Result Update. Yes Bank. Buy

Transcription

1 Yes Bank Buy Result Update Returning to old glory days, Expect a strong rerating With the appointment of the new MD and CEO from outside the group, we believe the hiatus in the Yes bank s story is now behind. Mr Ravneet Gill, the current CEO of Deutsche Bank, is one of the better fits, with the experience of running a global, quality corporate bank, with a similar structural and credit culture. This is encouraging and is likely to attract the languishing investor confidence. It is now better poised to attract the much-needed capital faster. We have factored a capital raise of ` 35bn by the end of 2HFY20. We believe with the bygones, it is likely to witness a faster rerating and is in a better position to achieve its glories days. We upgrade the to a Buy at 2x FY 21E P/ABV. Asset quality improves, fresh slippages at a low (ex of IL&FS) Slippages from IL&FS inched up GNPA and credit costs to 2.1% and 29bps respectively. Excluding it, the GNPA and credit costs were 1.32% and 5 bps respectively. Fresh additions were encouragingly lower, which was highly is reassuring. While we await the AQR report, we do not believe the divergence is likely to be as material. We expect the GNPA to remain at 1.9% through FY21 and credit costs to stabilize at 60 bps by FY21. For the current year, management expects 80 bps of credit costs, but we have factored them marginally higher at 90 bps. Growth Traipsed in the quarter, some challenges and a tough time Advances for the quarter rose sluggishly at 2% QoQ, 42% YoY driven by a robust growth in retail. The current capital levels are likely to have limped growth and skewed it to lesser risky assets, which is likely to hurt NIMs in the near term. With the benefits of capital infusion (in H2FY20) and likely improvement in investment cycle, we have factored an advance book and PAT s CAGR at 32% and 46% respectively over FY19-21E. Expect rerating, to old glory days; Upgrade to Buy at 2x P/ABV: The fall from grace for Yes Bank had been the management uncertainty. With that behind and a strong leadership at the helm, healthy business proposition and execution ability, we believe it is likely to regain its old glories. We value the stock at 2x from the current 1.2x FY21E P/ABV. Q3FY19 Result (` Mn) Particulars Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%) Interest earned 79,589 50, , Interest expended 52,925 31, , Net interest income 26,664 18, , Other income 8,909 14,223 (37.4) 14,735 (39.5) Total Net Income 35,573 33, ,910 (8.6) Operating expenses 15,669 13, , Pre-provision profits 19,904 20,018 (0.6) 23,664 (15.9) Provisions 5,502 4, ,400 (41.5) Tax expense 4,383 5,036 (13.0) 4,618 (5.1) Extraordinary gains Reported Net Profit 10,019 10,769 (7.0) 9, (bps) (bps) Advances (1898) NIM (%) (20) RoA (60) RoE (360) Gross NPA (%) CMP ` 215 Target / Upside ` 350 / 62% BSE Sensex 36,195 NSE Nifty 10,850 Scrip Details Equity / FV ` 4,606mn / ` 2 Market Cap ` 497bn US$ 7bn 52-week High/Low ` 404/` 147 Avg. Volume (no) 58,315,500 NSE Symbol Bloomberg Code YESBANK Shareholding Pattern Dec'18(%) YES IN Promoters 19.9 MF/Banks/FIs 23.0 FIIs 40.1 Public / Others 17.0 Valuation (x) FY19E FY20E FY21E P/E P/ABV ROAA ROAE Estimates (` mn) FY19E FY20E FY21E NII 98, , ,092 PPOP 88, , ,685 PAT 37,583 57,812 80,540 Adj BV Analyst: Hemali Dhame Tel: hemalid@dolatcapital.com Associate: Pawan Rathore Tel: pawanr@dolatcapital.com January 24, 2019

