Yes Bank Icr(20th June2011)

Initiating Coverage Report
Ready for The Take–off

Need for Capital
Low CASA

nk
YES Ban

- On-a On a restructuring mode
restructuring mode
g g

Macro-economic Headwinds (Dark clouds)
Above Industry Loan Book Growth

- High persistent domestic inflation
Diversified Fe Income

Strong Asset Quality

- Increasing Interest rates
iency
ee

- Credit demand slowdown
t
Cost Effici

- Asset Quality risk in high
growth sectors

- Global economic instability

Theme for growth

• Branch expansion
• Capital Infusion
• Restructuring the balance sheet profile

Analyst – Abhisek Sasmal
033-3051-2175
asasmal@microsec.in Microsec Research reports are also available on Bloomberg <MCLI>

20th June’2011 Microsec Research

Contents
Investment & Valuation Brief 2
Company background 3-4
YES Bank – Launch Pad – Version 2.0 (the take off ) 5
Investment rationales 6-20
Peer Analysis 21
On the footsteps of leaders (Comparative study of Yes Bank with Axis & HDFC bank) 22
Stock Cues 23
Sensitivity Analysis 24
Valuation & Recommendation 25
Financial Projections 26
Ratios 27
Key concern to our call 28
Appendix – 1 (Typical YES bank branch) 29
Appendix – 2 (Macro Picture – Light at the end of the tunnel!!) 30
Note 31
Analyst page 32
Other Banking reports 33
Disclaimer 34

1


YES Bank (Version 2.0 on course)
Yes Bank has experienced unprecedented growth in the Indian banking sector since it
BUY started operations in late 2004. This is a significant achievement for a bank which had
Market Data started late when compared to other new age private sector banks. The bank
Current Market Price (INR) 282 differentiated itself from other players in the industry through its unique 'knowledge
Target Price (INR) (18 months) 358
banking approach', emphasis on technology, and human resources. The knowledge
banking approach was its main pillar of differentiation and using this it provided
Upside Potential (annualized) 18%
specialized services to various sunrise industries through domain experts.
52 Week High / Low (INR) 388/234
Market Capitalization (In INR Mn) 103263 We re-initiate coverage on Yes Bank with a BUY rating. Our rating underpins the
Non-
bank’s strong business momentum, diversified revenue stream, strong assets
Share Holding pattern% quality, positive asset liability mismatch, strong institutional holding, superior cost
Institution
s Promoter efficiency, unique technology proposition, high pedigree of Human Capital, thrust on
13% Group improving CASA driven by aggressive branch expansion plans and its superior and
Foreign 27%
Financial sustainable return ratios. However, heavy dependence on bulk deposits in a rising
Institution interest rate scenario slightly impedes our optimism.
s / Banks
5% Mutual
Funds At the CMP of INR 282 the bank is trading at 1.82x FY13E BV. The bank delivered RoE
5% of over 20% and RoA of 1.5% for FY11. We further expect the bank to deliver RoE of
FII
45% Insurance
20%+ on the back of increased leverage, however we may see some pressure on RoA
Cos due to moderation in earnings growth going forward on the back of rising loan loss
5% provisions and rising cost.
STOCK SCAN
We have valued Yes bank on scenario model with different weightage given to each
532648
BSE Code scenario and arrived at a weighted average target price of INR358 which is 2.3x its
NSE Code YESBANK FY13E BV of INR 155.4. Our recommended target price is 27% above the current price.
YES IN
We expect this target price to be met with in 18 months from the date of release of this
Bloomberg Ticker
report.
Reuters Ticker YESB.BO

Face Value (INR) 10 Key Risks - 1) Further rise in wholesale deposit cost. 2) Deferment of capital raising
3471.5
plans due to depressed market condition. 3) Lower than expected improvement in
Equity Share Capital (INR. Mn.)
CASA. 3) Higher than anticipated rise in slippages due to more focus on the SME
Average P/E/PBV (3 yrs) 15.9/2.76
segment. 4) TTM P/BV is still at 30% premium to the average valuation in last rate hike
g ) / p g
Beta vs Sensex 1.35 cycle. (refer page 28)
Average Daily Volmes (6 M) 3181850
Particulars (INR Mn) FY09 FY10 FY11 FY12E FY13E
Dividend Yield (%) 0.84 9462.00 13634.85 18702.01 25514.30 33904.26
Total Income
Stock Return (1 Yr) 6.25% Growth% 36.89% 44.10% 37.16% 36.43% 32.88%
140.0 NII 5092.99 7879.53 12469.30 16861.89 22086.09
130.0 54.1% 54.71% 58.25% 35.23% 30.98%
Growth%
120.0
120 0
Net Profit 3,038 4,777 7,271 9,561 12,087
110.0
100.0 Growth% 51.90% 57.24% 52.22% 31.48% 26.42%
90.0 10.23 14.06 20.95 26.91 33.55
EPS
80.0
70.0 P/E * 27.66 20.12 13.51 10.52 8.44

