Initiating Coverage Report Ready for The Takeoff

Need for Capital Low CASA

YES Ban nk - On-a On a restructuring mode restructuring mode g g

Above Industry Loan Book Growth
Macro-economic Headwinds (Dark clouds) - High persistent domestic inflation - Increasing Interest rates - Credit demand slowdown - Asset Quality risk in high growth sectors - Global economic instability

Diversified Fe Income ee

Theme for growth

Branch expansion Capital Infusion Restructuring the balance sheet profile

Analyst Abhisek Sasmal

033-3051-2175

asasmal@microsec.in
20th June2011

Microsec Research reports are also available on Bloomberg

Strong Asset Quality t

Cost Effici iency

<MCLI>

Microsec Research

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

1 20th June2011 Microsec Research

YES Bank

(Version 2.0 on course)

BUY
Market Data Current Market Price (INR) Target Price (INR) (18 months) Upside Potential (annualized) 52 Week High / Low (INR) Market Capitalization (In INR Mn) 282 358 18% 388/234 103263

Yes Bank has experienced unprecedented growth in the Indian banking sector since it started operations in late 2004. This is a significant achievement for a bank which had started late when compared to other new age private sector banks. The bank differentiated itself from other players in the industry through its unique 'knowledge banking approach', emphasis on technology, and human resources. The knowledge banking approach was its main pillar of differentiation and using this it provided specialized services to various sunrise industries through domain experts. We re-initiate coverage on Yes Bank with a BUY rating. Our rating underpins the banks strong business momentum, diversified revenue stream, strong assets quality, positive asset liability mismatch, strong institutional holding, superior cost efficiency, unique technology proposition, high pedigree of Human Capital, thrust on improving CASA driven by aggressive branch expansion plans and its superior and sustainable return ratios. However, heavy dependence on bulk deposits in a rising interest rate scenario slightly impedes our optimism. At the CMP of INR 282 the bank is trading at 1.82x FY13E BV. The bank delivered RoE of over 20% and RoA of 1.5% for FY11. We further expect the bank to deliver RoE of 20%+ on the back of increased leverage, however we may see some pressure on RoA due to moderation in earnings growth going forward on the back of rising loan loss provisions and rising cost. We have valued Yes bank on scenario model with different weightage given to each scenario and arrived at a weighted average target price of INR358 which is 2.3x its FY13E BV of INR 155.4. Our recommended target price is 27% above the current price. We expect this target price to be met with in 18 months from the date of release of this report. Key Risks - 1) Further rise in wholesale deposit cost. 2) Deferment of capital raising plans due to depressed market condition. 3) Lower than expected improvement in CASA. 3) Higher than anticipated rise in slippages due to more focus on the SME segment. 4) TTM P/BV is still at 30% premium to the average valuation in last rate hike g ) / p g cycle. (refer page 28)
Particulars (INR Mn) Total Income FY09 9462.00 FY10 13634.85 FY11 18702.01 FY12E 25514.30 FY13E 33904.26

NonShare Holding pattern% Institution s Promoter 13% Group Foreign 27% Financial Institution s / Banks Mutual 5% Funds 5% FII 45% Insurance Cos 5%

STOCK SCAN BSE Code NSE Code Bloomberg Ticker Reuters Ticker Face Value (INR) Equity Share Capital (INR. Mn.) Average P/E/PBV (3 yrs) Beta vs Sensex Average Daily Volmes (6 M) Dividend Yield (%) Stock Return (1 Yr)
140.0 130.0 120.0 120 0 110.0 100.0 90.0 80.0 70.0

532648 YESBANK YES IN YESB.BO 10 3471.5 15.9/2.76 1.35 3181850 0.84 6.25%

Growth%
NII

36.89%
5092.99

44.10%
7879.53

37.16%
12469.30

36.43%
16861.89

32.88%
22086.09

Growth%
Net Profit

54.1%
3,038

54.71%
4,777

58.25%
7,271

35.23%
9,561

30.98%
12,087

Growth%
EPS P/E * NIM% ROE (Reported till FY11)
Yes Bank SENSEX

51.90%
10.23 27.66 2.70% 20.70% 0.33 54.69 5.17 53.99 5.24

57.24%
14.06 20.12 2.80% 20.3% 0.06 90.95 3.11 90.25 3.14

52.22%
20.95 13.51 2.80% 21.7% 0.03 109.29 2.59 108.59 2.61

31.48%
26.91 10.52 2.53% 20.93% 0.09 128.54 2.20 127.84 2.21

26.42%
33.55 8.44 2.61% 21.59% 0.06 155.41 1.82 154.71 1.83

NNPA% BV

Analyst Abhisek Sasmal

91-033-3051-2175 asasmal@microsec.in
20th June2011

P/BV* Adj.BV P/Adj. BV *

* All prices as on

17th

June11

Source: Company, Microsec Research

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 Incorporation Maiden public offering of equity shares by the bank Launch of financial market business Shares issued at premium of Rs 259.5 to QIBs

NOV03

MAY04

AUG04

SEP04

OCT04

JUNE05

AUG07

JAN10

Launch of Corporate and Business banking

Launch of Transaction Banking business

Launch of Yes International Banking

Source: Company website

3 20th June2011 Microsec Research

Key Management Personnel

Name Rana Kapoor Rajat Monga Varun Tuli Sumit Gupta Arun Agrawal Surendra Jalan Somak Ghosh Designation Founder/ Managing Director & CEO Group President Financial Markets & CFO Group President Branch Banking President Commercial Banking Previous Assignment Managing Partner / CEO & Managing Director - Rabo India, Bank of America (16 years) Head of Treasury - Rabo India Executive Director and Country Head - Avigo Capital Partners/ Bank of America Associate Director & Head (North) - Rabo India

President & Global Head International Banking General Manager ICRA General President Indian Financial Institutions AGM Group President Corporate Finance and Development Banking Group President Transaction Banking Group, p g p, International Banking, Liabilities Product Mgt. President & Sr. Managing Director Investment Banking AGM, Corporate Banking - ICICI Bank Director Project Advisory & Infrastructure Mgmt - Rabo India Global Transaction Services Head - Caribbean, Central & Latin America, , , Citibank Executive Director, Head of Mergers & Acquisitions - Rabo India

Suresh Sethi S h S hi

Aditya Sanghi Kavita Venugopal Alok Rastogi

Group President and Chief Risk Officer Executive Investment Banking, Kotak Mahindra Capital Company Director President & Chief Operating Officer Citibank N.A.