2 Quarterly Data Particulars Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Advances (` mn) 1,715,149 2,035,339 2,147,201 2,396,275 2,438,850 YoY (%) QoQ (%) Deposits (` mn) 1,717,314 2,007,382 2,133,945 2,228,379 2,227,580 YoY (%) QoQ (%) (0.0) Advances Mix (%) Corporate Banking Medium Enterprises Small & Micro Enterprises Retail Banking Deposit Mix (%) Current account Saving account Term deposits CASA (%) CASA + Retail TD Contribution Margin (%) Yield on Advances Cost of Funds NIM GNPA NNPA NNPA as a % of networth PCR GNPA + SR + Std Restrucred exposure of which Net Security Receipts of which Std. Restructured Exposure CAR Tier Dupont analysis (as a % of average assets) Interest income Interest expenses Net interest income Non-interest Income Total expenses Provisions Tax RoA Leverage RoE Source: DART January 24,

3 Concall Highlights: Management Change: Appointed Ravneet Gill as new M.D. & C.E.O. wef March RBI also approved candidature of two additional directors: Maheshwar Sahu (I.A.S, Addn Chief Secy of Gujarat) and Anil Jaggia (Ex C.I.O, HDFC Bank & 30 years of experience in BFSI space), while candidature of Ashish Agarwal (current Chief Risk Officer, Yes Bank) as Executive Director has been submitted. Role of Rana Kapoor: If he is on the board, he shall not require RBI approval for any post other than Managing director, whole time director and chairman. He can remain as non-executive, non-independent director. Liquidity in the system: Bank and systemic credit lower on account of lower lendable resources With OMO, government bonds are withdrawn, which are anyways liquid. Next year, SLR cut is likely to free up some liquidity Consolidation may slow down these players In the quarter, NBFCs are likely to have slowed the credit traction Key highlights of the quarter: Not at the bank s best (on account of externalities and internalities) Stable loan growth, rebalancing of capital to conserve the same, an improved liquidity Healthy profitability, albeit high provisioning. Sequentially flat NIM. Other Income low due to accounting losses in Treasury Decline in corporate banking fees due to tight liquidity in the system and slower corporate traction. Credit conditions, now, normalizing slowly. 21,832 employees, 1115 branches and 1714 ATMs. IL&FS exposure of ` 25 bn of which ` 19 bn classified as NPA (Roads ` 9660 mn and Energy ` 9470 mn). A provision of 25% is provided for these ` 6 bn (Maritimes of ` 5290 mn in Maritime and ` 880 mn in Others) - on which a standard provision of 15% is provided for. The management believes the current provision is sufficient towards the LGD for the group exposure. Provisioning and Asset Quality: Net Provisions for NPA of ` 5.5 bn, of which IL&FS provisions is ` 5.7 bn Excluding provisioning for infrastructure conglomerate, PCR stands at 55%. Total stressed assets at 1.98% (inclusive of infra-conglomerate account) Write offs taken in Q3FY19 is ` 619 bn. Minimal exposure to NCLT (1 bps from list 1, 26 bps from list 2 and negligible impact from Feb,12 circular). SMA2 at 19 bps. Guidance of credit costs at 80 bps after factoring divergence Other provisions On account of MTM losses on hedging losses of corporate bonds. Translation loss in the IBU unit, on account of rupee movement. January 24,

4 Loan Book Composition: Loan book of ` 2.44 trillion of which share of retail assets increased from 11% to 15% last year Of the retail, growth came in from auto. No buyouts in the quarter. Share of HFC and NBFCs higher due to denominator effect on account of rebalancing of corporate book. No material increase in the segment have been additionally taken Investment book at ` 830 bn, borrowing book at ` 1.07 trillion, Deposits: Modest CASA growth at 23.3% QoQ. Savings account has seen some decline due withdrawal from government savings. Saving balance in non-government segment is sequentially flat, 20% growth YoY. Fall in CD book from ` 130 bn to ` 6bn. Corporate TD grew 8% QoQ and retail term deposit 5% QoQ Fees: Corporate fees lower due to tight bank and system credit conditions, OMOs take away government bonds from banks. Yields: One offs (net) = ` million Contribution of corporate and retail segments: In gross yields, it is equivalent. Going ahead, as the share of high yielding assets increase, it would aspire to have a higher share of retail. Net of liabilities, the share of retail segment is more than corporate. Digital Banking: o UPI transactions (30% market share), IMPS category (70% YoY increase in volume), AADHAR based payments (45 mn transactions), Mobile banking (increased two-folds), Debit Card (36% increase), Yes Robot (industry s first offering on robotic platform). January 24,

