ANTIQUE STOCK BROKING LIMITED

FROM THE RESEARCH DESK

Current Reco

: BUY

COMPANY UPDATE

Previous Reco

: BUY

CMP

: INR1,246

YES Bank Limited

Target Price

: INR1,401

23 September 2016 | 4

Strong growth momentum to sustain; maintain BUY

Potential Return : 12%

Nitin Aggarwal, CFA

+91 22 4031 3421
nitin.aggarwal@antiquelimited.com

Renish Patel
+91 22 4031 3426
renish.patel@antiquelimited.com

Market data
Sensex

28,773

Sector

BANKS

Market Cap (INRbn)

524.8

Market Cap (USDbn)

7.830

O/S Shares (m)

421.0

52-wk HI/LO (INR)

1450/632

Avg Daily Vol ('000)

6,876

Bloomberg

YES IN

Source: Bloomberg

Valuation
FY16

FY17e

FY18e

60.6

75.6

95.8

BVPS (INR)

327.8

486.0

562.2

P/E (x)

20.4

16.4

12.9

EPS (INR)

P/ABV (x)
RoE(%)

3.8

2.6

2.2

19.9

18.4

18.3

Source: Bloomberg

Returns (%)
Absolute
Relative

1m

3m

6m

12m

(7)

16

50

70

(10)

32

52

Source: Company, Antique

Shareholding pattern
Promoters

22%

Public

78%

Others

0%

Source: Bloomberg

200
180
160
140
120
100
80
Sep-15 Jan-16 May-16 Sep-16
YES Bank

Revenue growth on track: we expect NII to grow at 35% cagr over FY16-18E
Yes Bank reported 38% y-y growth in total revenue during 1Q FY17 led by strong traction in
NII and Fee income. At the same time the opex increased by 31% y-y as bank opened 40
branches and continued with its aggressive hiring plan - added ~6,000 employees over past
two years. Yes Bank has thus made right investments over past few years which will enable it
to aggressively gain market share and grow its asset book to ~Rs5tn over next five years.
Liability franchise has improved considerably; asset mix diversification to follow
Yes Bank's CASA mix has improved by 760bps over past two years to 29.6% and bank has
one of the highest SA per branch amongst its private peers. The bank has recently lowered its
SA rate by 50bp on higher balances and we expect further moderation in savings cost as
YES progresses towards its goal of 40% CASA mix thus enabling it to deliver ~3.75% margins.
We expect Yes Bank's asset mix to move in favour of Retail & Business Banking which together
will account for 45-50% of total advances vs 33% currently.
Asset quality remains steady; we expect stable outlook
YES Bank has been able to maintain strong asset quality despite challenging environment
owing to its strong structuring and underwriting capability. The same reflects in its robust
GNPL/NNPL ratio at 0.79%/0.29%. The bank has performed commendably in RBI's rigorous
AQR exercise and has guided for stable trends going ahead. We continue to believe that the
bank would be able to maintain its robust asset quality going forward even as we built in
credit cost of 60/65bp over FY17-18E. YES has floating provisions amounting to 30bp of
total loans.
Capital raising deferred but not shelved

Price performance vs Nifty

Source: Bloomberg, Indexed to 100

YES Bank stock has corrected by 15% over past two weeks presumably as
the bank deferred its capital raising plan. We believe that bank is well on
track to deliver industry leading growth/return ratios even as it diversifies
its asset book and adds granularity to its liability franchise. We believe that
at current growth momentum bank will surpass 40% CASA mix in FY19 (one
year ahead of its guidance) while the normalization in savings rate and
improved asset mix will enable it to improve margins to ~3.75%. We expect
asset quality to remain stable and are building in ~60/65bps of credit cost
for FY17-18E respectively. We fine-tune our estimates particularly as we now
build in capital raising to happen at Rs1,250. Our sensitivity analysis further
shows that difference of Rs100 in capital raising price over our base case
leads to an impact of tiny ~1.2% in FY18E ABV. Yes remains one of our
preferred pick in the private banking space and we estimate it to deliver
34% earnings cagr over FY16-18E. We revise our PT to INR1,400/share (2.5x
FY18e ABV).