Equity History
Particulars 5-Jul-05 22-Dec-06 Issues IPO at INR 45 per share Private placement of 10 Mn shares at INR 120 to Swiss Reinsurance Private placement of 14.7 Mn shares at INR 225 to Gl b l T Global Tamarind F d P Ltd i d Fund Pte L d Issuance of 38.36mn shares to QIBs at INR269.5 Total amount raised (INR Mn) 3150 1200 Equity Capital Equity Dilution (INR Mn) (%) 2700 2800 35% 4%

7-Dec-07

3308

2947

5%

27-Jan-10

1033.8

3386.3

13%

Strong Institutional holding

Name
American Funds Insurance Series Growth Fund HSBC Bank Mauritius Ltd A/c HSBC IRIS Investments Mauritius Ltd RaboBank International Holding BV Titiwangsa Investments Mauritius Ltd SmallCap World Fund Inc Morgan Stanley Mauritius Company Ltd Life I Lif Insurance Corporaiton of India C i f I di JP Morgan Funds Deutsche Securities Mauritius Ltd Franklin India Prima Fund

% of Shares as on Mar'11
4.92 4.84 4.81 4.23 3.82 2.27 1.92 1 92 1.61 1.35 1.03

4 20th June2011

Source: ACE Equity, Company website

Microsec Research

YES Bank Launch Pad Version 2.0 (the take off )

At the end of Mar'11 Advances (INR Bn) Deposits (INR Bn) Balance sheet Size (INR Bn) 343.64 459.39 590.07

At the end of Mar'15 (Target) 1000.00 1250.00 1500.00

Implied CAGR% 30.60% 28.42% 26.24%

Branches Employees

214 3990

750 12000

36.77% 33.40%

NIM% RoE% (reported) RoA%

2.8% 2 8% 21.70% 1.52%

4.0% 4 0% 22-24% 1.6-1.75%

Relationship / Product Matrix to support growth

5 20th June2011

Source: Company website

Microsec Research

Investment rationale
Business Momentum to continue
YBLs 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 banks 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.
800.00 700.00 600.00 500.00 400.00 300.00 300 00 200.00 100.00 0.00 FY05 FY06 FY07 FY08 Advances (INR Bn) Ad B ) FY09 FY10 YoY D G Y Y Dep. Growth% h% FY11 FY12E YoY Ad G Y Y Adv. Growth% h% FY13E 459.39 343.64 562.88

Strong business growth

749.03

400.0% 350.0% 300.0% 250.0% 200.0% 150.0% 150 0% 100.0% 50.0% 0.0%

Deposits (INR B ) D i Bn)

250 200 150 100

Above industry loan growth from Inception

216

400 350 300

Seasonal weakness in loan growth started to get visible

35.0% 30.0% 25.0% 20.0% 20 0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0%

161

250 200 150 79 100 60 32 30 26 50 0

50 0 FY06 FY07

50

FY08

FY09

FY10

FY11 FY12E FY13E Loan Book (INR Bn) gr% (RHS)

Industry Loan growth%

YES Bank's Loan Growth%

Source: Company, Microsec Research

6 20th June2011 Microsec Research

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 Q1FY12 and to 325 branches by Q412. 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.

East 10% South 15% North 50% West 25%

Pan India Branch expansion. Priority anti-clo wise ock

Branch Concentration

Source: Company, Microsec Research

% Share of Loan Book

Advances Segmentation
Corporate & Institutional banking

Clients

Typical Exposure

Comments

Above INR 20Bn INR 500 -2000 Mn

65.6%

Very low credit cost, strong asset 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

Source: Company, Microsec Research

7 20th June2011 Microsec Research

Break up advances (Q411)

Break up of advances based on knowledge based sectors (Q411)

Commercial banking, 22.50 %

Branch Banking, 11.90 %

Others 18% Food & Agri businesses 18% TMT 14%

Infra & Logistics 23%

Corporate & Institutional Banking, 65.60 %

Engineering 22%

Healthcare 5%

Source: Company, Microsec Research Q4'09 Q4'10 Q4'11

8%

5%

12%

26% 29% 63% 22% 66%

69%

Corporate & Institutional Banking

Commercial banking

Branch Banking

35% 30%

Focus on knowledge banking

25% 25% 20% 16% 15% 10% 5% 0% Q4'08 Infra & Logistics Engineering Q4'09 Healthcare Q4'10 TMT Food & Agri businesses Q4'11 Others 18% 15% 17% 22% 22.70% 22 70% 20.70% 19.10% 16.90% 21.70% 18.10%

8 20th June2011

Source: Company, Microsec Research

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)
CA/C S 6%

Work exp (Yrs) (FY10)

11-15 16-20 > 21 0% 1% 4%

LLB 1%

6-10 20% MBAs 36% Gradu G d ates 50%

0-1 16%

2-5 59% PG 7%

Source: Company, Microsec Research

9 20th June2011 Microsec Research

B2B2C Strategy
Identifying current account rich corporate customers

CASA augmentation remains the key

YES banks deposit base grew 5.6x within 5 years time, registering a CAGR of 53.75% over FY07FY11 mainly due to base effect. However, the bank has historically relied more on wholesale 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 FY07FY11. Yes Bank is looking derive l from planned b l d branch expansion h i and increase penetration to improve its CASA ratio. Management wants to increase the CASA share to 30% by FY15. However, we expect a gradual improvement in the YBLs CASA ratio from current 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 FY10FY13. Of the incremental accretion to deposits, we expect the CASA contribution at 15.8% between Mar11 to Mar13.

