F I R S T C A L L BUY R E S E A R C H. YES Bank Ltd

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Marlene Sims
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Stock Data Sector YES Bank Ltd C.M.P: Target Price: Rs.329.90 Rs. 379.00 1 Year Comparative Graph YES Bank Banking Face Value (Rs.) 10.00 52 wk. High/Low (Rs.) 388.00/223.00 Volume (2 wk. Avg.

com BSE SENSEX BUY Dec 2nd, 2010 SYNOPSIS YES BANK is the only Greenfield license awarded by the RBI in the last 15 years, associated with the finest pedigree investors.

1% for Sep 30, 2009. Yes Bank has entered into MOU with Shinsei Bank to offer an higher level of information and financial services.

The Netherlands-based Rabobank has sold close to 11% stake in private sector lender, Yes Bank.

1 Stock Data Sector YES Bank Ltd C.M.P: Target Price: Rs Rs Year Comparative Graph YES Bank Banking Face Value (Rs.) wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.mn.) Share Holding Pattern V.S.R. Sastry Equity Research Desk vsrsastry@firstcallindiaequity.com Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com BSE SENSEX BUY Dec 2nd, 2010 SYNOPSIS YES BANK is the only Greenfield license awarded by the RBI in the last 15 years, associated with the finest pedigree investors. Yes Bank reported a net profit of 57.78% and stood at Rs million for the quarter ending on Sept 30, 2010 against Rs million. NIM of the bank stood at 3.0% against 3.1% for Sep 30, Yes Bank has entered into MOU with Shinsei Bank to offer an higher level of information and financial services. Yes Bank inks with Israel-based investment bank -Poalim Capital Markets to offer advise on cross-border transactions to India and Israel based companies. The Netherlands-based Rabobank has sold close to 11% stake in private sector lender, Yes Bank. Yes Bank has raised planned to raise a cumulative of Rs 1171 crores in Q2 FY 11 from Banks, Insurance Companies, Provident Funds and Corporates. Net Income and PAT of the bank are expected to grow at CAGR of 39% & 36% over FY09 to FY12E. Financials (Rs.mn.) FY10 FY11E FY12E Net Income Operating Profit PAT EPS (Rs.) P/E (x) F I R S T C A L L R E S E A R C H 1

2 Peer Group Comparison Name of the company CMP Market Cap. (Rs. Mn.) EPS (Rs.) P/E (x) P/BV (x) Dividend (%) YES BANK ICICI Bank HDFC BANK AXIS BANK Investment Highlights Q2 FY11 Results Update Yes Bank reported results for the quarter ended on Sept On a standalone basis, its net profit registered a growth of 57.78% and stood at Rs million for the quarter ending on Sept 30, 2010 against Rs million in the same quarter last year. Interest expended of the bank stood at Rs 3, million for the quarter ending on Sept 30, 2010 against Rs 6, million for the quarter ending on Sept 30, The bank`s interest earned for the quarter ending on Sept 30,2010 stood at Rs million as against Rs million for the quarter ending on Sep.30, 2009, an increase of 81.02%. Bank posted earnings of Rs 5.11 a share during the quarter, registering 36.27% growth over prior year period. Yes Bank has reported a robust financial performance for Sep quarter 2010, with a recorded profit of Rs million. It has maintained sustainable growth in the net interest income with a growth of 42.57% (YoY) and 9.42% (QoQ).The bank has maintained high productivity and has managed to maintain RoA s at or above 1.5% over the past 8 years. The bank has successfully maintained at the comfortable levels of capital to fund growth plans in the market through its long term debt. 2

3 Quarterly Results - Standalone (Rs in mn) As at Sep - 09 Sep - 10 %Change Net Income Net Profit Basic EPS

4 Segment wise Revenue Particulars (Rs.mn.) Q2 FY11 Retail Banking Corporate/Wholesale Banking Treasury Other Banking Operations Total Business

5 Healthy Asset Quality Gross Non Performing Advances as a proportion of Gross advances was at 0.22% while Net Non Performing Advances as a proportion of Net advances was at 0.06% as at September 30, 2010 as against 0.31% and 0.08% respectively as at September 30, Bank s total loan loss coverage ratio was at 299% while specific provisioning cover was at 74.7% as at September 30, 2010.Total restructured advances (excluding NPAs) declined by Rs crore sequentially to Rs crore as at September 30, 2010, which constituted 0.23% of the Gross Advances (Sept 30, 2009 Restructured advances was at 0.96% of Gross Advances). Exponential Growth of Advances & Deposits Total Advances grew by 86.3% to Rs 30,348.1 crore as at September 30, 2010 from Rs 16,294.3 crore as at September 30, 2009.Investments grew by 107.0% to Rs14, crore as at September 30, 2010 from Rs 6,981.4 crore as at September 30, Total Deposits grew by 106.6% to Rs 40, crore as at Sep 30, 2010 from Rs 19, crores at Sept. 30, Current and Savings Account (CASA) deposits grew by 118.9% to Rs 4, crore taking the CASA ratio to 10.1% as at Sept. 30,