NIM% 2.70% 2.80% 2.80% 2.53% 2.61%

ROE (Reported till FY11) 20.70% 20.3% 21.7% 20.93% 21.59%
Yes Bank SENSEX NNPA% 0.33 0.06 0.03 0.09 0.06

BV 54.69 90.95 109.29 128.54 155.41

P/BV* 5.17 3.11 2.59 2.20 1.82
Analyst – Abhisek Sasmal
Adj.BV 53.99 90.25 108.59 127.84 154.71
91-033-3051-2175
asasmal@microsec.in P/Adj. BV * 5.24 3.14 2.61 2.21 1.83

* All prices as on 17th June’11 Source: Company, Microsec Research


Company Background

Yes Bank limited (YBL), incorporated in 2003 by Rana Kapoor and Late Ashok Kapur, is a new age private
sector bank. It is the only bank that has been awarded a greenfield license by the Reserve Bank of India (RBI)
in the last 16 years. YBL offers a full range of products and services in areas of corporate and institutional
banking, financial markets, investment banking, corporate finance, business and transaction banking, retail
and wealth management across India.

The bank is part of global thought leadership forums like the Clinton Global Initiative (CGI), Triple Bottom
Line Investing (TBLI) and Tallberg Forum. Recently, it became the first Indian Bank to become a signatory
with the United Nations Environment Programme (Financial Initiative).

Yes Bank has partnered with various companies for delivering quality products and services namely Cash
Tech, Cisco Systems, Gartner, Intel, i-flex, Reuters, VSNL, Wipro, De La Rue, Murex, Wincor Nixdorf and
Sanovi.

This new age private bank has global institutional investors like Rabobank, Franklin Templeton, AIF Capital
and Fidelity, amongst others

Received RBI license for
commercial banking
Maiden public offering of equity Shares issued at premium of Rs
Launch of financial market business shares by the bank 259.5 to QIBs
Incorporation

NOV’03 MAY’04 AUG’04 SEP’04 OCT’04 JUNE’05 AUG’07 JAN’10

Launch of Corporate and Business Launch of Launch of Yes International Banking
banking Transaction
Banking business

Source: Company website

3


Key Management Personnel
Name Designation Previous Assignment
Managing Partner / CEO & Managing Director - Rabo India, Bank of
Rana Kapoor Founder/ Managing Director & CEO
America (16 years)

Rajat Monga Group President – Financial Markets & CFO Head of Treasury - Rabo India
Executive Director and Country Head - Avigo Capital Partners/ Bank of
Varun Tuli Group President – Branch Banking
America
Sumit Gupta President – Commercial Banking Associate Director & Head (North) - Rabo India

President & Global Head – International Banking
Arun Agrawal General Manager – ICRA
General

Surendra Jalan President – Indian Financial Institutions AGM AGM, Corporate Banking - ICICI Bank

Group President– Corporate Finance and
Somak Ghosh Director – Project Advisory & Infrastructure Mgmt - Rabo India
Development Banking

Group President –Transaction Banking Group,
p g p, Global Transaction Services Head - Caribbean, Central & Latin America,
, ,
Suresh Sethi
S h S hi
International Banking, Liabilities Product Mgt. Citibank

President & Sr. Managing Director – Investment
Aditya Sanghi Executive Director, Head of Mergers & Acquisitions - Rabo India
Banking
Group President and Chief Risk Officer Executive
Kavita Venugopal Investment Banking, Kotak Mahindra Capital Company
Director

Alok Rastogi President & Chief Operating Officer Citibank N.A.

