"Subscribe with Caution" to Yes Bank - Equity
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
“Subscribe with Caution” to
Yes Bank
Long term investment aiming on business turnaround
14th Jul. 2020
Salient features of the FPO: Recommendation Subscribe with Caution
Price Band Rs12-13 per share
• Yes Bank Ltd. (YBL) is a scheduled commercial bank established in Face Value Rs 2 per share
2003. YBL received banking license from the banking regulator RBI in
2004. Fresh Issue Size Rs150,000 mn
• YBL is a well diversified bank having presence in 28 states and 8 union Share for Fresh Issue
territories through 1,135 branches. 11,538.5 mn shares
(Higher Price Band)
• YBL is coming out with the public issue of Rs150,000 mn through
OFS Issue Size
follow-on public offer. At the higher price band, total number of fresh Nil
issue shares stands at 11,538. 5 mn. Total Issue Size Rs150,000 mn
Bidding Date Jul 15' 2020 - Jul 17' 2020
Key competitive strengths:
• Simplified organisation structure backed by marquee institutions and MCAP at Higher Price Rs 313,156.6 mn
experienced leadership team Band
• Differentiated technology platform leading to digital leadership
• Well established granular banking platform with a strong focus on HSBC Securities and Capital
retail and SME advances Market (India) Private Limited,
• Diverse and scalable revenue streams ICICI Securities Limited, Yes
• Strong governance and underwriting framework Securities (India) Limited, Kotak
• Knowledge based approach to banking enabling cross selling Book Running Lead Mahindra Capital Company
• Wide pan India presence
Manager Limited, SBI Capital Market
• Award winning quality of services with customer centric approach
Limited, Axis Capital Limited,
Valuation: At the higher price band of Rs13, YBL’s stock is valued at City Group Global Markets
P/ABV at 1.1x. Close peers like Indusind Bank (P/ABV of 1.1x) and RBL India Private Limited, DSP
Bank (P/ABV of 0.97x) which are facing less business challenges merrill Lynch Limited
compared to YBL are also trading at the same valuation.
KFIN Technoligies Private
Below are few key observations of the issue: (continued in next page) Registrar
Limited
Industry Banking
• YBL, incorporated on Nov 21, 2003, is India’s 6th largest private
sector bank in terms of standalone assets as of Mar 31’ 2020.
• YBL’s business size contracted significantly to Rs2,767 bn in FY20 from Retail application money at higher cut-off price per lot
Rs4,042 bn in FY18 due to corporate governance issue and NPAs
crises which had eroded YBL’s brand value. Weak underwriting Number of shares per lot 1,000
process due to high exposures to frail corporates raised fear over the Application Money Rs13,000 per lot
stability of liability. Therefore, YBL witnessed sharp outflow in Employee Discount Rs1/share
deposits which reduced to Rs1,053 bn in FY20 compared to Rs2,006
bn in FY18 (reduced -47.8% since FY18). Employee Reservation
Rs2,000 mn
Portion
• Owing to higher slippage, GNPA rose to 16.8% in FY20 (1.3% in FY18),
meanwhile NNPA remained in low single digit at 5.0% as the bank
accelerated provisioning which rose PCR to 74.0% in FY20. Due to Allocation Detail
high provisioning driven by record slippage, YBL posted record loss of Qualified Institutional
Rs(-)164,325.8 mn in FY20 which also eroded the capital position of 50%
Buyers (QIBs)
the bank. Common equity tier 1 (CET 1) stood at 6.3% and Tier 1 at
6.5% as of Mar 31 2020, thus the bank has breached the RBI’s Non-Institutional Investors
15%
regulatory requirement of 7.375% (CET 1) and 8.875% (Tier 1). This (NIIs)
implies that the Bank will have to take effective steps to augment its
capital base in FY21. Retail Individual Investors
35%
(RIIs)
• Considering the weak capital position and unavailability of previous
mgmt to raise capital in the market, the Govt notified the scheme of Analyst
reconstruction and bank board is reconstituted with 8 eminent
professionals with vast experience within the banking industry. Under Satish Kumar
the ‘ Yes Bank Reconstruction Scheme’ the bank raised Rs100,000 mn (022-67079999; Ext:913,
from marquee financial intuitions at a price of Rs10 (Rs 8 premium to Deskphone
Mob:9167120440
face value of Rs2). However, infusion of this new capital was also
remained inadequate given massive NPAs recognition from bulky Email satish.kumar@choiceindia.com
corporate exposures.