6 The Balance sheet of the bank grew by 96.4% to Rs 51, crore against Rs 26, crore at Sep. 30, Break-up of the total non-priority Sector Lending as at Sep.30,2010 was as follows - Wholesale Banking (69.8%), Commercial Banking (19.6%), and Branch Banking (10.6%). Strong Net Interest Income Growth Net interest income has increased by 77.9% from Rs crore to Rs crore. NIM of the bank has maintained a sustained steady growth in advances and investments. NIM of the bank stood at 3.0% against 3.1% for Sep 30,

7 MOU with Shinsei Bank Yes Bank has entered into MOU with Shinsei Bank to offer an higher level of information and financial services to customer on cross-border merger and acquisition, joint ventures and other strategic alliances between India and Japan. Shinsei Bank is a leading diversified Japanese financial institution providing a full range of financial products and services to both institutional and individual customers. The bank has total assets of $125.4 billion on a consolidated basis (as of September 2010) and a network of 42 outlets. Ratings from Moody s Investors Services Yes Bank, India's new age private sector bank, has received its maiden rating from Moody's Investor Services. It has been assigned a Baa3 long-term and Prime-3 shortterm global local currency deposit ratings by Moody's. The outlook on all ratings is stable. The Baa3 rating is an investment grade rating, at par with India's Sovereign Debt Rating. 7

8 Moody's Investor Services is a leading provider of credit ratings, research and risk analysis. The firm's ratings and analysis track debt covering more than 110 countries and 12,000 corporate issuers. The rating reflects the bank's rapidly growing franchise as India's fourth largest private-sector bank. Allotment of Shares under ESOP Yes Bank has allotted 6,38,670 equity shares of face value of Rs 10 each on October 08, 2010 under the Joining Stock Option Plan - I (JSOP-I), Joining Employee Stock Option Plan-II (JESOP-II), Joining Employee Stock Option Plan-III (JESOP-III) YBL ESOP and YBL JESOP V/PESOP-II. Yes Bank has allotted 14,72,980 equity shares of face value of Rs 10 each on September 09, 2010 under the joining stock option plan - I (JSOP-I), joining employee stock option plan-ii (JESOP-II),joining employee stock option plan-iii (JESOP-III), YBL ESOP and YBL JESOP V / PESOP-II. Raising of Capital Yes Bank has raised planned to raise a cumulative of Rs 1171 crores in Q2 FY 11 from Banks, Insurance Companies, Provident Funds and Corporates. It has raised an amount of Rs 225 crore through Perpetual Tier I capital through private placement of Innovative Perpetual Debt Instruments rated LAA- by ICRA with provident funds and PSU Banks. This is the highest-credit-quality rating assigned by ICRA to short-term debt instruments. Instruments rated in this category carry the lowest credit risk in the short term. Bank has raised Rs 440 crore of Upper Tier II subordinated Debt from Life Insurance Corporation of India (LIC) and an additional of Rs 200 crore of Upper Tier II 15 year maturity paper. In addition it has also raised an amount of Rs 306 crores of Lower Tier II Debt rated LAA by ICRA and CARE AA by CARE. Financial Advisory Yes Bank is the Exclusive Advisor to Sadbhav Infrastructure Project Ltd to raise private equity of Rs 400 crores from funds managed by Norwest Venture Partners and The Xander Group Inc, for its road projects execution. Yes Bank is the Mandated Lead Arranger of Senior Debt of Rs 7.89 Billion for a leading Infrastructure Company in the state of Gujarat. 8

