Over the last three & half years, I have posted a handful of reports on Yes Bank, which included a couple of comparison reports too. The first report was written in July'2013: Yes Bank - Future HDFC Bank available at PSU Bank valuations!!! I am happy to say that Yes Bank's performance over the last over three years has not failed my expectations & estimations. The most recent report was written about 18 months ago (Yes Bank - Good Growth, Attractive Valuations). Hence I thought it fit to post a Performance Update on Yes Bank's Financials & Valuation.
The Quarterly as well as Trailing-Twelve-Months Profit & Loss Numbers are already available on my blog at this link: http://www.stockslogic.in/2016/02/yes-bank-ltd-results.html
Hence I would focus on other details in this report. Any bank operates under 3 primary business heads: 1) Treasury Operations - Here it's in-house team trades in different kind of bonds, depending on liquidity situation at the bank & bond prices. 2) Wholesale or Corporate Banking - This division focuses on providing Banking/Lending services to SMEs & Corporates. 3) Retail Banking - This division is for providing services to individual consumers.
Older Banks with large Branch Networks since many years generally have a substantial contribution from Retail Banking operations, going upto about 35 to 45% of it's Total Income. Large Retail presence with wide network of branches is also important for any bank in terms of access to low-cost deposits. Current Account deposits form the lowest cost deposit base for Banks, followed by Savings Account deposits. Any bank with high proportion of Current Account & Savings Account (CASA) Deposits is able to offer more competitive Interest Rates on Loan products and also enjoy higher Net Interest Margins. This is one area where Yes Bank still has a lot of ground to cover, not just with older peers like HDFC Bank or Axis Bank, but even with contemporary peers like Kotak Bank or IndusInd Bank.
Have a look at the chart alongside, which shows the Trailing-Twelve-Months progress of Yes Bank's Segment-wise Income figures over the last 3 years. Yes Bank's Corporate Banking services have been it's pillar of strength right from the time of it's inception. And it continues to provide robust growth for the Bank even now with over 65% of Yes Bank's Total Income still coming from this division. Treasury Operations contributed nearly a third of Yes Bank Total Income in September'13, but has seen it's contribution coming down to a quarter of the Bank's Total Income in September'16, mainly because it did not grow at the same pace as that of the other divisions. Yes Bank's Retail Banking division has shown some urgency for growth only in the last 4 quarters. After posting a steady Y-o-Y growth of about 35% for periods ending Sept'14 and Sept'15, the Retail Division posted a handsome growth of nearly 70% for 12-months ending Sept'16. Yes Bank will need to maintain over 50% growth in Retail Banking business for another 2 or 3 years to see it's contribution improve from existing low levels of under 9% of Total Income to something like 15 to 20%. Even a relatively not-so-old Kotak Bank gets nearly 45 to 50% contribution from it's Retail Banking division. Hence I think Yes Bank should certainly be targeting to expand it's Retail Banking business' contribution to something like 25 to 30% of Total Income in the next 5 years. Growth in Retail Banking business will only help the Bank's other divisions by giving it access to increased CASA Deposits.
Another big aspect of any Bank's business is how well it manages to keep it's Cost of Funds low and also not let it's Bad Loans number go high. The Chart alongside shows the Interest & Provisioning figures as a Percentage of Yes Bank's Total Income. Interest Cost is consumes the biggest portion of any Bank or Finance Company's Total Income. In September'13, Interest Cost formed just over 62% of Yes Bank's Total Income, which the Bank has managed to bring substantially lower to about 53.3% of Total Income in September'16. This is an excellent progress, especially considering the fact that the last Equity-based Fund raising done by Yes Bank was sometime in June'14 quarter, i.e. over 27 months ago. This excellent control over Cost of Funds has helped Yes Bank expand it's Net Profit margin from 13.54% in Sept'13 to 16% in Sept'16, i.e. about 250 bps improvement in 3 years time.
Over the last couple of years we have seen the Banking sector being in the NPA storm with almost every PSU Bank and many Private Banks too having to make large Provisioning towards NPAs. In such a scenario, Yes Bank has managed to keep it's Provisioning figure to under 4% of Total Income throughout the last 4 years, despite having almost it's entire Loan Book exposed towards Corporates. This clearly talks about the quality of assets that Yes Bank has managed to identify & Finance.