Offering them salary a/c and various other wealth management products

Offering them superior cash management & liquidity management solution including a SB a/c

80% 70% Tied up with the corporates to tap a rich source of references 60% 50% 40% 30% 20% 10%

Above industry deposit growth

27% 18%

28% 19%

With larger share of Current account in YBLs overall CASA, economically the value of this 10% CASA is comparable to any bank which has 15-16% a y ba c as 5 6% CASA with more share from SA. Thus any event related to savings bank rate de-regulation will be structurally positive for this bank.

0% FY08 FY09 FY10 FY11 FY12E FY13E

Industry Deposit g y p growth%

YES Bank's Dep. Growth% p

Source: Company, Microsec Research

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

39.50%

Dependence on wholesale deposits may put NIMs under pressure in an increasing rate scenario

13.20% 7.50%

12.10%

10.90% 6.40%

10.30%

FD - C Corp banking

FD - b branch h banking Q4'09

FD Commercial banking

FD- G Govt

CDs C

Institutioanl i i l Deposits Q4'11

CASA

Q4'10

10 20th June2011

Source: Company, Microsec Research

Microsec Research

400 350 300 250 200 150 100

Strong Branch expansion

350

80 70

275

60 50 40 30 20 10 0

214 150 117 67 40 17

YES banks newer branches are reaching the critical inflexion point where they can attract more customers due to their reach & faster productivity productivity. More and more newer branches are coming up in Tier-2 & Tier3 cities. These branches will reach break even faster than their Urban peers due to lower cost and less competition. All these will led to faster CASA mobilization in branch level with faster improvement for CASA/branch.

50 0

FY06

FY07

FY08

FY09

FY10

FY11

FY12E

FY13E

No of branches

Expansion (RHS)

Source: Company, Microsec Research

300.0 250.0 200.0 150.0 6.00% 100.0 50.0 0.0 FY06 FY07 FY08 FY09 FY10 FY11 CASA% FY12E FY13E 4.00% 2.00% 0.00%

CASA mobilization per branch on the rise

14.00% 12.00% 10.00% 10 00% 8.00%

CASA per branch (in Mn)

Source: Company, Microsec Research

FY07 CA SA 4158.9 579.8

FY08 9821.3 1465.3

FY09 12197.5 1920.6

FY10 24271.6 3909.9

FY11 39338.3 8170.4

FY12E 53750.5 12375.0

FY13E 74379.0 19250.0

CAGR% 61.72 79.30

Term Deposits

77465.3

121445.0

147576.1 239804.1 411880.7 519055.7

655402.9

42.74

Source: Company, Microsec Research

11 20th June2011 Microsec Research

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.

FY10
80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3YR+ Dep. as % of 3YR + adv 3YR+ Borr. as % of 3YR+ adv 8.90% 75.80%

Longer term advances funded by borrowings

90% 80% 70% 60% 50% 40% 30% 13.70% 20% 10% 0% 3YR+ Adv. as a %of total adv Advances maturing 3Yrs and above 13.70%

FY10
78.50%

21.50% 21 50%

Infra Exposure

Term Loans

Positive ALM mismatch

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

5.80% 7.90%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10% Assets Fixed 10.50% Liabilities Floating 90% 89.50%

Source: Company, Microsec Research

12 20th June2011 Microsec Research

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

CP 3month

CP 6month

CP 12 month

CD 3month

CD 6month

CD 12month

15.00% 14.00% 13.00% 12.00% 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%

Rise in cost of funds pressurizing NIMs

13.63% 11.84% 10.24% 10.57% 11.27%

11.30%

2.60%

2.70%

2.80%

2.80%

2.53%

2.61%

FY08

FY09

FY10

FY11

FY12E

FY13E

% yield on advances

% yield on investments

Cost of deposits%

Borrowing cost%

NIM%

13 20th June2011

Source: Company, Microsec Research

Microsec Research

Strong core operating income growth & diversified fee revenue

YBLs 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 FY10FY13. 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 35000.0 30000.0 25000.0 20000.0 15000.0 1 000 0 10000.0 5000.0 0.0 FY05 NII FY06 Other Income FY07 FY08 Total Income FY09 NII Gr% FY10 FY11 Other Income Gr% FY12E FY13E Total Income Gr%

Core operating Income outpacing non-core income

500.0% 450.0% 400.0% 350.0% 300.0% 250.0% 200.0% 200 0% 150.0% 100.0% 50.0% 0.0%

In Mn 900.0 800.0 700.0 600.0 600 0 500.0 400.0 300.0 200.0 100.0 0.0 Q2'10 Q3'10 Q4'10 Financial Markets Q1'11 Financial Advisory Q2'11 Q3'11 Q4'11

Break up of Fee Income

Transaction Banking

Branch Banking fees and others

14 20th June2011

Source: Company, Microsec Research

Microsec Research

Fee Income composition

FY11 Share

FY15 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 building up Insurance and MF growth because of low base and expanding reach, despite challenging environment

Transaction banking

31.4%

30%

Branch banking

8.8%

10%

Unique cross selling opportunities give multiple & diversified revenue streams
Knowledge Sectors Food & Agri Life Sciences Engineering TMT Infrastructure Clients segment Agro Chemicals Drugs Electric comp. IT/Telecom Wind Energy Credit products Financial Markets Transaction Banking Advisory Services

Source: Company, Microsec Research

% Share of Fee income to Total Income (FY11)

50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% YES Bank Axis Bank HDFC Bank ICICI Bank 24.02% 33.90% 31.38% 44.13%

Source: Company, Microsec Research

15 20th June2011 Microsec Research

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 3840% levels with its aggressive hiring and branch p p p y p y expansion plans. Yes bank has also improved its cost/assets by 86 bps over FY08-11, mainly due to 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% FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Staff cost rationalization helped overall cost efficiency

