Yes Bank Ltd. just announced it's Q4 & FY'15 results & I managed to get into breaking the numbers in more detail than usual. The upfront numbers were reasonably handsome, as expected. Q4 Total Income was up 22% Y-o-Y and Net Profit was up 28% Y-o-Y. These numbers are on-par with what was expected from Yes Bank. But I have some interesting information from the details that I have studied.
Yes Bank's T-T-M Y-o-Y Growth has seen smart recovery post June'14 quarter. From levels of about 30% or higher until Sept'13, the growth rates fell to levels of about 15% by June'14. Incidentally, June'14 was also the quarter when Yes Bank had done a QIP issue, i.e. raised Capital by issue of fresh shares. This extra Capital in hand meant that the incremental growth was less dependent on borrowed funds and hence the Net Profit growth was faster than growth in Total Income. The T-T-M Net Profit growth is now rapidly approaching the 25% mark & is slated to cross it by June'15.
Look at the chart alongside, which shows Yes Bank's T-T-M Interest Cost as a Percentage of it's T-T-M Total Income. After remaining stable at around the 62% mark for quite a few quarters until June'14, the Bank's Interest Cost has sharply dropped to about 59% of it's Total Income by March'15. This is the primary reason why Yes Bank's Net Profit margins have improved from 13.84% in June'14 to 14.77% in March'15 and has helped the Bank's Net Profit grow faster than Total Income. Yes Bank has now taken board approval to raise further Capital upto $1 billion via issue of shares or ADRs/GDRs. As and when Yes Bank does this additional issue of Equity instruments, the Bank will be able to bring the Interest Cost % further down to levels closer to 50% mark, where most larger banks like ICICI and Axis operate at.
( Click Here for Yes Bank's Results Summary Page. )
Digging into further details, I have found some more interesting information. Yes Bank has been primarily dependent on it's Treasury Operations & Wholesale (or Corporate) Banking business to drive it's Top-line as well Bottom-line until recent quarters. Until about 2-3 years ago, Yes Bank barely had 100 branches based in the Top-50 cities of India. But the Bank has been expanding it's Retail Branch network over the recent 2-3 years and now has 630 branches in 375+ cities across India. So, on one side Yes Bank continued to grow it's knowledge-based Corporate Banking business and on the other side the expanding branch network was increasing it's access to lower-cost deposits, also called as CASA (Current Account, Savings Account) Deposits. Still about 93% of Yes Bank's Total Income comes from it's Treasury & Corporate Banking operations. Retail Banking contributes less than 7% of it's Top-line, but over the recent quarters, it has been posting faster growth rates than other segments of operations. Have a look at the charts below. I have shown the T-T-M Income progress from Yes Bank's 3 Operating segments, T-T-M Profits progress from the Treasury & Corporate Banking operations:
As we can see, Yes Bank's Income from Corporate Banking segment is much larger than other segments and has been growing at a very steady pace. Infact the Y-o-Y growth rates of this segment are very steady around the 23% mark, which is a very healthy pace of growth. But the profits from this segment have started plateauing over the recent quarters. Here is where the Treasury operations are kicking in. Even though the Income from Treasury operations are volatile within a range, the Profits from this segment have been posting healthy growth over the last 3-4 quarters. Now look at the Retail Banking Revenues chart. This segment posted a very modest Y-o-Y growth of just 16% in March'14, but the growth rates have accelerated handsomely over the last 4 quarters and now stands at over 53%. Eventhough the base is very small for Retail Banking at the moment, but the growth has just started and could continue to accelerate for many more quarters. Yes Bank's Retail Banking division is still making small losses, but will turnaround & start posting profits in the next 4-6 quarters as the newly established Branches start maturing. Any new Branch will need atleast 2-3 years to breakeven and start posting profits. As most of Yes Bank's branches are less than 2 years old, they are still to reach breakeven level.