NIFTY

We believe that fundamentally nothing has changed for Yes Bank and expect it to raise
capital sooner than later to support its aggressive growth/market share gain ambitions. We
now build in capital raising to happen at Rs1,250 and our sensitivity analysis further shows
that difference of Rs100 in capital raising price over our base case leads to an impact of tiny
~1.2% in FY18E ABV. Yes currently has a Tier-I ratio of 10.3% (CET1: 9.9%) and thus has
adequate room to raise AT-1 capital as well. We revise our PT to Rs1,400 (2.5x FY18e ABV).
Maintain 'BUY'.

ANTIQUE STOCK BROKING LIMITED

FROM THE RESEARCH DESK

23 September 2016 | 5

We analyze the capital raising trend of select banks and note that Yes Bank has not been a
capital guzzler as the cagr growth in securities premium account doesn't appear high in
context to the asset/loan growth that it has delivered
50%
45%
40%
35%

48%

CAGR over FY08-16

34% 33%
28%

30%

27%

28%
25%

24%

25%

23%

22%

20%

19%
14%

15%
10%
5%
0%
YES
Advances

IIB
Total Assets

Axis

HDFC
Securities Premium

Source: Company, Antique

Yes has utilised its capital levels very efficiently as RWA growth has been generally lower
than loan growth
90%

79%

80%

69%

70%
60%
50%
40%

55%

30%

18%

38%
11%

20%
10%

36%

29%

32%

21%

20%

30%

35%
29%

24%
14%

0%
FY09

FY10

FY11

FY12

Loan grow th (%)

FY13

FY14

Total asset grow th (%)

FY15
RWA grow th (%)

Source: Company, Antique

Consumer banking contributes 11% to total advances

Consumer Banking,
9%

1QFY17

Micro & Small

Enterprise, 12%

Business Banking,
11%
Corporate banking,
68%

Source: Company, Antique

FY16

ANTIQUE STOCK BROKING LIMITED

23 September 2016 | 6

FROM THE RESEARCH DESK

Consistent improvement in Retail liability franchise...CASA ratio expanded to 28% in FY16

from 19% in FY13
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

78%

78%

77%

52%

58%

65%

67%

25%

20%

46%

26%

18%

16%
19%

22%

28%

15%

23%

10%
2011

2012

2013

2014

2015

2016

13%

11%

13%

9%

11%

2009

2010

CASA

Retail Deposit

Wholesale deposit

Source: Company, Antique

25.0%

40.0%

40.0%

40.0%

35.0%

50.0%

26.0%

36.0%

10%

34.0%

30%
20%

26.5%

40%

28.0%

50%

34.0%

60%

35.0%

30.0%

45.5%

80%
70%

40.0%

90%

25.0%

100%

10.0%

Funding mix - Retail+CASA contributes 55% to total deposit base; YES aims to take this
mix to 75% over next three years

Yes

Indusind

Kotak

ICICI

HDFC

Axis

0%

CASA

Retail Term Deposits

Non Retail Deposits

Source: Company, Antique

Asset quality broadly remain stable

0.90

0.76

0.80

0.68

0.70
0.60
0.41

0.50
0.33

0.40

0.27

0.30
0.20
0.10
-

0.11

0.06

0.31
0.23

0.22

0.03

0.05

0.01

0.05

FY11

FY12

FY13

FY14

0.29

0.20
0.12

0.09
FY08

FY09

FY10

GNPA (%)
Source: Company, Antique

NNPA (%)

FY15

FY16

ANTIQUE STOCK BROKING LIMITED

FROM THE RESEARCH DESK

23 September 2016 | 7

Total revenue (ex treasury) as a % of total assets stands at 9.7% for YES...comparable to peers
13.0%
12.0%
11.0%
10.0%