100% 90% 80% 70% 60% 50% 40%
13.30% 18.24% 13.95% 14.79% 18.38% 19.80% 58.20% 60.71% 59.33% 52.09% 51.36% 53.30%

30% 20% 10% 0% FY06 Other exp%

19.87%

18.23%

19.76%

22.12%

22.05%

18.74%

FY07 Depreciation cost%

FY08

FY09

FY10 Administative expenses %

FY11 Staff cost%

Ad sales& Promotional expenses%

16 20th June2011

Source: Company, Microsec Research

Microsec Research

Assets/Employee (INR Mn)

200 180 160 140 120 100 80 60 40 20 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E 0.00% 0.50% 1.00% 1.50% 2.00% 2.50%

Cost/Assets (%)

FY06

FY07

FY08

FY09

FY10

FY11

FY12E

FY13E

Employee productivity on the rise

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

Business per Employee

Profit per Employee(RHS)

Employee/Branch

Incr Empl/Bran (RHS)

Cost/Assets% (FY11) 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 1.15% 1.96% 1.63% 2.40% 2 40%

50.00% 45.00% 45 00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00%

Cost/Income% (FY11) 42.70% 36.35% 42.24% 42 24%

47.90%

0.00% YES bank Axis Bank ICICI Bank HDFC Bank

10.00% YES bank Axis Bank ICICI Bank HDFC Bank

17 20th June2011

Source: Company, Microsec Research

Microsec Research

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 FY0507, YBL hasnt 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 Q410 to 0.24% in Q411. 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, dont impact of RBI recently revised norms f RBIs 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. YBLs provision coverage ratio stood at health 88 6% as on March11 healthy 88.6% March 11.

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Credit Cost%

2500 2000 1500 1000 500 0

Strong asset quality

80% 70% 60% 50% 40% 30% 20% 10% 0%

FY09

FY10

FY11

FY12E

FY13E

FY09
GNPA (Rs m)

FY10
NNPA (Rs m)

FY11

FY12E
GNPA Ratio (RHS)

FY13E
NNPA Ratio (RHS)

Provision Coverage Ratio 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 10 0 0.0 FY09 FY10 FY11 FY12E FY13E 500 1100 900 700 1700 1500 1300

Restructured assets

1.2 1 0.8 0.6 0.4 0.2 0

Q2'10

Q3'10

Q4'10

Q1'11

Q2'11

Q3'11

Q4'11

Total Restructured Assets (INR Mn)

% Gross Advances (RHS)

18 20th June2011

Source: Company, Microsec Research

Microsec Research

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 March11. Bank has raised capital of INR 3386 Mn by issuing shares to QIBs at INR 269.5 per share in Jan10 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 H1FY13. 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.

In Mn 40000 35000 30000 25000 20000 15000 10000 5000 0

Capital raising once in every two years from FY08

25

Adequate capital for sustainable growth

20

15

10

FY06

FY07

FY08

FY09 Capital Raised

FY10

FY11

0 FY09 FY10 CAR (%) FY11 FY12E Tier 1 (%) FY13E

Networth

Source: Company, Microsec Research

19 20th June2011 Microsec Research

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% 20.00% 15.00% 1.50% 10.00% 5.00% 0.00% FY09 FY10 RoE% FY11 FY12E RoA% (RHS) FY13E 1.40% 1.70%

1.60%

1.30%

RoA Decomposition Yield on Assets Less: Cost of Assets Net Interest Income Other Income Less: Operating Exp Less: Provisions Less: Tax RoA

FY09 10.04% 7.48% 2.55% 2.19% 2.10% 2 10% 0.31% 0.81% 1.52%

FY10 7.99% 5.34% 2.66% 1.94% 1.69% 1 69% 0.46% 0.84% 1.61%

FY11 8.47% 5.86% 2.61% 1.31% 1.43% 1 43% 0.21% 0.77% 1.52%

FY12E 8.97% 6.43% 2.53% 1.30% 1.46% 1 46% 0.20% 0.74% 1.44%

FY13E 9.00% 6.39% 2.61% 1.39% 1.59% 1 59% 0.25% 0.73% 1.43%

Source: Company, Microsec Research

20 20th June2011 Microsec Research

Peer Analysis
Particulars (In Mn) Net Interest Income* CAGR Growth (5 yrs) (%) PAT* CAGR Growth (5 yrs) (%) EPS* BVS** Deposits (in bn)** Advances (in bn)** No of Branches** Mkt Cap (in bn) Key Ratios CASA%* SA%* NIM (%)* GNPA (%)** NNPA (%)** Restructured Assets % ( ) PCR(%)* CAR (%)* Mkt Cap / Branch (in bn) Div Yield (%) * ROA (%)* ROE (%)* Valuations Price P/E P/BV P/E (5 YR Avg) P/BV (5 YR Avg) Prem/(Disc) on P/E Prem/(Disc) on P/BV Yes Bank 12469.20 64.25 7271.30 66.61 66 61 20.95 109.30 459.39 343.64 214 104.5 ICICI Bank 90169.00 7.97 51513.80 13.44 13 44 44.72 451 2256.02 2163.66 2529 1251.09 HDFC Bank 105431.30 29.84 39263.90 36.18 36 18 84.40 541 2085.86 1599.83 1825 1112.62 Axis Bank 65629.90 43.15 33884.90 50.58 50 58 82.54 441.00 1892.38 1424.08 1390 526.40 ING Vysya Bank 10065.20 16.73 3186.50 37.59 37 59 26.34 208.3 301.94 236.02 500 41.10 Indusind Bank 13764.90 50.07 5773.20 70.56 70 56 12.39 80.08 343.65 261.66 245 123.01

