly possible that the shares might get converted at 17 or 18 in future but currently issued at 14 or 15.

Overall it shows the amount of support it is still getting from RBI and SBI. The major development happening in yes ban this year.

New board being introduced. This restructuring was scheduled after 2023 march but yes bank has done it immediately.
Assets are being transferred. One of the largest asset sale in the country. Moreover yes bank having 20% stake in ARC
Money being issued without immediate dilution and in a strategic way with the help of SBI and RBI. These two PE firm will be member of the bord as well.

Overall currently 530 to 550cr shares might be issued but only 430 - 450cr might be converted. Till the time yes bank has 2900cr outstanding shares we cannot expect any big move here despite good performance. They will have to find a way to reduce the shares and the number of shareholder as well. Somehow in future if the outstanding shares get reduced this stock will be at a different position.

manhar · July 23, 2022, 9:34am

There is a lot to discuss on q1 will be posting a detailed post later on my take on q1 performance. Just talking about net profit it is close to 10% lower than my expectation.

Lotus · July 23, 2022, 10:40am

Aarti · July 24, 2022, 3:29am

on yes bank, there are so many views mainly positive… media is projecting 50% increase in PAT and creating a hype… while the numbers are quite bad as highlighted by @Lotus. all operating numbers are negative. bank will need equity to survive - if it happens EPS will go down and price should not go up.
nevertheless retail investors will buy and price will go up… only to go down subsequently when operators sell !!
major milestone will be new equity investors coming in. which will happen after ARC is formed which itself will be take a few months… then equity will be raised - then operating numbers may improve… if numbers improve then share price will go up… there are too many ifs !! the right price for this risk is < 10rs

Aarti · July 24, 2022, 3:31am

Also even the PAT growth is negative QoQ not to mention the other ratios !!

Lotus · July 25, 2022, 5:54am

myfirstmillions · July 25, 2022, 7:43am

It was mentioned in the con-call, i think 138Cr impact. It was NPA in last financial year itself.

ISHWAR · July 25, 2022, 7:46am

Hi Lotus,
The amount is 126cr from COVID Std. Restructured Advances. I don’t know the name but the amount is clear.

Secondly their 61-90 days overdue bucket has gone up substantially. Bank says it is largely because of 1 infrastructure group backed by high value asset and they are very confident that this wont become NPA.

The results are not good but we have to understand to what extent they are not good. What are the reasons for QoQ underperformance . Are they temporary or permanent . We have to see how other banks have performed QoQ. Just seeing few numbers QoQ and concluding that they are extremely bad is not a correct approach according to me.

I am going through 4 to 5 more banks result. Going through yes bank in detail. I have already see 2 to 3 very important points. Will be posting all details in a few days with the guidance of this year. I would also me mentioning weather 0.75% ROA is achievable this year or not.

@myfirstmillions in con call they were mentioning 800cr of NPA from carnival cinema. I posted the article as well. This NPA was already provisioned last year.

Ravi_Hundal · July 29, 2022, 10:19am

The ~1600cr cash (15%) will go into reducing the carrying value of security receipts. So, the net carrying value will be ~ 6700 cr. As n when recovery is done by ARC, this 6700 cr will keep reducing, and after it goes to zero, if more recovery happens, that amount will come to P&L, which will be 1600 cr plus excess ~1100cr you are talking about.

manhar · July 29, 2022, 10:45am

They mentioned this in the CONCALL. Actually I have found 3 to 4 extremely important point on yesbank and am very excited to share them. Somehow waiting for some conclusive proof to post all of them together. After going through the con call I was completely clear on this entire asset transfer. Actually as per RBI guidelines they cannot record the value of 11100 cr in their books because logically they are not receiving any cash and if they increase their book value and later the asset recovery does not happen then there is a big challenge. So the assets will be recorded at NET VALUE which is 8300 cr. As you said 15% will further reduce the carrying value. If you ask me this is extremely positive news because earlier I was thinking this will increase book value without rooting through P&L but now this 1100 cr ( might not be exact) will come through P&L.

If you ask me we can expect this 1100cr in end FY24 or MID FY 25

secondly they have targeted 5000cr of recovery this year which does not include recovery from ARC. This was again a big positive surprise for me.