1• With the infusion of Rs150,000 mn, YBL’s Tier 1 ratio is expected to boost by 6.2% to ~12.4% and capital adequacy ratio
(CAR) to ~14.7% in FY20. As per the mgmt, the bank has recognized assets quality pain to a larger extent with PCR stood at
74.0%. Standard restructured advances including former SDR, S4A and 5:25 schemes stood at 0.09% of gross advances. As
per our view, capital is sufficient to maintain ~15% advances growth for next two years if there would not be any significant
deterioration on asset quality.
• Major challenge for bank at the current juncture is to stabilise and grow deposits. YBL brand value has been impacted
severely due to all events which have unfolded in last fiscal. In order to tackle this situation, new board and mgmt has been
taking initiatives to rebuild brand and improve customer sentiments by focusing on corporate governance and engaging in
various promotional (advertisement) activities. Number of retail fixed deposits accounts opened during the month of Apr
was highest in 2020 which is encouraging development, showing revival in consumer sentiments towards the bank. YBL is
one of the major private sector bank having presence across India. Once the customers sentiments improve, YBL would be
able to raise deposits book. Meanwhile, CoF is expected to remain high as the bank has to offer higher interest rate in the
competitive scenario to attract customers.
• In advances book, corporates still continue to be a major portion of the advances book constituting ~63% of book. Thereby
the risk of slippage from bulky corporate exposures can be ruled out in the near term considering the impact of Covid-19
on businesses and high stress assets book.
• The bank has increased its focus on garnering retail and SME clients, which is less risky higher yielding compared to bulky
corporates exposures. Share of retail book increased to 24% in FY20 from a meagre 12.2% in FY18. Retail and SME book,
which constitutes 36.3% of advances, continue to demonstrate resilience with retail/SME GNPA at 1.23%/1.7% in FY20
respectively. The bank is currently focusing on low risk portfolio with large proportion of cash flow-based financing with
adequate collateral. Unsecured exposure remained low at 15% in retail advances and 1% in SME advances by FY20.
• FPO price is decided at Rs13, which is almost 50% discount to the prevailing market price. With the fresh capital infusion of
Rs150,000 mn and considering the fresh issue shares of 11,538.5 mn, adjusted BVPS stands at Rs11.7/per share. At the
higher price band of Rs13, YBL’s stock is valued at P/ABV at 1.1x. Close peers like Indusind Bank (P/ABV of 1.1x) and RBL
Bank (P/ABV of 0.97x) which are facing less business challenges compared to YBL are also trading at the same valuation.
• Deposits growth and slippages from stress book to remain key watchful factors in the near term, however the mgmt is very
much optimistic about the bank turnaround. Key focus areas for the medium term where the mgmt has emphasized more
are 1) liability franchise with CASA>40% 2) granular advances book with retail/SME/Medium enterprises share ~60% 3)
leverage cross selling opportunities and 4) sustainable earnings with RoA target at 1% for 1-3 years and 1.5% for 3-5 years.
Considering all these parameters, we believe the issue is for long term investment betting on business turnaround.
Thus we assign ‘Subscribe with Caution’ rating to the issue.
© CHOICE INSTITUTIONAL RESEARCHAbout the issue:
• Yes Bank Ltd. is coming out with follow on pubic offer (FPO) for Rs150,000 mn.
• Price band for the issue is Rs12-Rs13 per share.