Equity History
Total amount raised Equity Capital Equity Dilution
Particulars Issues
(INR Mn) (INR Mn) (%)
5-Jul-05 IPO at INR 45 per share 3150 2700 35%
Private placement of 10 Mn shares at INR 120
22-Dec-06 1200 2800 4%
to Swiss Reinsurance

Private placement of 14.7 Mn shares at INR 225
7-Dec-07 3308 2947 5%
to Gl b l T
Global Tamarind F d P Ltd
i d Fund Pte L d

27-Jan-10 Issuance of 38.36mn shares to QIBs at INR269.5 1033.8 3386.3 13%

Strong Institutional holding

Name % of Shares as on Mar'11

American Funds Insurance Series Growth Fund 4.92

HSBC Bank Mauritius Ltd A/c HSBC IRIS Investments Mauritius Ltd 4.84

RaboBank International Holding BV 4.81
Titiwangsa Investments Mauritius Ltd 4.23
SmallCap World Fund Inc 3.82
Morgan Stanley Mauritius Company Ltd 2.27
Life I
Lif Insurance Corporaiton of India
C i f I di 1.92
1 92
JP Morgan Funds 1.61
Deutsche Securities Mauritius Ltd 1.35
Franklin India Prima Fund 1.03

4 Source: ACE Equity, Company website


YES Bank – Launch Pad – Version 2.0 (the take off )

At the end of Mar'15
At the end of Mar'11 Implied CAGR%
(Target)
Advances (INR Bn) 343.64 1000.00 30.60%
Deposits (INR Bn) 459.39 1250.00 28.42%
Balance sheet Size (INR Bn) 590.07 1500.00 26.24%

Branches 214 750 36.77%
Employees 3990 12000 33.40%

NIM% 2.8%
2 8% 4.0%
4 0%
RoE% (reported) 21.70% 22-24%
RoA% 1.52% 1.6-1.75%

Relationship / Product Matrix – to support growth

5 Source: Company website


Investment rationale
Business Momentum to continue

YBL’s loan book has grown at a CAGR of 52.9% over the last 5 years, which is well above the average
industry growth rate during the same time period. Higher than industry growth led to a consistent
improvement in market share for the bank. Market share stood at ~0.92% in FY11 as compared to 0.33% in
FY07. Going h d
FY07 G i ahead we expect the b k to continue growing at a pace hi h than that of the i d
h bank i i higher h h f h industry and
d
have factored in a CAGR of 28% for FY11-13. The growth will be well supported by aggressive branch
expansions, more penetration in the larger corporate segment & retail segment of the loan book. YES
bank’s loan book growth aspiration (Version 2.0) is mainly driven by 1) increasing market share and 2)
putting revenue growth ahead of increasing cost. However in the long run, this approach from YBL may
change due to the need of faster improvements in some key metrics where its lags its larger peers.

800.00 Strong business growth 749.03 400.0%

700.00 350.0%

600.00 562.88 300.0%

500.00 459.39 250.0%

400.00 343.64 200.0%

300.00
300 00 150.0%
150 0%

200.00 100.0%

100.00 50.0%

0.00 0.0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Deposits (INR B )
D i Bn) Advances (INR Bn)
Ad B ) YoY D G
Y Y Dep. Growth%
h% YoY Ad G
Y Y Adv. Growth%
h%

250 Above industry loan growth from Inception Seasonal weakness in loan growth started to get visible
400 35.0%
216 350 30.0%
200
300 25.0%

161 20.0%
20 0%
150 250
15.0%
200
10.0%
100 150
5.0%
79 100 0.0%
60
50 50 50 -5.0%
32 30 26 0 -10.0%
0
FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Industry Loan growth% YES Bank's Loan Growth% Loan Book (INR Bn) gr% (RHS)

Source: Company, Microsec Research
6


Branch Expansion strategy – well fit to the overall business model
Yes Bank currently has a branch count of 214 across 164 cities. It has 91 branch licenses and plans to
expand its reach to 250 branches by Q1’FY12 and to 325 branches by Q4’12. With initial focus in
liability rich regions of North and West India (75% of branches), the bank now plans for a pan-India
presence. The new roll-outs are targeted at improving the SME and retail franchise. The bank plans
to roll out 150 branches in South with in two years time. The metro centers are likely to have over
30 branches each in the next few years. YES bank has separate team looking after the inclusive or
social banking model (a combination of bricks & Mortar and technology-enabled branches) in Tier-3
to Tier-6 segments of agri-rich Maharashtra, Gujarat, Rajasthan, Haryana, UP & MP. “Low cost –
Rapid launch” branches are mapped out for Tier-3 to Tier-6 cities. The branch addition and thrust on
retail deposits will help shore up CASA franchise.

YES bank uses “Hub and Spoke” model for faster maturity and greater efficiency of branches. This
approach has in-turn reduced IT and infrastructure spends. Also, with timely break-even in key
branches, cost-to-income for the bank has declined substantially from 53% in FY07 to 36% in FY11.