10.6%
9.9%

10.0%

9.5%

9.0%
8.0%
7.8%

8.0%

FY10

FY11

9.7%

9.5%

9.7%

7.0%
FY08

FY09

YES

IIB

FY12

Axis

FY13
HDFC

FY14
Kotak

FY15

FY16
ICICI

Source: Company, Antique

Base rate: Lending rate for Yes Bank is higher by ~100-120bps as compared to peers...
12.0%

10.5%

10bps

10.0%

-100bps

-120bps

-100bps

-115bps

Axis

HDFC

Kotak

ICICI

8.0%
6.0%
4.0%
2.0%
0.0%
Yes Bank

IIB

Source: Company, Antique

... however, under MCLR method lending rate difference narrowed down to 10-40bps
10.0%
9.8%
9.6%
9.4%
9.2%
9.0%
8.8%
8.6%
8.4%
8.2%
8.0%
7.8%

9.45%

30bps
10bps
-10bps
-35bps

-40bps

Yes Bank
Source: Company, Antique

IIB

Axis

HDFC

Kotak

ICICI

ANTIQUE STOCK BROKING LIMITED

23 September 2016 | 8

FROM THE RESEARCH DESK

Financials
Profit and loss account (INRm)
Year-ended March 31 FY14
Interest Income

99,813

FY15

Capital Adequacy Ratio

FY16 FY17e

115,720 135,334

FY18e

Year-ended March 31 FY14

164,711

204,772

RWA (INRm)

FY15

FY16 FY17e

FY18e

765,969 1,034,022 1,329,499 1,666,926 2,058,487

Interest Expense

72,651

80,842

89,667

102,921

121,783

Tier I (%)

9.8

11.5

10.7

14.1

Net Interest Income

27,163

34,878

45,667

61,789

82,989

Tier II (%)

4.6

4.1

5.8

6.4

5.6

22.4

28.4

30.9

35.3

34.3

14.4

15.6

16.5

20.5

18.7

17,216

20,465

27,122

33,631

42,038

44,378

55,343

72,789

95,420

125,027
20,425

Year-ended March 31 FY14

FY15

FY16 FY17e

FY18e

26,477

Credit / Deposit(%)

75.0

82.9

87.9

90.1

89.3

Investment / Deposit (%)

55.2

47.4

43.7

45.1

43.7
37.0

% NII Growth
Non-interest income
Net Revenue
Employees Expenses
Other Op. Expenses
Operating Profit

7,844
9,655

Total Provisions
Net Profit

13,050

12,968
16,796

16,340
21,034

32,496

43,025

58,046

78,125

25.5

20.9

32.4

34.9

34.6

CASA (%)

22.0

23.1

28.1

33.4

22,296

RoaA (%)

1.6

1.6

1.7

1.8

1.9

25.0

21.3

19.9

18.4

18.3

0.8

0.9

1.0

1.2

1.6

Year-ended March 31 FY14

FY15

FY16 FY17e

FY18e

7,085

9,047

12,268

16,620

3,617

3,395

5,363

7,681

10,561

Core RoE (%)

16,178

20,054

25,395

33,744

45,268

Dividend Yield (%)

Key assumptions

Balance sheet (INRm)

Year-ended March 31 FY14
Capital

Business Ratios

26,880

% OP Growth
Tax

9,797

Total CAR (%)

13.1

3,606

FY15
4,177

FY16 FY17e

FY18e

4,205

4,725

4,725

112,622 133,661

224,929

Deposit

260,941

Deposit growth (%)

10.8

22.9

22.5

25.1

27.2

Deposits

741,920

911,758 1,117,195 1,397,611 1,777,762

Cost of deposits (%)

8.0

7.9

7.1

7.2

6.8

Borrowings

213,143

262,204

316,590

389,516

486,161

Advances

70,942

80,983

98,799

120,535

Advances growth (%)

