Yes Bank's Performance Update after Q2-FY'17.

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.

Inox Wind's Q1 Performance - Poor upfront numbers, but hopes of better future alive.

Amongst the four quarters of any financial year, the first quarter (Apr-Jun) is always the weakest quarter for Inox Wind Ltd in terms of Reported Revenues & Profits. The primary reason for this being the huge number of orders that get booked during the last quarter (Jan-Mar) of the previous financial year. A substantial portion of the orders Billed during Jan-Mar quarter generally get physically executed only in the following quarter or two. That is the main reason behind lower number of orders getting Billed during Q1 & Q2 of any financial year for a company like Inox Wind Ltd. The secondary reason could also be the fact that Investors await for fresh fiscal announcements related to Wind Power Tariffs by various State Governments, before placing fresh orders in the new fiscal year.

Inox Wind Ltd. reported a sharp 31% drop in Total Income and 80% drop in Net Profit for the Q1-FY'17. Is this something the Investors need to worry about?? I don't think it is. Remember that Inox Wind Ltd had Billed orders worth over Rs.1800 crores for around 400 MW of WTGs, during Q4-FY'16. At the same time Inox Wind received fresh orders for another 360 MW during that quarter to finish the year with a strong Order Book of around 1100 MW. Even though Order for 400 MW were Billed during Q4-FY'16, the physical EPC work for a substantial portion of those orders must have been executed during Q1-FY'17. The same in reflected in the quantity of Blades & Towers produced by the company during Q1-FY'17. As per Inox Wind's Investor Presentation, the company produced Blades for 198 MW and Towers for 148 MW, both of which are substantially higher than the same produced during Q1-FY'16. The company produced lower quantity of Nacelles & Hubs as it was sitting on substantial Inventory of the same. After this adjustment, the company claims that the Inventory mismatch between the quantity of Blades, Towers and Nacelles & Hubs has been reduced to a good extent.

Trailing-Twelve-Months charts

Even in terms of Order Inflows, Q1-FY'17 was pretty good for Inox Wind. The company received further Orders for 184 MW, which got added to it's March'16-end Order Book of 1104 MW. The company Billed orders for only 48 MW during Q1-FY'17, which was the main reason for lower Reported Total Income and Net Profit numbers. At June'16-end, Inox Wind is sitting on an Order Book for 1240 MW, which is to be executed over the next 12-15 months. We can safely expect the Total number of Orders Billed/Executed during the current fiscal to be higher than the approximate 800 MW done during FY'16. I am expecting Inox Wind to report a minimum growth of 15% over FY'16 numbers and this expectation could prove to be highly conservative by the end of the year. At the same time, the Management team of Inox Wind is under pressure from various Analyst/Investor Groups to curtail it's Net Working Capital requirement. The Management is already taking steps for the same and we could see more positive developments on this front in the coming quarters. The Interest Cost of about Rs.38 crores for Q1-FY'17 suggests that the Net Debt (including Working Capital Loans) for Inox Wind is comfortably under Rs.1500 crores, which according to me is Not an alarming number at all for a company which is growing at a handsome pace and posting T-T-M EBITDA of around Rs.700 crores or more.

Coming to Valuations, the share price of Inox Wind has continued to correct over the last month of so and is currently trading below the Rs.180 mark. At this price the company's Market Cap stands at less than Rs,4000 crores, which I think is peanuts valuation, unless something terrible is about to happen to the company's business prospects. I certainly don't think that's the case with Inox Wind. Just as Warren Buffet says: "Be Greedy in the market when everyone else is Scared". Currently everyone is running scared of Inox Wind's shares. I think it's time for genuine Investors to be Greedy.

[ Click here for Quarterly & T-T-M Results sheet of Inox Wind Ltd. ]

Reliance Industries Ltd - Q4 FY'16 update : Surprise after surprise.

Throughout Q4 FY'16, it was widely expected that Reliance will launch it's long awaited & much delayed Jio 4G services on a commercial basis by the start of April'2016. But the company did not fail to Surprise (read as Disappoint) AGAIN as there is absolutely no confirmed announcement about Jio's launch even by the first week of May'2016. More on this later....