Branch Concentration
Pan India Branch expansion.
Priority anti-clo wise

East
10%
ock

South
15%

North
50%
West
25%


% Share of Loan
Advances Segmentation Clients Typical Exposure
Book
Comments

Corporate & Institutional Very low credit cost, strong asset
Above INR 20Bn INR 500 -2000 Mn 65.6%
banking quality

Commercial Banking > 2Bn & <= 20Bn INR 100-500 Mn 22.5% Medium risk segment

Branch Banking <= 2 Bn INR 20-100 Mn 11.9% High yield & High risk segment

7


Break up advances (Q4’11) Break up of advances based on knowledge based sectors (Q4’11)

Branch Others
Banking, 11.90 18% Infra & Logistics
% 23%
Commercial
banking, 22.50
%
Food & Agri
businesses
Corporate &
Institutional 18% Engineering
Banking, 65.60 22%
%
TMT
14%

Healthcare
5%

Q4'09 Q4'10 Q4'11

8% 5% 12%

26%
29% 22%

63% 66%
69%

Corporate & Institutional Banking Commercial banking Branch Banking

35% Focus on knowledge banking

30%
25%
25% 22% 22.70%
22 70%
20.70% 21.70%
20% 18% 18.10%
17% 19.10% 16.90%
16%
15%
15%

10%

5%

0%
Q4'08 Q4'09 Q4'10 Q4'11

Infra & Logistics Engineering Healthcare TMT Food & Agri businesses Others

8 Source: Company, Microsec Research


Knowledge banking – a key differentiator

YES bank's competence in terms of using high-end technology, its 'knowledge banking'
approach, and emphasis on highly qualified human resources helped it to differentiate itself from
other private banks in an increasingly commoditized market. In particular, its knowledge banking
initiative drew a lot of interest. In the initial phase, the bank planned to target those sectors where
the bank has a deep understanding of the industry. The bank has a team of investment banking
professionals that h
f i l h have h d hands-on expertise i advisory, capital raising and M&A b i
i in d i i l ii d businesses. Th
There are
sector specialists that understand a particular sector and know the business intricacies to structure
superior solutions from a banking perspective.

Skilled
p p
people

Superior
technology

Knowledge
banking

Unique Technology Proposition High pedigree Human Capital

Edu Background (FY10) Work exp (Yrs) (FY10)

11-15 16-20 > 21
CA/C 0%
4% 1%
S LLB
6% 1%
0-1
16%
6-10
20%
MBAs Gradu
G d
36% ates
50%

2-5
59%
PG
7%


9


CASA augmentation remains the key
B2B2C Strategy
Identifying current
YES bank’s deposit base grew 5.6x within 5 year’s time, registering a CAGR of 53.75% over FY07-
account rich FY11 mainly due to base effect. However, the bank has historically relied more on wholesale
corporate customers deposits to ramp up loan growth. In addition, relatively lower branches (most of the branches being
new) impacted the CASA mobilization of the bank. Yes Bank's proportion of low cost deposits
(CASA) is amongst the lowest in the Industry. However, in absolute numbers CASA has grown at
78% CAGR d i FY07 FY11 Y B k i l ki to d i value f
during FY07‐FY11. Yes Bank is looking derive l from planned b l d branch expansion
h i
Offering them salary and increase penetration to improve its CASA ratio. Management wants to increase the CASA share
a/c and various other to 30% by FY15. However, we expect a gradual improvement in the YBL’s CASA ratio from current
wealth management
products 10.3% to 12.5% till FY 2013. FY13 onwards, CASA mobilization may gain higher momentum as
almost 60% of the branches likely to cross breakeven productivity by then. The CASA share may
throw some positive surprises if the overall balance sheet growth lags the CASA growth. We expect
CASA deposits to grow at a CAGR of 48.6% over FY10‐FY13. Of the incremental accretion to
Offering them superior cash deposits, we expect the CASA contribution at 15.8% between Mar’11 to Mar’13.
management & liquidity
management solution
including a SB a/c
80% Above industry deposit growth
70%
Tied up with the corporates 60%
to tap a rich source of
50%
references
40%
30%
27% 28%
20% 19%
18%
10%
With larger share of Current 0%
account in YBL’s overall
CASA, economically the value FY08 FY09 FY10 FY11 FY12E FY13E
of this 10% CASA is comparable
to any bank which has 15-16%
a y ba c as 5 6% Industry Deposit g
y p growth% YES Bank's Dep. Growth%
p
CASA with more share from
SA. Thus any event related to
savings bank rate de-regulation
will be structurally positive for
this bank. 45%
39.50% Dependence on wholesale deposits – may put NIMs under pressure in an
40%
increasing rate scenario
35%
30%
25%
20%
15% 13.20% 12.10% 10.90% 10.30%
10% 7.50% 6.40%
5%
0%
FD - C
Corp FD - b
branch
h FD - FD- G
Govt CDs
C Institutioanl
i i l CASA
banking banking Commercial Deposits
banking