• At the higher price band of Rs13, number of fresh issue share is 11,538.5 mn. Post issue, number of shares is increased to
24,089 mn which translate to market cap of Rs313,156.6 mn at the higher price band.
• The issue will open on July 15’ 2020 and close on July 17’ 2020.
• Objective of the offer is to augment the capital position of the bank in order to meet the 1) RBI’s regulatory
requirements, 2) to boost capital position for meeting changing provisioning requirement and 3) to expand business
growth.
• 50% of the net offer shall be available for allocation on a proportional basis to a qualified institutional investors (QIIs).
Further not less than 15% shall be available for allocation on a proportional to non institutional investors (NIIs) and not
less than 35% of net offer shall be available for allocation to Retail Institutional Investors (RIIs).
• The offer is being made through book building process.
• Post issue, the number of shares increased to 24,089 mn thus representing 92% dilution to existing shareholders.
• Employee will get discount of Rs1 per share. In retail portion, Rs2,000 mn is allocated for employees.
• There will no lock-in for investors applying for FPO. Like other public offering, anchor investor portion shall be locked in
for a period of 30 days from the date of allotment.
Indicative IPO process time line:
Unblocking of
Offer Closes on
ASBA Account
17-Jul-2020
23-Jul-2020
Offer Opens on Finalization of Commencement
15-Jul-2020 Basis of Credit to Demat of Trading
Allotment Accounts 27-Jul-2020
22-Jul-2020 24-Jul-2020Company introduction: Yes Bank Ltd. (YBL), incorporated on Nov 21, 2003, is a scheduled commercial bank under the RBI act. YBL received licence to commerce banking operations in India form the banking regulator RBI on May 24, 2004. As one of the India’s new generation private sector bank, YBL has well diversified presence in the country with 1,135 branches and 1,423 ATMs spreading across 28 states and 8 union territories. Branches are well geographical extensive with 386, 236, 298 and 215 in the metro, urban, semi-urban and rural locations. YBL’s business size contracted significantly to Rs2,767 bn in FY20 from Rs4,042 bn in FY19 due to NPAs crises. Afterwards, capital position of the bank had deteriorated below the RBI’s regulatory requirements. Considering the unavailability of the bank to raise capital within stipulated time, the Govt notified reconstruction scheme in Mar 2020 and bank board is reconstituted with 8 eminent professionals with vast experience within the banking industry. Since the implementation of reconstruction scheme, the bank has formulated new strategic objectives with aim at augmenting deposits base and liquidity buffers, optimizing operations costs, building stronger governance & underwriting framework and focusing on stressed assets resolution over the next six to twelve months. Business Overview YBL strategized to develop a scalable platform in order to focus on retail and SME advances. As a part of business strategy, YBL planned to expand SME disbursements through financing vendors of corporates, tie ups with trade and industry relationships and expanding liability business through branches in SME hubs. YBL planned to increase customers in corporate banking, SME banking and retail banking businesses through a focused customer relationship approach. Post reconstruction scheme, the bank has focused on pro-actively recognizing bad loans. The bank has also decided to increase its coverage ratio on NPAs beyond RBI’s requirement which stood at 70% by FY20. Going forward, the bank has set the following strategic objectives: Rebuild the foundation and calibrate growth over the next six to twelve months ▪ Rebuild liabilities and liquidity buffers ▪ Optimise cost ▪ Strengthen the governance and underwriting framework ▪ Focus on stressed assets resolution Medium term objectives ▪ Stabilise liability mix and lower cost of funds and aim to increasing CASA ratio to more than 40% ▪ Provide granular advances, with retail, SME and Medium Enterprises being more than 60% ▪ Enhance corporate flows and cross selling through transaction banking ▪ Increase RoA to above 1% within next one to three years and above 1.5% within the next three to five years.