The bigger Surprise from Reliance Industries came in terms of continued strong profitability in it's primary business units of Refining & Petrochemicals. The average price of crude hit the lowest levels during Q4-FY'16. Hence it was no surprise that the Revenues from Refining business took a proportionate hit. But the Refining EBIT number did better than expected with only a 1.5% Q-o-Q drop, but was still 30% higher Y-o-Y. The chart alongside shows the T-T-M EBIT progress of RIL's Refining business. The surge seen over the last 3-4 quarters will now lead to stability or only a gradual improvement going forward, unless the company has more surprises in store for us. I am expecting to see the T-T-M EBIT number for Refining to stabilise around the Rs.24,000 to 25,000 crores mark in the coming few quarters. The huge improvement in EBIT numbers from Refining unit of Reliance Industries did not come on the back of big expansion in capacity, but mainly because of improvement in efficiency of the existing capacities. I am not expecting further huge improvement in efficiencies, but there could be minor improvements.

On one hand I am expecting RIL's Refining business to stabilise in terms of EBIT numbers, but on the other hand I am expecting the PetroChemicals to continue deliver further improvement in EBIT numbers. In fact the EBIT improvement journey has just started for RIL's PetChem business. After posting a 27% Y-o-Y jump in EBIT in Q3-FY'16, RIL's PetChem division posted a stronger 35% Y-o-Y jump in Q4-FY'16. With more CAPEX projects coming on stream during the current fiscal, we can expect this division to continue posting strong Y-o-Y growth in EBIT number for few more quarters for sure. The CAPEX at the PetChem unit is leading to increased capacity of certain products as well as improvement in efficiency at certain other products. The full effect of all this CAPEX is expected to be seen in FY'18. That means we still have atleast another 4-6 quarters of continued improvement in EBIT numbers. The growth rates may vary, but they will still be good enough. As of Mar'16, the T-T-M EBIT from Petrochemicals unit has crossed the Rs.10,000 crores mark and could very well progress towards Rs.12,000 to 13,000 crores mark over the next 3-4 quarters.

As of March'2016, the two business segments of Refining & Petrochemicals of Reliance Industries Ltd. together contributed a total EBIT of around Rs.34,000 crores on a T-T-M basis. Over the next one year, I am expecting this figure to increase by atleast another 10% or so to levels of over Rs.37,000 crores.

The remaining three business units of the company together contributed just about 5-6% of the company's Total T-T-M EBIT as of March'2016, down from a contribution of over 15% at the end of March'2015. The primary reason for this is a near 90% fall in EBIT from Oil & Gas production business, which was on expected lines as the International prices of Crude Oil & Natural Gas had seen a collapse during the year 2015. The prices of these commodities seem to have bottomed around Jan-Feb'2016 and have seen a smart bounce back over the last 2 months. The Crude Oil price for example is now trading around $45 per barrel compared to lows of under $30 registered over 2 months ago. Even if the prices continue to trade within a 10% range of current levels, I think RIL's Oil & Gas business too will start posting improved EBIT numbers, mainly because of it's US Shale assets, where the company has managed to bring down operating costs considerably. Hence the recent recovery in prices will help boost profitability from near-zero levels in the most recent quarter. The T-T-M EBIT from the Oil&Gas business has dropped from levels of around Rs.3200 crores to under Rs.400 crores over the last 1 year. Even if Crude Oil stays within the $40 to 50 per barrel range for the rest of the year, I think RIL's EBIT from this business could partly recover to levels of around Rs.1200 crores or so quite easily.

Coming to RIL's most important consumer-facing business (until Jio's launch happens), which is the Retail unit. This business has progressed on expected lines with just over 20% growth in Revenues as well as EBIT. The current year & the next could prove to be the most important years for Reliance's Retail unit. We will see launch of e-commerce verticals of several of Reliance Retail's divisions. This Online expansion will benefit from Jio's infrastructure. In return, Jio will also immensely benefit from the Retail unit's wide network of stores as well as consumer connect. I think we can expect the Retail division to continue posting handsome growth of around 20% Y-o-Y, while the EBIT could post a little higher growth rates.