Q4'09 Q4'10 Q4'11



400 Strong Branch expansion 350 80

350 70
275
300 60

250 50
214
200 40
150
150 117 30

100 67 20

YES bank’s newer branches are 40
50 17 10
reaching the critical inflexion
point where they can attract 0 0
more customers due to their FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
reach & faster productivity
productivity.
More and more newer branches
No of branches Expansion (RHS)
are coming up in Tier-2 & Tier-
3 cities. These branches will Source: Company, Microsec Research
reach break even faster than
their Urban peers due to lower 300.0 14.00%
CASA mobilization per branch on the rise
cost and less competition. All
these will led to faster CASA 250.0 12.00%
mobilization in branch level
with faster improvement for 10.00%
10 00%
CASA/branch. 200.0
8.00%
150.0
6.00%
100.0
4.00%

50.0 2.00%

0.0 0.00%

CASA per branch (in Mn) CASA%


FY07 FY08 FY09 FY10 FY11 FY12E FY13E CAGR%

CA 4158.9 9821.3 12197.5 24271.6 39338.3 53750.5 74379.0 61.72

SA 579.8 1465.3 1920.6 3909.9 8170.4 12375.0 19250.0 79.30

Term Deposits 77465.3 121445.0 147576.1 239804.1 411880.7 519055.7 655402.9 42.74


11


Favorable asset liability mismatch gives support to NIMs

Lower CASA has been well compensated by a positive asset liability mismatch in longer term assets.
Only 10% of the assets have fixed rate, which means it can raise lending rates quickly when faced with
a liquidity squeeze. Longer term assets are mostly financed by borrowings (~76%) mainly term loans.
The bank has ample liquidity in the form of short term deposits to finance its shorter term assets (< 1
y)
yr). The average tenure of deposit base is about 21 months and loans about 18 months which means
g p
faster maturity of asset than liabilities.

Longer term advances funded by borrowings
FY10 FY10
80.0% 75.80% 90%
78.50%
70.0% 80%
70%
60.0%
60%
50.0%
50%
40.0%
40%
30.0% 30%
21.50%
21 50%
20.0% 13.70% 20% 13.70%
8.90% 10%
10.0%
0%
0.0%
Advances maturing Infra Exposure Term Loans
3YR+ Dep. as % of 3YR 3YR+ Borr. as % of 3YR+ Adv. as a %of
3Yrs and above
+ adv 3YR+ adv total adv

Positive ALM mismatch

100% 0.60%
0.40%
5.80% 100%
90% 7.90% 16.60%
90%
80%
80%
70% 33.50% 26% 70%
60% 60%
90% 89.50%
50% 50%
18.30%
17.30%
40% 40%
30% 7.70% 30%
20% 38.10% 20%
27.80%
10% 10%
10% 10.50%
0% 0%
Advances Deposits Assets Liabilities
< 3 mnths 3-6 mnths 6-12 mnths 1-3 yrs 3-5 yrs > 5 yrs Fixed Floating

12


Margin scenario – strong pricing power may support NIMs
YES bank is mostly a wholesale funded bank (refer page 10). Due to the recent hike in retail deposit
rates and with wholesale deposit rates at about 10.02% currently, the bank’s cost of funds has increased.
The incremental cost of funds is 50-100bps higher currently, compared with the overall cost of funds in
December 2010. However, we believe this cost increase is likely to be mitigated (to an extent) by a 200
bps increase in the prime lending rate (PLR) and a 50 bps rise in the base rate (Yes Bank increased its
PLR by 50 bps in August 2010 September 2010 December 2010 and May 2010 The PLR is 18 5% and
2010, 2010, 2010. 18.5%
the base rate at 9.5% currently). The impact of increasing SB rate by 50 bps will be limited to only 1 bps
increase in cost of funds, however the increase in base rate and PLR will enable the bank to partially
absorb the increased cost on account of rising interest rates. However, further interest rate hike by RBI
will put pressure on its NIMs with a lag as more and more deposits will re-priced later.