10.34 1.8 2.8 0.23 0.03 0.2 88.6 16.5 0.49 0.84 1.5 21.0

45 29.6 2.6 4.47 1.11 1.2 76 19.54 0.49 1.29 1.3 11.0

52.7 30.4 4.2 1.05 0.20 0.3 83 16.2 0.61 0.69 1.6 17.0

41.1 21.6 3.7 1.01 0.26 1.4 81 12.65 0.38 1.10 1.6 19.0

34.6 17.7 2.85 2.30 0.39 0.3 83.4 12.94 0.08 0.87 1.0 12.0

27.2 8.9 3.5 1.01 0.28 0.3 72.6 15.89 0.50 0.76 1.3 14.6

298 14.23 2.73 22.90 3.55 (8.67) (0.82)

1085 24.26 2.41 23.90 2.48 0.36 (0.07)

2389 28.31 4.42 29.48 4.93 (1.17) (0.51)

1275 15.45 2.89 21.34 3.33 (5.89) (0.44)

345.3 345 3 13.11 1.66 15.98 1.81 (2.87) (0.15)

264 21.31 3.30 23.72 2.36 (2.41) 0.94

Return summary Axis Bank Ltd. HDFC Bank Ltd. ICICI Bank Ltd. IndusInd Bank Ltd. ING Vysya Bank Ltd. Ltd Yes Bank Ltd.

1M -0.58% 4.18% -2.54% 1.52% -2.01% -2 01% -1.56%

3M 4.47% 16.52% 11.84% 20.25% 11.98% 11 98% 17.12%

6M -6.53% 4.33% -5.04% -9.36% -17.13% -17 13% -1.86%

12M 2.87% 24.74% 25.99% 28.78% -6.06% -6 06% 11.59%

* As on Mar11, ** TTM, Prices as on 1st June11

Source: Company, ACE Equity Microsec Research

21 20th June2011 Microsec Research

On the footsteps of leaders

YES Bank Axis Bank HDFC Bank

CAGR% NII PAT Depsts Advan

CASA%

Initial (06-08) 93.6 90.0 113.1 97.5

CAGR% NII PAT Depsts p Advan

Initial (98-00) Matured (09-11) 64.47 70.02 44.71 46.8

CASA%

CAGR% NII PAT Depsts p Advan

Initial (99-01) Matured (09-11) 85.5 59.7 99.9 81.2

CASA %

33.43 36.6 26.97 16.8

50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 5.0% 20.0% 15.0% 10.0% 5.0% 0.0%

19.2 32.2 20.8 27.2

70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

500.0% 400.0% 300.0% 200.0% 100.0% 0.0%

140.0% 120.0% 120 0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%

120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%

NII G%

PAT G%

EPS G%

NII G%

PAT G%

EPS G%

NII G%

PAT G%

EPS G% 200.0% 150.0% 100.0% 50.0% 0.0%

400.0% 350.0% 300.0% 250.0% 200.0% 150.0% 100.0% 50.0% 0.0%

120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 20 0% 0.0%

Deposts G%

Advan G%

ABV G%

Deposits G%

Advances G%

ABV G%

Deposits G%

Advances G%

ABV G%

Source: Company, Microsec Research

20th June2011

Microsec Research

Stock Cues
Bulk Deals
STK EXCHANGE NSE NSE NSE NSE NSE BSE BSE BSE NSE BSE BSE BSE NSE NSE BSE Deal Date 20-Jan-11 13-Jan-11 13-Jan-11 13-Jan-11 30-Dec-10 22-Jun-10 22 J 10 22-Jun-10 22-Jun-10 22-Jun-10 09-Dec-09 05-Jun-09 05-Jun-09 05-May-09 22-Apr-09 22-Apr-09 p Client Name DIRECT INVESTMENT LIMITED MORGAN STANLEY MAURITIUS COMPANY LTD TAMARIND FUND PTE LIMITED MORGAN STANLEY MAURITIUS COMPANY LTD MORGAN STANLEY MAURITIUS COMPANY LTD LIFE INSURANCE CORPORATION OF INDIA RABOBANK INTERNATIONAL HOLDING B V CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED RABOBANK INTERNATIONAL HOLDING B V NATIONAL PENSION SERVICE FRANKLIN TEMPLETON MUTUAL FUND MAGS FINVEST PVT LTD RUSSELL AIF CAPITAL INC ABHI AMBI FINANCIAL SERVICES LTD ABHI AMBI FINANCIAL SERVICES LTD Transaction SELL BUY SELL SELL BUY BUY SELL BUY SELL BUY BUY SELL SELL BUY BUY Qty ('000) 1945 4830 8075 154 1802 6250 31050 3065 6250 1812 1500 2000 2200 2453 1640 Trade Price (INR) 273.90 265.07 265.15 269.06 308.64 263.00 263 00 263.33 263.00 263.40 266.00 135.00 136.63 83.45 82.52 84.62 Value (INR Bn) 0.53 1.28 2.14 0.04 0.56 1.64 1 64 8.18 0.81 1.65 0.48 0.20 0.27 0.18 0.20 0.14

Hist Volatility (60D) - Volatility increases in the last 6 months 120 100 80 60 40 20
3-Dec-07 3-Jun-08 3-Dec-08 3-Jun-09 3-Dec-09 3-Jun-10 3-Dec-10 3-Jun-11

Avg Deliverable Volume on NSE (Monthly)% 60.00 50.00 40.00 30.00 20.00 20 00 10.00 0.00
30-Apr-07 30-Apr-08 30-Apr-09 30-Apr-10 30-Apr-11

% of shares Insurance Companies Foreign Institutional Investors

Q4'11 4.75 45.54

Q3'11 3.63 45.6

Q2'11 4.25 47.12

Yes Bank Ltd. MF Holdings Fund Name Baroda Pioneer Mutual Fund JPMorgan Mutual Fund UTI Mutual Fund Bharti AXA Mutual Fund Axis Mutual Fund Benchmark Mutual Fund Birla Sun Life Mutual Fund DSP BlackRock Mutual Fund Franklin Templeton Mutual Fund ICICI Prudential Mutual Fund IDBI Mutual Fund IDFC Mutual Fund ING Vysya Mutual Fund JM Financial Mutual Fund Kotak Mahindra Mutual Fund L&T Mutual Fund LIC Nomura Mutual Fund Mirae Asset Mutual Fund Motilal Oswal Mutual Fund Principal Mutual Fund Religare Mutual Fund SBI Mutual Fund Sahara Mutual Fund Sundaram Mutual Fund Tata Mutual Fund