The Capital Employed figure for Retail Banking division of any Bank is negative because the Bank receives huge amounts of Retail Deposits, which is then used to Lend to other sectors. As we can see, Yes Bank's Capital Employed for Retail Banking has gone up from Rs.-9200 crores in March'13 to over Rs.-19500 crores by March'15, despite a sharp increase in the Operating Costs associated with this division. This negative Capital Employed number will continue to expand in the coming years as the Bank's Branch network expands and more & more of these branches mature.
Valuations: Yes Bank's stock is trading around the Rs.820 levels currently and it's T-T-M EPS stands at a little over Rs.48/-, translating into a P/E ratio of about 17. I think this valuation is fairly attractive from an Investment Point of view as Yes Bank is expected to continue growing at a decent pace over the long term. There will be an Equity Dilution happening when the Bank issues fresh shares to raise more Capital, but it will ultimately help the Bank in posting stronger Growth & improve it's margins. The blip in EPS will only be temporary. I think every dip in Yes Bank's share price is an opportunity to invest for long term investors.
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| Trailing-Twelve-Months Growth |
Look at the chart alongside, which shows Yes Bank's T-T-M Interest Cost as a Percentage of it's T-T-M Total Income. After remaining stable at around the 62% mark for quite a few quarters until June'14, the Bank's Interest Cost has sharply dropped to about 59% of it's Total Income by March'15. This is the primary reason why Yes Bank's Net Profit margins have improved from 13.84% in June'14 to 14.77% in March'15 and has helped the Bank's Net Profit grow faster than Total Income. Yes Bank has now taken board approval to raise further Capital upto $1 billion via issue of shares or ADRs/GDRs. As and when Yes Bank does this additional issue of Equity instruments, the Bank will be able to bring the Interest Cost % further down to levels closer to 50% mark, where most larger banks like ICICI and Axis operate at.
( Click Here for Yes Bank's Results Summary Page. )
Digging into further details, I have found some more interesting information. Yes Bank has been primarily dependent on it's Treasury Operations & Wholesale (or Corporate) Banking business to drive it's Top-line as well Bottom-line until recent quarters. Until about 2-3 years ago, Yes Bank barely had 100 branches based in the Top-50 cities of India. But the Bank has been expanding it's Retail Branch network over the recent 2-3 years and now has 630 branches in 375+ cities across India. So, on one side Yes Bank continued to grow it's knowledge-based Corporate Banking business and on the other side the expanding branch network was increasing it's access to lower-cost deposits, also called as CASA (Current Account, Savings Account) Deposits. Still about 93% of Yes Bank's Total Income comes from it's Treasury & Corporate Banking operations. Retail Banking contributes less than 7% of it's Top-line, but over the recent quarters, it has been posting faster growth rates than other segments of operations. Have a look at the charts below. I have shown the T-T-M Income progress from Yes Bank's 3 Operating segments, T-T-M Profits progress from the Treasury & Corporate Banking operations:
The Capital Employed figure for Retail Banking division of any Bank is negative because the Bank receives huge amounts of Retail Deposits, which is then used to Lend to other sectors. As we can see, Yes Bank's Capital Employed for Retail Banking has gone up from Rs.-9200 crores in March'13 to over Rs.-19500 crores by March'15, despite a sharp increase in the Operating Costs associated with this division. This negative Capital Employed number will continue to expand in the coming years as the Bank's Branch network expands and more & more of these branches mature.
Valuations: Yes Bank's stock is trading around the Rs.820 levels currently and it's T-T-M EPS stands at a little over Rs.48/-, translating into a P/E ratio of about 17. I think this valuation is fairly attractive from an Investment Point of view as Yes Bank is expected to continue growing at a decent pace over the long term. There will be an Equity Dilution happening when the Bank issues fresh shares to raise more Capital, but it will ultimately help the Bank in posting stronger Growth & improve it's margins. The blip in EPS will only be temporary. I think every dip in Yes Bank's share price is an opportunity to invest for long term investors.
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