9 Inks with Poalim Markets Yes Bank one of the leading private sector lenders of the country inks with Israelbased investment bank -Poalim Capital Markets to offer advise on cross-border transactions to India and Israel based companies. This move helps Yes bank to enhance the investment portfolio and also strengthens business ties between two countries. Rabo Bank sells its Stake The Netherlands-based Rabobank has sold close to 11% stake in private sector lender, Yes Bank, through various block deals on the two premier stock exchanges of the country - the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The Dutch lender sold around 3.8 crore equity shares of Yes Bank at an average price of Rs aggregating Rs 1,000 crore by which the lender has now stood at 4.9% against 15.9%. Rabobank which is among the world 20 largest financial institutions and is also one of the Europe s most recognized financial institution has considered setting up its own branch in India but policy hurdles made it difficult. The move to exit the Yes Bank is the strategic part to foray into Indian Markets. Company Profile YES BANK, India's new age private sector Bank, is an outcome of the professional entrepreneurship of its Founder, Rana Kapoor and his highly competent top management team, to establish a high quality, customer centric, service driven, private Indian Bank catering to the "Future Businesses of India". YES BANK is the only Greenfield license awarded by the RBI in the last 15 years, associated with the finest pedigree investors. YES BANK has fructified into a "full service" commercial Bank that has steadily built Corporate and Institutional Banking, Financial Markets, Investment Banking, Corporate Finance, Branch Banking, Business and Transaction Banking, and Wealth Management business lines across the country, and is well equipped to offer a range of products and services to corporate and retail customers. YES BANK has been recognized amongst the Top and the Fastest Growing Bank in various Indian Banking League Tables by prestigious media houses and Global Advisory Firms, and has received national and international honours for our various 9

10 Businesses including Corporate Finance, Investment Banking, Treasury, Transaction Banking, and Sustainable practices through Responsible Banking. The Bank has received several recognitions for our world-class IT infrastructure, and payments solutions, as well as excellence in Human Capital. Financial Results 12 months ended Profit & Loss A/C (Standalone) Value(Rs. in million) FY10A FY11E FY12E Description 12m 12m 12m Net Income Other Income Total Income Interest Expended Net Interest Income Operating Expenses Operating Profit Provisions &Contingencies Profit before Tax Tax Profit after Tax Equity Capital Reserves Face Value EPS

11 Quarterly ended Profit & Loss A/C (Standalone) Value(Rs. in million) 31-Mar-10 (A) 30-Jun-10 (A) 30-Sep-10 (A) 31-Dec-10 (E) Description 3m 3m 3m 3m Net Income 6, Other Income 1, Total Income Interest Expended Net Interest Income Operating Expenses Operating Profit Provisions &Contingencies Profit before Tax Tax Profit after Tax Equity Capital Face Value Total No. of Shares EPS

12 Key Ratios Particulars FY10A FY11E FY12E No. of Shares(In Million) Market Price EPS (Rs.) PAT Margin (%) 36.43% 28.42% 24.73% P/E Ratio (x) 20.16% 16.63% 14.30% ROE (%) ROCE (%) 17.87% 33.27% 29.58% Debt-Equity Ratio(x) 2.52% 4.59% 4.94% Book Value (Rs.) P/BV (x) A-Actual E-Expected Charts 1. Net Income & PAT 12

13 2. P/E Ratio 3. P/BV 13

14 4. Debt-Equity Ratio 5. RoE & RoCE 14

15 Valuation At the market price of Rs , the stock trades at x and x for the earnings of FY11E and FY12E respectively. Price to Book Value of the stock is expected to be at 6.15 x and 4.38 x respectively for FY11E and FY12E. Earning per share (EPS) of the bank for the earnings of FY11E and FY12E is seen at Rs and Rs respectively for equity share of Rs each. Net Profit for the Sept quarter stood at Rs millions with an increase of %. Total Deposits grew by 106.6% to Rs 40, crore as at Sep 30, 2010 from Rs 19, crores at Sept. 30, Yes Bank inks with Israel-based investment bank -Poalim Capital Markets to offer advise on cross-border transactions to India and Israel based companies. The Netherlands-based Rabobank has sold close to 11% stake in private sector lender, Yes Bank. Yes Bank is the Exclusive Advisor to Sadbhav Infrastructure Project Ltd to raise private equity of Rs 400 crores. Net Income and PAT of the bank are expected to grow at CAGR of 39 % & 36 % over FY09 to FY12E. So we recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. 15

16 Industry Overview The Indian banking system is financially stable and resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, according to a stress test done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest gold reserves in the world after spending US$ 6.7 billion towards the purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF) in November The purchase has increased the country's share of gold holdings in its foreign exchange reserves from approximately 4 per cent to about 6 per cent. In the annual international ranking conducted by UK-based Brand Finance Plc, 20 Indian banks have been included in the Brand Finance Global Banking 500. In fact, the State Bank of India (SBI) has become the first Indian bank to be ranked among the Top 50 banks in the world, capturing the 36th rank, as per the Brand Finance study. The brand value of SBI increased from US$ 1.5 billion in 2009 to US$ 4.6 billion in ICICI Bank also made it to the Top 100 list with a brand value of US$ 2.2 billion. The total brand value of the 20 Indian banks featured in the list stood at US$ 13 billion. Meanwhile, loan disbursement from scheduled commercial banks which included regional rural banks as well posted a growth of per cent by March 12, 2010, on a year-on-year basis, as per the latest data released by RBI. The RBI had earlier predicted that the credit growth during would be around 16 per cent. Following the financial crisis, new deposits have gravitated towards public sector banks. According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: September 2009', nationalised banks, as a group, accounted for 50.5 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 23.8 per cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits were 17.8 per cent, 5.6 per cent and 3.0 per cent, respectively. With respect to gross bank credit also, nationalised banks hold the highest share of 50.5 per cent in the total bank credit, with SBI and its associates at 23.7 per cent and other scheduled commercial banks at 17.8 per cent. Foreign banks and regional rural banks had a share of 5.5 per cent and 2.5 per cent respectively in the total bank credit. 16

