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 50,703 57.0 72,312 10.1 Interest expended 52,925 31,815 66.4 48,137 9.9 Net interest income 26,664 18,888 41.2 24,175 10.3 Other income 8,909 14,223 (37.4) 14,735 (39.5) Total Net Income 35,573 33,111 7.4 38,910 (8.6) Operating expenses 15,669 13,093 19.7 15,246 2.8 Pre-provision profits 19,904 20,018 (0.6) 23,664 (15.9) Provisions 5,502 4,213 30.6 9,400 (41.5) Tax expense 4,383 5,036 (13.0) 4,618 (5.1) Extraordinary gains 0 0 0 Reported Net Profit 10,019 10,769 (7.0) 9,647 3.9 (bps) (bps) Advances 42.2 61.2 (1898) NIM (%) 3.3 3.5 (20) 3.3 0 RoA 1.1 1.7 (60) 1.1 0 RoE 14.4 18.0 (360) 14.4 0 Gross NPA (%) 2.1 1.7 38 1.6 50 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 21.1 14.1 10.4 P/ABV 1.9 1.5 1.3 ROAA 1.0 1.2 1.3 ROAE 14.2 18.1 20.4 Estimates (` mn) FY19E FY20E FY21E NII 98,104 132,516 175,092 PPOP 88,151 117,560 153,685 PAT 37,583 57,812 80,540 Adj BV 115.6 143.1 169.5 Analyst: Hemali Dhame Tel: +91 22 40969724 E-mail: hemalid@dolatcapital.com Associate: Pawan Rathore Tel: +91 22 40969714 E-mail: pawanr@dolatcapital.com January 24, 2019
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 (%) 46.5 53.9 53.4 61.2 42.2 QoQ (%) 15.4 18.7 5.5 11.6 1.8 Deposits (` mn) 1,717,314 2,007,382 2,133,945 2,228,379 2,227,580 YoY (%) 29.7 40.5 42.0 41.0 29.7 QoQ (%) 8.7 16.9 6.3 4.4 (0.0) Advances Mix (%) Corporate Banking 67.7 67.9 67.6 68.2 67.8 Medium Enterprises 9.9 9.7 8.7 8.3 7.8 Small & Micro Enterprises 10.6 10.3 9.7 9.2 9.2 Retail Banking 11.8 12.2 14 14.3 15.2 Deposit Mix (%) Current account 13.2 14.3 13.3 11.6 13.3 Saving account 24.9 22.1 21.8 22.1 20.0 Term deposits 62.0 63.5 64.9 66.3 66.7 CASA (%) 38.0 38.0 38.0 33.8 0.0 CASA + Retail TD 60.9 58.7 59.5 57.2 24.3 Contribution Margin (%) Yield on Advances 9.8 9.9 10.0 10.1 10.2 Cost of Funds 6.0 6.0 6.3 6.4 6.5 NIM 3.5 3.4 3.3 3.3 3.3 GNPA 1.7 1.3 1.3 1.6 2.1 NNPA 0.9 0.6 0.6 0.8 1.2 NNPA as a % of networth 1.0 0.7 0.6 0.9 0.1 PCR 45.9 50.0 55.0 47.5 43.8 GNPA + SR + Std Restrucred exposure 3.0 2.4 2.3 2.5 2.9 - of which Net Security Receipts 1.1 0.9 0.8 0.85 0.71 - of which Std. Restructured Exposure 0.2 0.2 0.1 0.08 0.09 CAR 19.5 18.4 17.3 17.0 17.4 Tier 1 14.7 13.0 12.8 11.9 12.0 Dupont analysis (as a % of average assets) Interest income 9.9 9.5 8.3 8.4 9.1 Interest expenses 6.2 5.9 5.5 5.6 6.0 Net interest income 0.9 0.9 0.7 0.7 0.8 Non-interest Income 2.8 2.3 2.1 1.7 1.0 Total expenses 2.6 2.4 1.8 1.8 1.8 Provisions 0.8 0.7 0.8 1.1 0.6 Tax 1.0 0.9 0.7 0.5 0.5 RoA 2.1 1.9 1.6 1.1 1.1 Leverage 8.6 9.1 12.1 12.9 12.8 RoE 18.0 17.7 19.4 14.4 14.7 Source: DART January 24, 2019 2
Concall Highlights: Management Change: Appointed Ravneet Gill as new M.D. & C.E.O. wef March 2019. 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, 2019 3
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) = ` 300-400 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, 2019 4