For further reference this is screenshot of con call for better understanding

Thankyou for taking time and writing.

Aarti · July 29, 2022, 2:34pm

CMP is Rs. 15. Private placement @ 13.78. again many retail investors shortchanged!!
these PE investors are hedge funds who take large risks expecting higher returns - and they follow a portfolio approach.
for retail investors yes bank is a not a good investment - risk return wise.
also dont know what these funds are going to be used for as asset book has declined and so has every operating number!!
Anyway all the best to retail investors/ depositors/ etc…

amitvohra · July 29, 2022, 3:00pm

Although would have loved to see dilution at 16 but management knows the best. Getting 8900 cr in current times will definitely boost long term performance and a decent yearly appreciation is assured from these levels.

manhar · July 29, 2022, 5:27pm

To be very honest i am disappointed by the price. It comes around 14.25. They could have raised capital after 3 to 6 months and got better valuation.

But something is better than nothing. These two firms will be board member and this capital will help in growth. Let me put some calculations below. I know business don’t work mathametically that is why i am going to back each of my calculation logically.

After this capital raise. I feel it is going to be $1 billion don’t know why they are mentioning 8900cr. Let us go with $1 billion.
This allows yesbank to give advances worth 44000cr at 18% CET.

Next 2 years profit till FY24 let’s assume 5000cr. Now i feel this is on lower side because yesbank PBT will be added to book value not PAT because they have 9000 cr tax asset. Even this quater their book value was up by 420cr. So this helps in lending 28000cr.

Their asset size will go down by 20000cr by transferring to ARC. So they can lend this 20000cr as well.

Till next capital raise a total of 92000cr can be disbursed. Note i have not accounted for recovery. For lending 92000cr bank needs minimum 1.2 lakh cr on liability side. So till the time yesbank becomes 4.2 lakh cr size there won’t be any dilution. I feel they can reach this size by FY25 end it is difficult to achieve before that.

Currently yesbank cost is very high close to 78% cost to income this quarter. This cost will be same till this year end because they are doing heavy investments to change their entire mix. This change in advance mix requires heavy immediate investments but the revenue you generate for this would come in later years. This was mentioned in con call as well.

I spoke to some senior yesbank employee today and what i got to know that during ravneet gill time employee were scared . Corporate culture was bad. They were working like PSU but since prashanth kumar had come things are changing. All guidance give for Fy21 were met. It takes time to change and that is what yesbank is doing. He also said that despite being in yesbank for 3 years he does not know the role of few departments( I mean how are these people even contributing to the bank). I am also customer of yes security and i have never seen such horrible service in my life. What i am trying to say is to change all these things it takes time. They sold their MF last years and slowly slowly cleaning is happening.

Coming to the point. On 4.2 lakh cr for a well established bank and under good leadership i belive 1.5% ROA is achievable. So 4.2 lakh cr and 1.5% ROA and 3200cr shares. EPS of around 2 and PE OF 25 so price of around 50.

The whole game lies in the 1.5% ROA which again i think is achievable because of they being more towards retail side. I have dealt with 10 banks till now in the last 2 years as customer and only KOTAK AND YESBANK have something called as relationship manager at every level. My dealing with bank involves lot of activity so i understand the efficiency to some extent. Just to name a few like(PIS OPENING, INWARD/OUTWARD REMMITANCE/NRE KYC UPDATION/BROKER ACCOUNT OPENING/BRANCH SHIFTING. just try changing your mail id in sbi and see the pain you go through. Yesbank was at that level. The comfort i have got here is better than any of them till now( this is personal experiance might be different for others).Many might contest that other banks also have but the true meaning of this position is being fulfilled by these 2 banks only. That is why they have 25k employee. All these small things make a big difference in future.

Even if the price is 35 or 40 by FY25 and you bought it at 12 just see your CAGR. I am very confident of their growth. Let’s see

The biggest asset of bank is their employee. Slowly slowly there is pressure from higher management. Employee are meeting sales targets. Inefficient departments are being removed. The complete corporate attitude is changing. Since this is 85% of my portfolio i am tracking this every second and pretty confident as of now. I have demanded the mail Id of the CFO of the bank and have very important questions. If i get that will be sharing with you more details with better clarity. I know CFO himself doesn’t respond and his team does but that will also be big.

Thankyou