Competitive strengths:
• Simplified organisation structure backed by marquee institutions and
experienced leadership team
• Differentiated technology platform leading to digital leadership
• Well established granular banking platform with a strong focus on retail and
SME advances
• Diverse and scalable revenue streams
• Strong governance and underwriting framework
• Knowledge based approach to banking enabling cross selling
• Wide pan India presence
• Award winning quality of services with customer centric approach
Business strategy:
• Liability led business model
• Sustainable and diversified revenue generation
• Focus on cost saving
• Enhancing brand value and strengthening corporate governance
• Leverage digital capabilities to scale business
• Strengthen risk management framework
Risk and concerns:
• Risk to business growth if deposit growth does not pick up
• Covid-19 led economic slowdown to increase slippage
• Prevailing economic slowdown
• Likelihood of low economic growth in near term due to economic
slowdown
© CHOICE INSTITUTIONAL RESEARCHFinancial statements:
Standalone (Rs bn)
Profit And Loss Statement Financial Ratios
Particulars FY18 FY19 FY20 Particulars FY18 FY19 FY20
Interest Earned 202.69 296.24 260.52
Growth (%) 46.2% -12.1% Return / Profitability Ratios (%)
Interest Expended 125.29 198.11 192.58 Net interest margin (NIM) 3.4% 3.0% 2.3%
Growth (%) 58.1% -2.8% Yield on advances 7.6% 10.3% 10.3%
Net Interest Income 77.39 98.13 67.94 Yield on investments 6.0% 7.7% 6.4%
Net Interest Margin 2.7% 3.1% 2.4% EPS (Diluted) (Rs) 18.4 7.4 -13.1
Other Income 52.93 46.75 119.56 RoA 1.4% 0.5% -5.1%
% of Interest Income 26.1% 15.8% 45.9% RoE 17.7% 6.5% -67.6%
Total Income 130.32 144.88 187.50 Cost of Deposits 4.7% 6.4% 7.2%
Growth (%) 11.2% 29.4% Operating ratios (%)
Operating & Other expenses 52.74 63.61 68.70 Credit to Deposit (C/D) 101.4% 106.1% 162.8%
Pre-Prov. Operating Profit 77.59 81.27 118.80 Cost-to-income (C/I) 40.5% 43.9% 36.6%
CASA (share) 36.6% 33.1% 26.6%
Provisions and contigencies 15.54 57.78 327.18 Investment / Deposit (I/D) 34.0% 39.3% 41.5%
P&C % of Advances 0.8% 2.4% 19.1% Non interest income / Total income 40.6% 32.3% 63.8%
Operating Profit before Tax 62.05 23.49 -208.38
Growth (%) -62.1% -987.1% Capitalization Ratios (%)
Pre-tax Margin % 47.6% 16.2% -111.1% Tier-1 13.2% 11.3% 6.5%
Tax 19.71 6.40 -44.06 Tier-2 5.2% 5.2% 2.0%
% of PBT 31.8% 27.2% 27.0% CAR (Basel III) 18.4% 16.5% 8.5%
Reported PAT 42.33 17.09 -164.33 Equity / Assets 8.2% 7.1% 8.4%
Net Profit Margin % 32.5% 11.8% -87.6% Loans / Assets 65.1% 63.4% 66.5%
Extrodinary Income 0 0 0 Investments / Assets 21.9% 23.5% 17.0%
Adjusted PAT 42.33 17.09 -164.33 Dividend payout 0.0% 0.0% 0.0%
Growth (%) -59.6% -1061.4% Asset Quality ratios (%)
GNPA 1.3% 3.2% 16.8%
Balance Sheet NNPA 0.6% 1.9% 5.0%
Particulars FY18 FY19 FY20 Coverage Ratio 49.7% 42.3% 74.0%
ASSETS Per Share Data (Rs)
Cash and balance with Reserve Bank of EPS (Diluted) 18.4 7.4 -13.1
757.13 841.69 59.44 BVPS 111.8 116.1 17.3
India
Investments 682.93 893.29 437.48 Adjusted BVPS 106.1 96.8 10.4
Advances 2,035.19 2,413.97 1,714.33 Valuation ratios (x)
Fixed assets 8.37 8.30 10.23 P/E (x) 0.7 1.8 -1.0
Other assets 150.46 223.19 331.98 P/BV (x) 0.1 0.1 0.8
TOTAL ASSETS 3,124.50 3,808.60 2,578.32 P/ABV (x) 0.1 0.1 1.2
Growth ratios (%)
CAPITAL AND LIABILITIES Advances 18.6% -29.0%
Capital 4.61 4.63 25.10 Deposits 13.4% -53.7%
Reserves and Surplus 252.92 264.24 191.85 Net interest income 26.8% -30.8%
Deposits 2,006.89 2,275.58 1,053.11 Interest Earned 46.2% -12.1%
Borrowings 748.94 1,084.24 1,137.91 PAT -59.6% -1061.4%