Profit and Loss Account (` Mn) Particulars FY18A FY19E FY20E FY21E Interest Income 202,674 294,946 391,442 517,662 Interest expenses 125,304 196,842 258,926 342,570 Net interest income 77,371 98,104 132,516 175,092 Other incomes 52,238 55,760 70,379 86,611 Total expenses 52,128 65,713 85,334 108,019 - Employee cost 21,889 25,197 29,274 33,915 - Other 30,239 40,515 56,060 74,104 Pre provisioning profit 77,481 88,151 117,560 153,685 Provisions 15,538 30,772 29,297 30,722 Profit before taxes 61,943 57,379 88,263 122,963 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 245,969 274,164 356,057 424,691 Minority Interest 0 0 0 0 Net worth 250,575 278,770 360,903 429,537 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 0 0 0 0 Current liabilities & provisions 117,564 109,688 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 247,344 218,898 291,173 422,115 Investments 683,989 831,423 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 149,460 185,274 206,830 225,681 Total Assets 3,124,456 4,036,758 5,287,468 6,976,577 E Estimates January 24, 2019 5
Important Ratios Particulars FY18A FY19E FY20E FY21E (A) Margins (%) Yield on advances 9.3 9.7 9.7 9.8 Yields on interest earning assets 8.2 8.7 8.8 8.8 Yield on investments 6.9 7.5 7.6 7.3 Costs of funds 5.5 6.1 6.1 6.0 Cost of deposits 5.5 6.2 5.7 5.4 NIMs 3.1 2.9 3.0 3.0 (B) Asset quality and capital ratios (%) GNPA 1.3 1.9 1.9 1.9 NNPA 0.6 0.7 0.6 0.6 PCR 50.0 65.0 70.0 70.0 Slippages 2.9 1.2 0.5 0.6 NNPA to NW 5.7 7.2 6.7 7.2 CASA 36.5 35.9 35.9 36.3 CAR 19.2 16.4 15.8 13.2 Tier 1 13.0 11.1 11.1 9.5 Credit - Deposit 101.4 112.2 121.4 135.7 (C) Dupont as a percentage of average assets Interest income 7.7 8.2 8.4 8.4 Interest expenses 4.8 5.5 5.6 5.6 Net interest income 2.9 2.7 2.8 2.9 Non interest Income 2.0 1.6 1.5 1.4 Total expenses 2.0 1.8 1.8 1.8 - cost to income 40.2 42.7 42.1 41.3 Provisions 0.6 0.9 0.6 0.5 Tax 0.7 0.6 0.7 0.7 RoA 1.6 1.0 1.2 1.3 Leverage 11.0 13.1 13.4 15.1 RoE 18.2 14.2 18.1 20.4 RoRwa 1.9 1.3 1.6 1.6 (D) Measures of Investments EPS - adjusted 11.5 10.2 15.3 20.8 BV 108.8 121.0 149.0 177.3 ABV 105.0 115.6 143.1 169.5 DPS 13.6 17.0 21.0 21.0 Dividend payout ratio 14.8 20.8 17.6 12.6 (E) Growth Ratios (%) Net interest income 33.5 26.8 35.1 32.1 PPoP 32.7 13.8 33.4 30.7 Adj PAT 26.9 (11.0) 53.8 39.3 Advances 53.9 37.1 29.9 35.0 Total borrowings 94.0 55.1 60.7 54.7 Total assets 45.3 29.2 31.0 31.9 (F) Valuation Ratios Market Cap (` mn) 497,359 497,359 497,359 497,359 CMP (`) 215 215 215 215 P/E (x) 18.7 21.1 14.1 10.4 P/BV (x) 2.0 1.8 1.4 1.2 P/ABV (x) 2.1 1.9 1.5 1.3 Div Yield (%) 6.3 7.9 9.7 9.7 E Estimates January 24, 2019 6
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 400 350 300 250 200 150 Month Rating TP (`) Price (`) Oct-18 Accumulate 230 181 * Price as on recommendation date DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735 Equity Trading Designation E-mail P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728 Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707 Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702 Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715 Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705 Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013
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