May-11 0.00 0.00 0 00 0.00 0.00 0.00 2.01 2.04 1.03 1.14 1.99 2.10 2 10 2.90 2.07 4.29 1.29 3.11 1.07 1.16 2.30 1.22 2.11 2.18 3.90 1.24 1.21

Hold Percentage (%) Apr-11 Mar-11 Feb-11 0.33 0.73 0.62 3.97 3 97 0.35 0.74 1.97 0.00 1.32 1.02 1.50 2.12 2.14 2 14 2.67 3.07 4.01 1.07 1.67 1.05 0.87 2.29 1.20 1.47 2.32 2.60 1.44 1.21 2.60 2 60 0.52 1.46 1.87 2.32 1.74 0.73 2.03 2.19 2.31 2 31 1.89 1.75 5.59 1.11 1.87 1.07 0.90 2.35 1.22 1.14 2.75 0.00 2.01 0.00 2.25 2 25 0.63 1.26 0.00 2.00 1.39 0.65 1.90 2.00 2.11 2 11 2.66 1.73 0.00 1.05 2.46 0.96 0.81 2.04 1.06 1.01 2.43 NA 0.00 NA

Jan-11 0.63 0.00 0 00 0.68 1.07 NA 2.13 0.00 0.64 1.97 1.97 2.02 2 02 2.21 1.68 4.14 1.14 2.56 0.94 1.08 0.00 1.04 0.00 3.47 NA 1.12 NA

50% of AMCs has increased its stake in YES bank as on May2011. Most of the bulk deals in the recent past pp p g happened around the 260-270 price range. It may act as a key accumulation zone for long term investing. FII share has came down in last 3 quarters, which has been lapped up by domestic Insurance companies. Stock price volatility in last rate hike and global y g y crisis was very high which made this stock very risky in that time. 60D(days) volatility is on the rise in recent time. Decline in deliverable volume makes the stock price range bound in recent past.

23 20th June2011

Source: Bloomberg, ACE Equity Microsec Research

Microsec Research

Deposit growth% RoE Sensitivity (FY13E) 20% 22% Loan growth% 24% 26% 28% 22% 19.92% 20.23% 20.54% 20.85% 21.17% 24% 19.52% 19.83% 20.14% 20.45% 20.77% 26% 19.12% 19.43% 19.74% 20.05% 20.37% Slippage ratio% 1.50% 20% 22% Loan growth% 24% 26% 28% 21.01% 21.26% 21 26% 21.51% 21.76% 22.02% 1.75% 20.71% 20.94% 20 94% 21.19% 21.43% 21.67% 2.00% 20.39% 20.62% 20 62% 20.87% 21.11% 21.35% 2.25% 20.07% 20.30% 20 30% 20.55% 20.79% 21.03% 2.50% 19.76% 19.98% 19 98% 20.23% 20.47% 20.71% 28% 18.72% 19.03% 19.34% 19.65% 19.97% 30% 18.32% 18.63% 18.94% 19.25% 19.57%

RoE Sensitivity (FY13E)

RoE Sensitivity (FY13E) 10.00% 10.50% Yield on Advances% 11.00% 11.50% 12.00%

Cost of deposits % 6.00% 21.13% 22.50% 23.79% 25.02% 26.18% 6.50% 19.37% 20.80% 22.23% 23.54% 24.78% 7.00% 17.49% 19.03% 20.56% 21.96% 23.28% 7.50% 15.45% 17.11% 18.76% 20.27% 21.69% 8.00% 13.25% 15.04% 16.83% 18.45% 19.98%

Target Price Analysis FY13 Expected Bear Case Loan growth% Deposit growth% YoA% CoD% Slippage Ratio% BV Target Multiple Target (INR) Weightage (%) Final Weighted average Target Price 24.00% 26.00% 10.50% 7.50% 2.25% 138.21 2 276 35% Base Case 26.00% 28.00% 11.30% 7.00% 2.00% 155.4 2.5 389 50% Bull Case 28.00% 30.00% 11.50% 6.50% 1.75% 161.3 2.75 444 15%

INR 358 Source: Company, Microsec Research

24 20th June2011 Microsec Research

Valuation & Recommendation

We re-initiate coverage on Yes Bank with a BUY rating. Our rating underpins YBLs strong business momentum, diversified revenue stream, strong assets quality, positive asset liability mismatch, strong institutional holding, superior cost efficiency, unique technology proposition, high pedigree of Human Capital, thrust on improving CASA driven by aggressive branch expansion plans and its superior and sustainable return ratios. However, heavy dependence on bulk deposits in a rising interest rate scenario slightly impedes our optimism. At the CMP of INR 282 the bank is trading at 1.82x FY13E BV. YBL delivered RoE of over 20% and RoA of 1.5% for FY11. We further expect the bank to deliver RoE of 20%+, however we may see some pressure on RoA due to moderation in earnings growth going forward on the back of rising loan loss provisions and rising cost of funds. We have valued Yes bank on scenario model with different weightage given to each scenario and arrived at a weighted average target price of INR358 which is 2.3x its FY13E BV of INR 155.4. Our recommended target price is 27% above the current price. We expect this target price to be met with in 18 months from the date of release of this report.
9.00 8.00 7.00 6.00 5.00 5 00 4.00 3.00
- 1 S.D. + 1 S.D.

Valuation not very cheap nor expensive tracking long term mean

45000.0 40000.0 35000.0 30000.0 25000.0 25000 0 20000.0 15000.0 10000.0 5000.0 0.0

2.00 1.00 0.00

P/BV(x) +1 S.D.

Avg 5yr P/BV - 1 S.D.