18.4

35.8

30.0

28.2

26.1

1,361,704 1,652,634 2,115,580

2,650,124

Yield on advances (%)

12.7

12.2

11.2

11.0

10.8

Reserves and Surplus

Other Liabilities & Provisions

Total liabilities

67,611

63,877
1,090,158

Cash & Balances with RBI

45,416

52,407

57,762

78,634

99,613

Investments

Bal. with banks/ call money

13,501

23,165

24,423

23,233

29,431

Investments growth (%)

(4.7)

5.6

13.0

28.9

23.4

629,752

777,337

Yield on investments (%)

8.2

8.0

7.6

7.3

7.3

Year-ended March 31 FY14

FY15

FY16 FY17e

FY18e

Investment

409,504

432,285 488,385

Loans and advances

556,330

755,498 982,099 1,259,051 1,587,664

Fixed Assets

2,935

3,190

4,707

5,837

7,238

Other Assets

62,473

95,160

95,259

119,073

148,842

Total assets

1,090,158

1,361,704 1,652,634 2,115,580

2,650,124

Earnings Ratios
Interest Inc. / Avg.assets (%)

9.6

9.4

9.0

8.7

8.6

Interest Exp./ Avg. assets (%)

7.0

6.6

5.9

5.5

5.1

Per share data (INR)

NIM (%)

2.6

2.8

3.0

3.3

3.5

Year-ended March 31 FY14

Int. exp/ Int earned (%)

72.8

69.9

66.3

62.5

59.5

562.2

Oth. Inc./ Tot. Inc. (%)

38.8

37.0

37.3

35.2

33.6

553.9

Staff exp/Total opt. exp (%)

44.8

42.9

43.6

43.7

43.5

Cost/ Income Ratio (%)

39.4

41.3

40.9

39.2

37.5

13.5

10.4

12.5

13.2

13.5

26.5

19.8

57.3

60.0

65.0

Year-ended March 31 FY14

FY15

FY16 FY17e

FY18e

Book value per share (INR)

Adj. BVPS (INR)
Price/ Adj. Book value

197.5
196.5
6.3

FY15
279.6
277.3
4.5

FY16 FY17e
327.8
321.9
3.8

486.0
478.5
2.6

FY18e

2.2

EPS(INR)

45.0

51.5

60.6

75.6

95.8

Prov./ Operating Profit (%)

P/E Ratio

27.5

24.0

20.4

16.4

12.9

Loan loss prov./Avg. loans (bps)

Year-ended March 31 FY14

FY15

FY16 FY17e

FY18e

RoA decomposition

Asset Quality
Gross NPA (INRm)

Interest income/Assets

9.6

9.4

9.0

8.7

Interest expenses/Assets

7.0

6.6

5.9

5.5

8.6
5.1

Net interest income/Assets

2.6

2.8

3.0

3.3

3.5

1,749

3,134

7,490

10,454

13,188

0.31

0.41

0.76

0.83

0.83

261

877

2,845

4,122

4,496

Net NPA (%)

0.05

0.12

0.29

0.33

0.28

Treasury income/Assets

0.2

0.1

0.2

% coverage of NPA

85.1

72.0

62.0

60.6

65.9

Other Inc. from operations/Assets

1.7

1.7

1.8

1.8

1.8

Gross NPA (%)

Net NPA (INRm)

Source: Company, Antique

Total income/Assets

4.3

4.5

4.8

5.1

5.2

Employee expenses/Assets

0.8

0.8

0.9

0.9

0.9

Other operating expenses/Assets

0.9

1.1

1.1

1.1

1.1

Operating profit/Assets

2.6

2.7

2.9

3.1

3.3

Tax/Assets

0.7

0.7

0.8

0.9

0.9

Loan loss provisions/Assets

0.3

0.3

0.4

0.4

0.4

Net profit/Assets

1.6

1.6

1.7

1.8

1.9

Source: Company Antique