Short-term interest rate on the rise – making wholesale deposit costly

16 18
14 16
12 14
10 12
10
8
8
6
6
4
4
2
2
0
0

CP 3month CP 6month CP 12 month CD 3month CD 6month CD 12month

Rise in cost of funds pressurizing NIMs
15.00%
14.00%
13.63%
13.00%
12.00% 11.84% 11.27%
10.57% 11.30%
11.00% 10.24%
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
2.80% 2.80%
3.00% 2.60% 2.70% 2.53%
2.61%
2.00%
1.00%
FY08 FY09 FY10 FY11 FY12E FY13E

% yield on advances % yield on investments Cost of deposits% Borrowing cost% NIM%



Strong core operating income growth & diversified fee revenue

YBL’s total income grew strong at a CAGR of 58.8% over FY06-FY11. This is well supported by
69.88% CAGR growth in Net Interest Income (NII) & 45.1% CAGR growth in Other Income over the
same period. The dependence on other income (OI/TI) has come down from over 50% in FY05 to
33.3% in FY11. Fee income constitute almost 95% of the other income. Fee income is mainly driven
by transaction banking & financial advisory (investment banking and project advisory). We may see
some growth moderation i fi
h d i in financial market ( i l treasury i
i l k (mainly income) i coming quarters d to
) in i due
subdued market and rising bond yields. With increasing branch expansion, increasing focus on retail
assets and stabilization of new branches, we may see contribution of branch banking in fee income to
increase. Overall, we expect the core income for YES bank to outpace the other income during FY10-
FY13. We are expecting Total income, NII & Other income to register a CAGR of 35.5%, 41.1% and
27.1% respectively over FY10-FY13.

In Mn
40000.0 Core operating Income outpacing non-core income 500.0%

35000.0 450.0%
400.0%
30000.0
350.0%
25000.0 300.0%
20000.0 250.0%

15000.0
1 000 0 200.0%
200 0%
150.0%
10000.0
100.0%
5000.0 50.0%
0.0 0.0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

NII Other Income Total Income NII Gr% Other Income Gr% Total Income Gr%

In Mn
900.0 Break up of Fee Income

800.0

700.0

600.0
600 0

500.0

400.0

300.0

200.0

100.0

0.0
Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11

Transaction Banking Financial Markets Financial Advisory Branch Banking fees and others



FY15
Fee Income composition
FY11 Share Target Drivers

Financial Advisory 45.3% 30% Primarily IB and debt syndication. Will moderate, going forward

Financials markets 14.5% 30% Fx/derivatives/rates. Driven by strong corporate relationships.

A key driver of growth, going forward, given the branch scale
Transaction banking 31.4% 30%
building up

Insurance and MF – growth because of low base and expanding
Branch banking 8.8% 10%
reach, despite challenging environment

Unique cross selling opportunities give multiple & diversified revenue streams

Knowledge Sectors Clients segment Credit products Financial Markets Transaction Banking Advisory Services

Food & Agri Agro Chemicals √ √ √ √

Life Sciences Drugs √ √ √ √

Engineering Electric comp. √ √ √

TMT IT/Telecom √ √ √ √

Infrastructure Wind Energy √ √ √ √


% Share of Fee income to Total Income (FY11)
50.00%

44.13%
45.00%

40.00%

35.00% 33.90%
31.38%
30.00%

24.02%
25.00%

20.00%
YES Bank Axis Bank HDFC Bank ICICI Bank

15


Cost efficiency one of the best in the industry

In comparison with its peer group, YES bank enjoys one of the leanest cost structure which is on
account of better business productivity per employee, unique technology proposition. Over the past
five years, bank has successfully reduced its cost ratio from 52.88% to 36.35% in FY11. Going
forward, we expect this ratio to stabilize at 38‐40% levels with its aggressive hiring and branch
expansion plans. Yes bank has also improved its cost/assets by 86 bps over FY08-11, mainly due to
p p p y p y
better utilization of its infrastructure. These offset its low CASA and somewhat laggard NIM.
Productivity ratios of the bank remain as one of the best, regardless of having large number of
branch and employee additions every year. Most of the bank's branches are comparatively new and
yet to pick up in terms of productivity. Management indicates that increase in productivity (newer
branches to matured branches) will limit the upside in cost in coming years.

Cost to Income ratio
55.0%

45.0%

39.75%
38.00%
35.0% 36.35%

25.0%

Staff cost rationalization helped overall cost efficiency

100%
90%
80%
52.09% 51.36% 53.30%
70% 58.20% 60.71% 59.33%

60%
50%
40% 18.24% 18.38%
13.30% 19.80%
13.95% 14.79%
30%
20%
10% 19.87% 18.23% 19.76% 22.12% 22.05% 18.74%

0%
FY06 FY07 FY08 FY09 FY10 FY11

Other exp% Depreciation cost% Ad sales& Promotional expenses% Administative expenses % Staff cost%