Valuations & Stock performance: First have a look at Yes Bank's Stock Price chart for the last 2 years:
After spending over year within a range Rs.650 to Rs.900, Yes Bank's stock price finally a breakout in February'16, which lead to a sharp rally from Rs.675 levels to about Rs.1400 levels, that means doubling in a matter of just about 6 to 7 months. Since then the stock price has seen some bit of correction & consolidation in the Rs.1100 to 1300 range. At the current price of about Rs.1130, Yes Bank is trading at just over 16 times it's T-T-M EPS of Rs.69/-. In the current market scenario, when almost the entire market has undergone some decent correction over the last couple of months, Yes Bank's valuation cannot be called 'Very Cheap' anymore. But a P/E Ratio of 16 certainly cannot be called expensive for a quality stock like Yes Bank. As and when the market stabilises & starts progressing upwards again, I am expecting Yes Bank's stock to move towards a 20+ P/E Ratio. The quality of Yes Bank's business performance certainly deserves higher valuations in stable & progressive market conditions. Long Term investors should continue to remain invested & somebody who wishes to book atleast some portion of profits, may do so when the stock hits a P/E Ratio of something closer to 20 to 22 levels. A P/E Ratio of 15 or lower will make it a very attractive Buy option of other investors.
The Quarterly as well as Trailing-Twelve-Months Profit & Loss Numbers are already available on my blog at this link: http://www.stockslogic.in/2016/02/yes-bank-ltd-results.html
Hence I would focus on other details in this report. Any bank operates under 3 primary business heads: 1) Treasury Operations - Here it's in-house team trades in different kind of bonds, depending on liquidity situation at the bank & bond prices. 2) Wholesale or Corporate Banking - This division focuses on providing Banking/Lending services to SMEs & Corporates. 3) Retail Banking - This division is for providing services to individual consumers.
Older Banks with large Branch Networks since many years generally have a substantial contribution from Retail Banking operations, going upto about 35 to 45% of it's Total Income. Large Retail presence with wide network of branches is also important for any bank in terms of access to low-cost deposits. Current Account deposits form the lowest cost deposit base for Banks, followed by Savings Account deposits. Any bank with high proportion of Current Account & Savings Account (CASA) Deposits is able to offer more competitive Interest Rates on Loan products and also enjoy higher Net Interest Margins. This is one area where Yes Bank still has a lot of ground to cover, not just with older peers like HDFC Bank or Axis Bank, but even with contemporary peers like Kotak Bank or IndusInd Bank.
Over the last couple of years we have seen the Banking sector being in the NPA storm with almost every PSU Bank and many Private Banks too having to make large Provisioning towards NPAs. In such a scenario, Yes Bank has managed to keep it's Provisioning figure to under 4% of Total Income throughout the last 4 years, despite having almost it's entire Loan Book exposed towards Corporates. This clearly talks about the quality of assets that Yes Bank has managed to identify & Finance.
Valuations & Stock performance: First have a look at Yes Bank's Stock Price chart for the last 2 years:
After spending over year within a range Rs.650 to Rs.900, Yes Bank's stock price finally a breakout in February'16, which lead to a sharp rally from Rs.675 levels to about Rs.1400 levels, that means doubling in a matter of just about 6 to 7 months. Since then the stock price has seen some bit of correction & consolidation in the Rs.1100 to 1300 range. At the current price of about Rs.1130, Yes Bank is trading at just over 16 times it's T-T-M EPS of Rs.69/-. In the current market scenario, when almost the entire market has undergone some decent correction over the last couple of months, Yes Bank's valuation cannot be called 'Very Cheap' anymore. But a P/E Ratio of 16 certainly cannot be called expensive for a quality stock like Yes Bank. As and when the market stabilises & starts progressing upwards again, I am expecting Yes Bank's stock to move towards a 20+ P/E Ratio. The quality of Yes Bank's business performance certainly deserves higher valuations in stable & progressive market conditions. Long Term investors should continue to remain invested & somebody who wishes to book atleast some portion of profits, may do so when the stock hits a P/E Ratio of something closer to 20 to 22 levels. A P/E Ratio of 15 or lower will make it a very attractive Buy option of other investors.
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