Yes Bank vs Indusind Bank comparison - Last 1 year progress update

About 1 year ago I had posted a comparison of Yes Bank vs Indusind Bank. Those who haven't read that, I would request them to go through it at the following link:

Yes Bank vs Indusind Bank comparison - 4th March'2014.

I had compared the 12-month figures (Jan to Dec) for the years 2009 onwards for Total Income, Interest Expense and EPS of the 2 mid-size private sector banks and then compared the same with their respective share prices. Now we have data for the year 2014 as well to add to the comparison. Have a look at the chart below:

As we can see, the status is almost similar to what it was a year ago. At the end of December'2014, Yes Bank's Total Income & Net Profit continue to be higher than Indusind Bank's numbers by about 10-11%, while the Interest Cost is higher by about 23% for Yes Bank and EPS is higher by 29%. But Yes Bank's share price continues to trail Indusind Bank's share price even now. With Yes Bank soon to be a part of the Nifty Index, we could see it's share price getting more attention from FIIs.

Eventhough Yes Bank continues to be larger than Indusind Bank on all operational numbers like Total Income, Interest Cost, Net Profit & EPS, while the latter commanding a substantially higher Market Cap, it is also interesting to see how the growth rates have panned out in the last 1 year, compared to previous years. On the Total Income front, Yes Bank had posted comparatively stronger growth rates during each of the 4 years from 2010 to 2013, but Indusind Bank has posted a stronger growth at 20% in the year 2014, compared to the former's growth of just 14%. On the Interest Cost front too, Yes Bank had grown faster in 3 out of the 4 years upto 2013, but again Indusind Bank has grown faster in 2014 at 17% compared to 11% of the former. There are 2 reasons for this: (1) Yes Bank raised substantial capital via issue of shares during the year; (2) Yes Bank's slower business growth (despite extra capital in hand) meant that it needed to borrow less incremental capital.

The slower growth in Interest Cost during most of the last 5 years has helped Indusind Bank post stronger growth rates on the Net Profit & EPS front. In the year 2014, Indusind Bank's Net Profit grew 28% compared to 22% growth posted by Yes Bank. Indusind Bank has posted substantially stronger growth rates for Net Profit in 4 of the last 5 years compared to Yes Bank. Maybe that is also one reason why Indusind Bank commands a higher valuation rating. Look at the P/E Ratios comparison. Indusind Bank has always traded at a substantial premium valuation compared to Yes Bank. Going forward it will be interesting to see how their growth rates pan out & the corresponding changes in their valuations. Currently both banks are well capitalised and can easily raise resources whenever needed. Both banks are getting aggressive in expanding their retail operations. Indusind Bank even has a Celebrity (actor Farhan Akhtar) endorsing it. With the economy picking up pace, the Banking industry will continue to see increased activity. And with the Govt. taking steps to discourage Cash transactions & encourage electronic transactions, all Banks will see a surge in number of transactions. The Banks with strong Technological platform will be the biggest beneficiaries.

Yes Bank vs Indusind Bank comparison

I had posted a comparison of Yes Bank & HDFC Bank about a quarter ago. It was mainly because HDFC Bank has always been considered a benchmark for Private sector banks. But there is a huge difference in size of the two banks. HDFC Bank is 4 to 5 times bigger in size because it is more than a decade older than Yes Bank. Now it's time to compare Yes Bank with someone who is of approximately the same size. Eventhough Indusind Bank is also much older than Yes Bank, it got active for good growth only around the time that Yes Bank was born.

I have arranged the 12-Months data for periods ending Dec'09 to Dec'13 for easy comparison for the performance track record of both the Banks over the most recent 4 years. Following are the charts which show easy comparison for Total Income, Interest Expense, EPS and Share price of both Yes Bank & Indusind Bank.

The charts are quite self-explanatory. Indusind Bank was bigger than Yes Bank upto 2009. But Yes Bank has clearly posted faster growth to take a good lead over the last 4 years. By the end of 2013, Yes Bank is now about 20% bigger than Indusind Bank in terms of Total Income. To fund it's faster growth, Yes Bank needed more capital. Yes Bank chose to depend more on Borrowed Capital instead of issuing fresh shares to raise resources. Between Dec'09 & Dec'13, Yes Bank issued about 6 crore fresh shares, while Indusind Bank's Equity Capital expanded by 11.4 crore shares. The result being Indusind Bank's Interest Cost being about 53% of the Bank's Total Income, while the same being 62% for Yes Bank. Despite this higher % of Interest Cost, Yes Bank has managed to post a Net Profit margin which is on-par with Indusind Bank at about 13.7%.

Coming to EPS comparison, Yes Bank's EPS has always lead Indusind Bank, primarily because of the former's smaller Equity Capital. But just look at the difference in EPS of the two Banks & then compare the same with the difference in their respective Share Prices. While Yes Bank's EPS has reached the level of above Rs.42, about 70% higher than Indusind Bank's EPS of Rs.25. Despite this massive lead in Yes Bank's EPS & superior growth performance, Yes Bank's Share price currently trails Indusind Bank's share price by over 20%. While Yes Bank's share price is currently around Rs.305 compared to Indusind Bank's price at about Rs.400/-. One reason for Yes Bank losing some portion of it's valuation is because of the quarrel between families of the founding partners. As soon as the quarrel hit news headlines, Yes Bank's share price started it's downward movement. But the thing is that the issue could get resolved anytime soon and it has not had any impact on Yes Bank's performance as can been seen from the Bank's consistant performance over the last 4 quarters. Sooner or later FIIs and other large funds will realise this and Yes Bank could come back to the valuations that it used to command about a year ago.

My point is: If Yes Bank continues to post growth in line with the Industry's growth or marginally better than that, then it should be commanding valuations in line with other Private Sector Banks.

(P.S.: One reason why Indusind Bank has enjoyed better valuation than Yes Bank could be it's inclusion in Nifty index. Despite Yes Bank being bigger than Indusind Bank, the latter was chosen to be included in the Nifty to represent young modern private sector banks. Maybe the age of listing on the stock exchanges is one criteria to decide on inclusion in the Nifty index.)