16


Assets/Employee (INR Mn) Cost/Assets (%)
2.50%
200
180
2.00%
160
140
120 1.50%

100
80 1.00%

60
40 0.50%

20
0 0.00%
FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Employee productivity on the rise
18.0 2.5 70 90
16.0 80
60
2.0 70
14.0
50 60
12.0 50
1.5 40
10.0 40
8.0 30 30
1.0
6.0 20
20 10
4.0 0.5 0
2.0 10
-10
0.0
00 0.0
00 0 -20
20
FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Business per Employee Profit per Employee(RHS) Employee/Branch Incr Empl/Bran (RHS)

Cost/Assets% (FY11) Cost/Income% (FY11)
50.00% 47.90%
3.00%
45.00%
45 00% 42.70% 42.24%
42 24%
2.40%
2 40%
2.50%
40.00% 36.35%
1.96%
2.00%
1.63% 35.00%

1.50% 30.00%
1.15%
25.00%
1.00%
20.00%
0.50%
15.00%
0.00%
10.00%
YES bank Axis Bank ICICI Bank HDFC Bank
YES bank Axis Bank ICICI Bank HDFC Bank

17


Asset quality one of the strongest in the industry

Due to higher credit exposure to the corporate segment, YES bank enjoys one of the best asset
quality in the industry. During FY05‐07, YBL hasn’t reported any slippages, however in FY08, it
reported its first GNPAs of 0.1% and currently it stood at 0.21%. Restructured assets as a % of gross
advances improves from 0.36% in Q4’10 to 0.24% in Q4’11. Exposure to troublesome MFI sector
stood at INR 4500 Mn which is less than 1.5% of the total loan book. Also, YBL does not have any
exposure to the new 2G players. F h we d ’ see any i
h l Further, don’t impact of RBI’ recently revised norms
f RBI’s l i d
for provisioning. However, higher provisioning for restructured assets may dent FY12 expected PBT
by 0.08% to 0.11% (Microsec Internal calculation).

However with increasing focus on SME & retail segment we may see a spurt in slippages going
forward. Secondly, it will be hard for the bank to improve upon its GNPA % NNPA% further in this
increasing rate scenario. Nevertheless it is noteworthy to mention, that even after factoring in an
increase in NPAs it still remains low as compared to its peer group. YBL’s provision coverage ratio
stood at health 88 6% as on March’11
healthy 88.6% March 11.

0.9 Credit Cost% 2500 Strong asset quality 80%
0.8 70%
0.7 2000
60%
0.6
1500 50%
0.5
40%
0.4
1000 30%
0.3
0.2 20%
500
0.1 10%
0 0 0%
FY09 FY10 FY11 FY12E FY13E FY09 FY10 FY11 FY12E FY13E

GNPA (Rs m) NNPA (Rs m) GNPA Ratio (RHS) NNPA Ratio (RHS)

Provision Coverage Ratio Restructured assets
100.0 1700 1.2
90.0
1500 1
80.0
70.0 1300 0.8
60.0
50.0 1100 0.6
40.0
900 0.4
30.0
20.0 700 0.2
10.0
10 0
0.0 500 0

FY09 FY10 FY11 FY12E FY13E Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11
Total Restructured Assets (INR Mn) % Gross Advances (RHS)



Capital issuance critical for growth

YES bank has adopted a capital raising in every 1.5-2 years of operation from FY08. Currently YES bank
is adequately capitalized with Capital Adequacy Ratio (CAR) stood at 16.7% at the end of March’11.
Bank has raised capital of INR 3386 Mn by issuing shares to QIBs at INR 269.5 per share in Jan’10
diluting 13% stake. Further management is expected to raise funds to the tune of USD500 Mn (INR
22500 Mn) through an American Depository receipt by the end of FY12. However due to the subdued
) g p y p y
domestic & overseas capital market, the bank may defer its plan till H1’FY13. This gives the bank
enough issuance window to raise capital at a reasonable price. However, We have not factored in the
capital raising plan by the bank in our estimates for FY12 & FY13.