Other liabilities and provisions 111.15 179.90 170.36 Business ratios
Profit per branch (Rs mn) 15.3 -144.8
TOTAL CAPITAL AND LIABILITIES…...…… 3,124.50 3,808.60 2,578.32
Business per branch (Rs mn) 4,187.1 2,438.3
Source: Choice Broking Research
© CHOICE INSTITUTIONAL RESEARCHEquity Research Team
Name Designation Email id
Sundar Sanmukhanis Head of Research - Fundamental sanmukhanis@choiceindia.com
Satish Kumar Research Analyst satish.kumar@choiceindia.com
Rajnath Yadav Research Analyst rajnath.yadav@choiceindia.com
Ankit Pareek Research Associate ankit.pareek@choiceindia.com
Kkunal Parar Sr. Research Associate kkunal.parar@choiceindia.com
Sunandh Subramaniam Sr. Research Associate sunand.subramaniam@choiceindia.com
Sachin Gupta Research Associate sachin.gupta@choiceindia.com
Diksha Mhatre Research Advisor diksha.mhatre@choiceindia.com
Disclaimer
es
This is solely for information of clients of Choice Broking and does not construe to be an investment advice. It is also not intended as an offer or solicitation
for the purchase and sale of any financial instruments. Any action taken by you on the basis of the information contained herein is your responsibility alone
and Choice Broking its subsidiaries or its employees or associates will not be liable in any manner for the consequences of such action taken by you. We have
exercised due diligence in checking the correctness and authenticity of the information contained in this recommendation, but Choice Broking or any of its
subsidiaries or associates or employees 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 recommendation or any action taken on basis of this information. This report is based on the fundamental analysis with a
view to forecast future price. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal
views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly
related to specific recommendations or views expressed in this report. Choice Broking has based this document on information obtained from sources it
believes to be reliable but which it has not independently verified; Choice Broking makes no guarantee, representation or warranty and accepts no
responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the
time of publication and are subject to change without notice. The information and any disclosures provided herein are in summary form and have been
prepared for informational purposes. The recommendations and suggested price levels are intended purely for stock market investment purposes. The
recommendations are valid for the day of the report and will remain valid till the target period. The information and any disclosures provided herein may be
considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is strictly prohibited. The information and any
disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current
performance may be unaudited. Past performance does not guarantee future returns. There can be no assurance that investments will achieve any targeted
rates of return, and there is no guarantee against the loss of your entire investment.
POTENTIAL CONFLICT OF INTEREST DISCLOSURE (as on date of report) Disclosure of interest statement – • Analyst interest of the stock /Instrument(s): - No. •
Firm interest of the stock / Instrument (s): - No.
CONNECT US Choice Equity Broking Pvt. Ltd.
Choice House, Shree Shakambhari Corporate Park, Plt No: -156-158,
Any kind of queries on RESEARCH, J.B. Nagar, Andheri (East), Mumbai - 400 099.
You can contact us on: 022 - 6707 9999 +91-022-6707 9999
+91-022-6707 9959
www.choiceindia.com
© CHOICE INSTITUTIONAL RESEARCH
8You can also read