Avg P/BV in the last late hike Volume (000's)RHS

900

1200

P/BV Band

800 700 600 500 400 300 200 100 0

P/E Band
1000 800 600 400 200 0

Actual Price INR P/BV of 2.00

P/BV of 4.00 P/BV of 1.00

P/BV of 3.00

Actual Price INR P/E of 15.00

P/E of 27.00 P/E of 9.00

P/E of 21.00 P/E of 3.00

25 20th June2011

Source: Microsec Research, Bloomberg

Microsec Research

Financials & Projections

Income Statement Interest Income Interest Expense Net Interest Income (INR Million) FY09 20,014 14,921 5,093 5 093 FY10 23,697 15,818 7,880 7 880 FY11 40,417 27,948 12,469 12 469 FY12E 59,672 42,810 16,862 16 862 FY13E 76,246 54,160 22,086 22 086

Change (%)
Non Interest Income Net Income

54.10%
4,369 9,462

54.70%
5,755 13,635

58.2%
6,233 18,702

35.2%
8,652 25,514

31.0%
11,818 33,904

Change (%)
Operating Expenses Pre Provision Profits

36.90%
4,185 5,277

44.10%
5,002 8,633

37.2%
6,798 11,904

36.4%
9,695 15,819

32.9%
13,477 20,427

Change (%)
Provisions (excl tax) PBT Tax

50.70% 50 70%
617 4,659 1,621

63.60% 63 60%
1,368 7,265 2,487

37.9% 37 9%
982.12 10,922 3,650

32.9% 32 9%
1,333 14,486 4,925

29.1% 29 1%
2,114 18,313 6,227

Tax Rate (%)

PAT

34.80%
3,038

34.20%
4,777

33.4%
7,271

34.0%
9,561

34.0%
12,087

Change (%)
EPS (INR)

51.90%
10.23 10 23

57.20%
14.06 14 06

52.2%
20.95 20 95

31.5%
26.91 26 91

26.4%
33.55 33 55

Balance Sheet Equity Share Capital Reserves & Surplus Net Worth Deposits

(INR Million) FY09 2,970 13,272 16,242 16 242 161,694 FY10 3,397 27,499 30,896 30 896 267,986 FY11 3,471 34,469 37,941 37 941 459,389 FY12E 3,553.0 42,118 45,671 45 671 585,181 FY13E 3,603.0 52,391 55,994 55 994 749,032

Change (%)
Borrowings Other Liabilities & Prov. Total Liabilities

21.80%
37,017 14,055 229,008

65.70%
47,491 17,453 363,825

71.4%
66,909 26,232 590,471

27.4%
80,291 29,628 740,771

28.0%
96,349 52,851 954,226

Current Assets Investments

19,227 71,170

26,732 102,099

41,742 188,288

55,834 218,745

68,709 299,412

Change (%)
Loans

39.70%
124,031

43.50%
221,931

84.4%
343,636

16.2%
446,727

36.9%
562,876

Change (%)
Fixed Assets Other Assets Total Assets

31.50%
1,311 13,269 13 269 229,008

78.90%
1,155 11,907 11 907 363,825

54.8%
1,324 15,480 15 480 590,471

30.0%
2,342 17,123 17 123 740,771

26.0%
3,904 19,324 954,226

Source: Company, Microsec Research

26 20th June2011 Microsec Research

Financials & Projections

Ratios
Spreads Analysis (%) % yield on advances % yield on investments i ld i t t Cost of deposits% Borrowing cost% NIM% Profitability Ratios (%) RoE (Cal) RoA (Cal) Int. Expense/Int.Income Non Int Expn/Net Income Efficiency Ratios (%) Cost/Income Empl. Cost/Op. Exps. Busi. per Empl. (INR Mn) NP per Empl. (INR M ) E l Mn) Asset-Liability Profile (%) Credit /Deposit Ratio CASA Ratio Investment/Deposit Ratio CAR Tier 1 Asset Quality GNPA (INR Mn) NNPA (INR Mn) GNPA Ratio NNPA Ratio PCR Valuation Book Value (Rs) Price/BV (x) EPS (Rs) Price/Earnings (x) FY09 13.6% 8.2% 8 2% 8.3% 6.8% 2.7% FY09 18.7% 1.5% 74.6% 46.2% FY09 44.2% 52.1% 46.5 1.1 11 FY09 76.7% 8.7% 44.0% 16.6% 9.5% FY09 849.0 412.0 0.68 0.33 51.5 FY09 54.7 5.17 10.23 27.66 FY10 10.2% 6.8% 6 8% 5.8% 6.4% 2.8% FY10 15.5% 1.6% 66.8% 42.2% FY10 36.7% 51.4% 73.2 1.6 16 FY10 82.8% 10.5% 38.1% 20.6% 12.8% FY10 602.0 130.0 0.27 0.06 78.4 FY10 91.0 3.11 14.06 20.12 FY11 10.6% 7.1% 7 1% 6.3% 6.9% 2.8% FY11 19.2% 1.5% 69.1% 33.3% FY11 36.3% 53.3% 98.7 2.1 21 FY11 74.8% 10.3% 41.0% 16.7% 9.9% FY11 805.2 91.5 0.21 0.03 88.6 FY11 109.3 2.59 20.95 13.51 FY12E 11.3% 7.3% 7 3% 7.0% 7.6% 2.5% FY12E 20.9% 1.4% 71.7% 33.9% FY12E 38.0% 54.2% 106.4 2.3 23 FY12E 76.3% 11.3% 37.4% 14.4% 8.7% FY12E 1786.9 402.1 0.40 0.09 78.0 FY12E 128.5 2.20 26.91 10.52 FY13E 11.3% 7.3% 7 3% 7.0% 7.5% 2.6% FY13E 21.6% 1.4% 71.0% 34.9% FY13E 39.8% 55.5% 102.3 2.2 22 FY13E 75.1% 12.5% 40.0% 13.1% 8.1% FY13E 1970.1 337.7 0.35 0.06 82.3 FY13E 155.4 1.82 33.55 8.44