Capital raising once in every two years from FY08
In Mn Adequate capital for sustainable growth
40000 25

35000
20
30000

25000
15
20000

15000 10

10000
5
5000

0
0
FY06 FY07 FY08 FY09 FY10 FY11
FY09 FY10 FY11 FY12E FY13E

Networth Capital Raised
CAR (%) Tier 1 (%)


19


Strong RoE(Cal) despite regular capital raising. RoAs may come down under
pressure due to increase in cost/assets & Loan loss provisions (LLPs)
25.00% 1.70%

20.00%
1.60%

15.00%
1.50%
10.00%

1.40%
5.00%

0.00% 1.30%
FY09 FY10 FY11 FY12E FY13E

RoE% RoA% (RHS)

RoA Decomposition FY09 FY10 FY11 FY12E FY13E

Yield on Assets 10.04% 7.99% 8.47% 8.97% 9.00%

Less: Cost of Assets 7.48% 5.34% 5.86% 6.43% 6.39%

Net Interest Income 2.55% 2.66% 2.61% 2.53% 2.61%

Other Income 2.19% 1.94% 1.31% 1.30% 1.39%

Less: Operating Exp 2.10%
2 10% 1.69%
1 69% 1.43%
1 43% 1.46%
1 46% 1.59%
1 59%

Less: Provisions 0.31% 0.46% 0.21% 0.20% 0.25%

Less: Tax 0.81% 0.84% 0.77% 0.74% 0.73%

RoA 1.52% 1.61% 1.52% 1.44% 1.43%


20


Peer Analysis
Particulars (In Mn) Yes Bank ICICI Bank HDFC Bank Axis Bank ING Vysya Bank Indusind Bank

Net Interest Income* 12469.20 90169.00 105431.30 65629.90 10065.20 13764.90
CAGR Growth (5 yrs) (%) 64.25 7.97 29.84 43.15 16.73 50.07
PAT* 7271.30 51513.80 39263.90 33884.90 3186.50 5773.20
CAGR Growth (5 yrs) (%) 66.61
66 61 13.44
13 44 36.18
36 18 50.58
50 58 37.59
37 59 70.56
70 56
EPS* 20.95 44.72 84.40 82.54 26.34 12.39
BVS** 109.30 451 541 441.00 208.3 80.08
Deposits (in bn)** 459.39 2256.02 2085.86 1892.38 301.94 343.65
Advances (in bn)** 343.64 2163.66 1599.83 1424.08 236.02 261.66
No of Branches** 214 2529 1825 1390 500 245
Mkt Cap (in bn) 104.5 1251.09 1112.62 526.40 41.10 123.01

Key Ratios
CASA%* 10.34 45 52.7 41.1 34.6 27.2
SA%* 1.8 29.6 30.4 21.6 17.7 8.9
NIM (%)* 2.8 2.6 4.2 3.7 2.85 3.5
GNPA (%)** 0.23 4.47 1.05 1.01 2.30 1.01
NNPA (%)** 0.03 1.11 0.20 0.26 0.39 0.28
Restructured Assets % 0.2 1.2 0.3 1.4 0.3 0.3
( )
PCR(%)* 88.6 76 83 81 83.4 72.6
CAR (%)* 16.5 19.54 16.2 12.65 12.94 15.89
Mkt Cap / Branch (in bn) 0.49 0.49 0.61 0.38 0.08 0.50
Div Yield (%) * 0.84 1.29 0.69 1.10 0.87 0.76
ROA (%)* 1.5 1.3 1.6 1.6 1.0 1.3
ROE (%)* 21.0 11.0 17.0 19.0 12.0 14.6

Valuations
Price 298 1085 2389 1275 345.3
345 3 264
P/E 14.23 24.26 28.31 15.45 13.11 21.31
P/BV 2.73 2.41 4.42 2.89 1.66 3.30
P/E (5 YR Avg) 22.90 23.90 29.48 21.34 15.98 23.72
P/BV (5 YR Avg) 3.55 2.48 4.93 3.33 1.81 2.36
Prem/(Disc) on P/E (8.67) 0.36 (1.17) (5.89) (2.87) (2.41)
Prem/(Disc) on P/BV (0.82) (0.07) (0.51) (0.44) (0.15) 0.94

Return summary 1M 3M 6M 12M

Axis Bank Ltd. -0.58% 4.47% -6.53% 2.87%

HDFC Bank Ltd. 4.18% 16.52% 4.33% 24.74%

ICICI Bank Ltd. -2.54% 11.84% -5.04% 25.99%

IndusInd Bank Ltd. 1.52% 20.25% -9.36% 28.78%

ING Vysya Bank Ltd.
Ltd -2.01%
-2 01% 11.98%
11 98% -17.13%
-17 13% -6.06%
-6 06%

Yes Bank Ltd. -1.56% 17.12% -1.86% 11.59%

* As on Mar’11, ** TTM, Prices as on 1st June’11 Source: Company, ACE Equity Microsec Research

21


Yes Bank Icr(20th June2011)

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Andere mochten auch

Andere mochten auch (6)

Ähnlich wie Yes Bank Icr(20th June2011)

Ähnlich wie Yes Bank Icr(20th June2011) (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Yes Bank Icr(20th June2011)