5 Profit and Loss Account (` Mn) Particulars FY18A FY19E FY20E FY21E Interest Income 202, , , ,662 Interest expenses 125, , , ,570 Net interest income 77,371 98, , ,092 Other incomes 52,238 55,760 70,379 86,611 Total expenses 52,128 65,713 85, ,019 - Employee cost 21,889 25,197 29,274 33,915 - Other 30,239 40,515 56,060 74,104 Pre provisioning profit 77,481 88, , ,685 Provisions 15,538 30,772 29,297 30,722 Profit before taxes 61,943 57,379 88, ,963 Tax provision 19,697 19,796 30,451 42,422 Profit after tax 42,246 37,583 57,812 80,540 Adjusted profit 42,246 37,583 57,812 80,540 Balance Sheet (` Mn) Particulars FY18A FY19E FY20E FY21E Sources of Funds Equity Capital 4,606 4,606 4,846 4,846 Reserves & Surplus 245, , , ,691 Minority Interest Net worth 250, , , ,537 Borrowings 748,936 1,161,248 1,866,204 2,887,001 - Deposits 2,007,381 2,487,052 2,986,677 3,607,073 - Other interest bearing liabilities Current liabilities & provisions 117, ,688 73,684 52,966 Total Liabilities 3,124,456 4,036,758 5,287,468 6,976,577 Application of Funds Cash and balances with RBI 247, , , ,115 Investments 683, ,423 1,152,463 1,420,387 Advances 2,035,339 2,791,452 3,625,219 4,894,373 Fixed assets 8,324 9,711 11,783 14,021 Other current assets, loans and advances 149, , , ,681 Total Assets 3,124,456 4,036,758 5,287,468 6,976,577 E Estimates January 24,

6 Important Ratios Particulars FY18A FY19E FY20E FY21E (A) Margins (%) Yield on advances Yields on interest earning assets Yield on investments Costs of funds Cost of deposits NIMs (B) Asset quality and capital ratios (%) GNPA NNPA PCR Slippages NNPA to NW CASA CAR Tier Credit - Deposit (C) Dupont as a percentage of average assets Interest income Interest expenses Net interest income Non interest Income Total expenses cost to income Provisions Tax RoA Leverage RoE RoRwa (D) Measures of Investments EPS - adjusted BV ABV DPS Dividend payout ratio (E) Growth Ratios (%) Net interest income PPoP Adj PAT 26.9 (11.0) Advances Total borrowings Total assets (F) Valuation Ratios Market Cap (` mn) 497, , , ,359 CMP (`) P/E (x) P/BV (x) P/ABV (x) Div Yield (%) E Estimates January 24,

7 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 20% Accumulate 10 to 20% Reduce 0 to 10% Sell < 0% Rating and Target Price History (`) YES Target Price Month Rating TP (`) Price (`) Oct-18 Accumulate * Price as on recommendation date DART Team Purvag Shah Managing Director purvag@dolatcapital.com Amit Khurana, CFA Head of Equities amit@dolatcapital.com CONTACT DETAILS Equity Sales Designation Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com Kapil Yadav VP - Equity Sales kapil@dolatcapital.com Equity Trading Designation P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai

8 Analyst(s) Certification The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil) II. Disclaimer: This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited. and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its affiliated company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or completeness. Dolat Capital Market Private Limited. may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market Private Limited. reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market Private Limited. and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Dolat Capital Market Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions. For U.S. Entity/ persons only: This research report is a product of Dolat Capital Market Private Limited., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered brokerdealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer/entity as informed by Dolat Capital Market Private Limited. from time to time. Dolat Capital Market Private Limited. Corporate Identity Number: U65990DD1993PTC Member: BSE Limited and National Stock Exchange of India Limited. SEBI Registration No: BSE - INB & INF , NSE - INB & INF , Research: INH Registered office: Office No. 141, Centre Point, Somnath, Daman , Daman & Diu Board: Fax: research@dolatcapital.com Our Research reports are also available on Reuters, Thomson Publishers, DowJones and Bloomberg (DCML <GO>)