17 The report also found that scheduled commercial banks served 34,709 banked centres. Of these centres, 28,095 were single office centres and 64 centres had 100 or more bank offices. The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI fund inflows increased since April 2009 and touched US$ 47.8 billion on March 2010, as per the RBI's June 2010 bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts and Non-resident External Rupee Accounts. Foreign exchange reserves were up by US$ 1.69 billion to US$ billion, for the week ending June 11, on account of revaluation gains. June 21, Major Developments The Monetary Authority of Singapore (MAS) has provided qualified full banking (QFB) privileges to ICICI Bank for its branch operations in Singapore. Currently, only SBI had QFB privileges in country. The Indian operations of Standard Chartered reported a profit of above US$ 1 billion for the first time. The bank posted a profit before tax (PAT) of US$ 1.06 billion in the calendar year 2009, as compared to US$ 891 million in Punjab National Bank (PNB) plans to expand its international operations by foraying into Indonesia and South Africa. The bank is also planning to increase its share in the international business operations to 7 per cent in the next three years. The State Bank of India (SBI) has posted a net profit of US$ 1.56 billion for the nine months ended December 2009, up per cent from US$ million posted in the nine months ended December Amongst the private banks, Axis Bank's net profit surged by 32 per cent to US$ million on 21.2 per cent rise in total income to US$ million in the second quarter of , over the corresponding period last year. HDFC Bank has posted a 32 per cent rise in its net profit at US$ million for the quarter ended December 31, 2009 over the figure of US$ million for the same quarter in the previous year. Government Initiatives The government plans to invest US$ 3.63 billion into public sector banks to aid them for maintaining their capital adequacy ratio (CAR), as per the Union Budget presented by the Union Finance Minister in February Out of the total allocation, US$ 2.1 billion would be used for recapitalisation of the public sector banks during April-June 2010 and US$ 1.5 billion will be invested during the rest of

18 The RBI has allowed banks to make changes in the repayment schedules or drawdown without prior approval from the central bank. However, such a change could be made on the condition that the average maturity of the loan should remain the same. The move is expected to make external commercial borrowing (ECB) transactions easier. Transactions both through automatic and approval routes can take advantage of this change. Now, without the prior approval of RBI, Indian companies may borrow up to US$ 500 million in a year. Further, RBI also allowed domestic scheduled commercial banks to open up their branches in Tier III to Tier VI regions that have population of up to 49,999 without the prior permission of the central bank. Banks such as PNB and UCO Bank are planning to take advantage of this initiative and would open around 440 and 89 branches, respectively, in such regions. In its platinum jubilee year, the RBI, the central bank of the country, in a notification issued on June 25, 2009, said that banks should link more branches to the National Electronic Clearing Service (NECS). Ideally, all core-banking-enabled branches should be part of NECS. NECS was introduced in September 2008 for centralised processing of repetitive and bulk payment instructions. Currently, a little over 26,000 branches of 114 banks are enabled to participate in NECS. The Monetary Policy Statement , dated April 20, 2010, specifies the following monetary measures: i. The repo rate has been raised by 75 basis points from 5.25 per cent to 6.00 per cent with immediate effect. ii. The reverse repo rate has been raised by 50 basis points from 5.50 per cent to 6.00 per cent with immediate effect. iii. The cash reserve ratio (CRR) of scheduled banks has been raised by 25 basis points from 5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning April 24, Meanwhile, outstanding bank credit in the 15 days up to January 29, 2010 rose by US$ 4.32 billion, pointing to a revival in credit growth. This is the highest year-on-year growth recorded since August 14, Furthermore, the outstanding bank credit in the 15 days up to February 12, 2010, rose by US$ 4.87 billion to US$ billion, according to data from the Reserve of Bank of India (RBI), marking a per cent year-on-year growth in credit. 18

19 Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall 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 document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 19

20 First call India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B.Harikrishna Banking B. Prathap IT D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas A.Prathibha Diverisfied G.Bharani Bhukta Diversified Kavita Singh Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 20

HOLD KOTAK MAHINDRA BANK LTD. Highlights. STANDALONE Result Update: Q3 FY14. CMP Target Price JAN. 29 th, 2014

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