Source: Company Microsec Research Company,

27 20th June2011 Microsec Research

Key concerns
o Disproportionate rise in wholesale deposit cost may depress NIMs more than expected. Every 10 bps rise in cost of deposits is expected to depress RoE by almost 20-25 bps. o Lower than anticipated CASA improvement may depress margin in high interest rate scenario scenario. o 55-60% of the YES banks loan book is still in PLR. With over 60% of YBLs clients are formed by corporates, the transition from BPLR to Base rate may be a key challenge for retaining clients. o Increasing focus on SME segment (almost 10% of the current loan book) in the increasing rate scenario may increase slippages. Every 100 bps rise in slippages is expected to depress RoE by almost 120 bps. o Capital raising program can expose the bank to capital market cycle We cant rule out possibility of cycle. can t deferment of capital raising program due to subdued or depressed market condition. In that case the Banks growth plan will suffer. o Higher foreign share holding at 50.4% (FII+FDI) (as on March11) may put some pressure on stock prices in case of foreign money outflow from domestic market. o Global macro economic instability with weakening economic datas from developed countries and debt crisis in PIIGS also act as a risk. o In the last rate hike cycle, YES bank has traded at an average valuation of 2x TTM BV. Currently its trading at TTM P/BV of 2.72. If the current inflationary situation persists and RBI continues with its rate hike cycle, we may see negative pressure on the stock price. It can go substantially lowers than the current level.

28 20th June2011 Microsec Research

Appendix 1

YES Bank Sate of the Art Branch

YES Branch

YES Touch Any Time Banking Counter

YES Lounge Corporate & HNI meeting point

29 20th June2011 Microsec Research

Appendix -2

Macro Headwinds at the peak Light at the end of the tunnel ?!!

1000

Liquidity (INR Bn) remained in the deficit mode for most of last financial year

Sectoral credit growth slows down 30 Credit Growth% 25 Deposit Growth%

500 20 0 15 -500 10 5 0 -1500

-1000

Inflation Trend (Y-o-Y %) remains a key concern for ( ) y Indian Economy

12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%
Apr-09 Apr-10 Aug-09 Mar-08 Aug-10 May-08 Dec-08 Dec-09 Dec-10 Apr-11 Oct-08 Oct-09 Oct-10 Jan-08 Jul-08 Jun-09 Jun-10 Feb-09 Feb-10 Feb-11

10.00% 10 00% 8.00% 6.00% 4.00% 2.00% 0.00%

Mar-08 Jan-08

RBIs policy rate hikes to contain inflation

CRR Repo Rate Reverse Repo

May

Oct-08

Oct-09

Oct-10

Feb-09

Feb-10

Dec-08

Dec-09

Dec-10

Feb-11 Jan-11

Apr-09

Apr-10

Apr-11 Mar-11

Jun-10

-2.00%

IIP numbers suggesting slowdown in economy

Light at the end of the Tunnel !!! End of QE2 in June 2011 and less possibility of QE3 may show some speculative funds outflow from global commodities which may cool down the prices a bit. Interest rate hardening cycle in two of the most powerful emerging countries has resulted in slowdown in industrial activities. This may further add to some cooling down in commodity prices which may lead to lower inflation.

20 15 10 5 0
Mar-09 May-09 Mar-10 Dec-08 May-10 Oct-08 Nov-09

Aug-09

Aug-10

Jun-09

-5

30 20th June2011

Source: RBI, Microsec Research

Microsec Research

Nov-10

Apr-08

Aug-08

Jul-09

Sep-09

Jul-10

Sep-10

Jun-08

Jan-10

Jun-11

Jul-08

Note

31 20th June2011 Microsec Research

Microsec Research: Phone No.: 91 33 30512100 Email: microsec_research@microsec.in

Ajay Jaiswal: President, Investment Strategies, Head of Research: ajaiswal@microsec.in

Fundamental Research Name Nitin Prakash Daga Naveen Vyas Nitesh Goenka Abhisek Sasmal Sutapa Roy Gargi Deb G iD b Ravi Gupta

Sectors IT, Telecom & Entertainment Midcaps, Market Strategies Metals & Mining BFSI Economy Agriculture & Ph A i l Pharma Midcaps

Designation AVP-Research AVP-Research Sr. Research Analyst Research Analyst Research Analyst Executive R E i Research h Executive Research VP Sr. Manager

Email ID npdaga@microsec.in nvyas@microsec.in ngoenka@microsec.in asasmal@microsec.in s-roy@microsec.in gdeb@microsec.in d b@ i i rgupta@microsec.in vpagaria@microsec.in rksaha@microsec.in rlilaramani@microsec.in lil m ni@mi in dmittal@microsec.in

Technical & Derivative Research Vinit Pagaria Derivatives & Technical Ranajit Saha` Institutional Desk Rajiv Lilaramani Dhruva Mittal PMS Division Siddharth Sedani Sarmistha Rudra PMS Research PMS Technical Institutional Equities Institutional Equities Technical Research

Sr. Manager Manager

AVP Research Analyst

ssedani@microsec.in srudra@microsec.in

Research: Financial Planning Division Shrivardhan Kedia FPD Products Research-Support Subhabrata Boral

Manager Research

skedia@microsec.in

Research Support

Executive

sboral@microsec.in

** Rating Scale
Recommendation Strong BUY BUY Hold Underperform Sell Expected absolute returns (%) over 12 months More than 20% Between 10% and 20% Between 0% and 10% Negative return up to -10% Less than -10%

32 20th June2011 Microsec Research

Other Banking Reports

IDBI Bank ICR 07/12 /2010

BFSI Performance Analysis & Top Picks Update 28/02/2011

IOB ICR 19/11/2010

Housing Finance Industry ICR 22/09/2010

BFSI Q411 Preview Update 04/04/2011

Bajaj Finance ICR 29/10/ 2010

Banking Credit growth 24/05/2011

BFSI Q411 earnings & policy impacts 22/05/2011

33 20th June2011 Microsec Research