Coming to the All-Important question of RelJio's launch, I think Reliance will finally start charging for it's services & open it to general public anytime in the next 3 months. Currently the service is being offered completely Free-of-Cost to over 5 lakh users, most of whom are part of the company's employee base or their relatives. As a next step, Reliance has started an invite system where each employee can invite upto 10 people onto the RelJio's network. But there is one condition attached to this invite: the Invitee needs to purchase a LYF handset, which will entitle him to enjoy all of Jio's services without any further costs for a period of 90 days. This invite system could alone add another million users to RelJio's network in the coming few weeks. Apart from this, RelJio's network will see addition of another couple of million users in the form of RCom's CDMA subscribers, who are being migrated to 4G to free up the 850 MHz CDMA spectrum. That spectrum in about 17 circles is either being sold to or shared with RelJio to introduce a third 4G band on the network. This 850 MHz band will enhance the reach & indoor penetration of RelJio's 4G network. The process of integrating this band is what is said to have further delayed RelJio's commercial launch by an additional few months, than the April launch which was earlier expected. So even if RelJio plans for a August or September launch of commercial 4G services (atleast in some crucial circles), it could be having about 3 to 4 million active users on it's network. And once doors are opened for general public, RelJio could easily add another 15 to 20 million subscribers during the 2nd half of the fiscal. By then the company could be easily having a monthly revenue in excess of Rs.1000 crores, which should be good enough to cover about 75% of it's operating costs. I am expecting RelJio to be EBITDA positive during the next fiscal.

Coming to the Valuation part, RIL's share price has come down by about 10% post the announcement of the company's Q4 result. the primary reason being the continued uncertainty on RelJio's commercial launch. I think this is an excellent opportunity for those who still haven't invested enough in Reliance Industries. At the current price of about Rs.975 per share, the company's Market Cap is around Rs.3.15 lakh crores, which is just about 6 times it's current T-T-M EBITDA and less than 8 times the Cash Profit figure. Excluding RelJio, RIL is expected to post further double-digit growth in EBITDA & Cash Profit during the current fiscal & the next. This makes the current valuation of Reliance Industries look very very attractive. RelJio is expected to post substantial EBITDA & Cash Losses during this fiscal, but the numbers will dramatically improve in the next fiscal. Hence on a Consolidated basis, I am expecting RIL's numbers to look bad at the end of this fiscal, but will be substantially better from the next fiscal onwards. With most of the large CAPEX for RIL to end by the end of this fiscal, the company could start reducing it's large consolidated Debt from the next fiscal using the huge Cash Profits from the primary business units. I will further reiterate that FY'18 could be a dream year for Reliance Industries Ltd and nobody should miss the chance of being a part of it, especially when the stock is available at reasonably attractive valuations currently.

Telecom Market Shares - Trailing-Twelve-Months Performance Check. (God Knows when RelJio will start disturbing it!!)

When I posted my previous report on Telecom Market Shares in the 3rd week of Dec'15, I was expecting RelJio to start commercial operations on 28th Dec'15. But it did not happen. Now we are in the middle of March'16, but still there is no news/signs of launch of RelJio's commercial operations. We now have Adjusted Gross Revenue (AGR) details for the Quarter ending Dec'15. And possibly we will have even the March'16 Quarterly report without any start of RelJio effect. I will keep tracking the progress closely as I am expecting things to start changing rapidly after RelJio's entry.

In my previous report, I had discussed progress in the Quarterly AGR numbers of all operators. This time I will focus on Trailing-Twelve-Months AGR numbers of only the Top-8 operators, as these operators constitute around 97-98% of both subscribers market share and AGR market share. The analysis of T-T-M numbers gives us a better idea of a trend as individual quarterly fluctuations gets averaged out.

Let's first quickly have a look at the progress in subscriber market shares of the Top-8 operators for the Dec'15 quarter compared to the situation at the end of Dec'14. The Top-3 operators have continued to strengthen their combined market share. But amongst them, Airtel & Idea Cellular are clearly the best performers with a gain of 106 bps each over the last 12 months. On the other hand Vodafone has gained just 23 bps over the same period. Amongst the remaining 5 operators in the list, RCom has lost 128 bps and Tata Tele has lost 100 bps, primarily because both these operators are rapidly phasing out their CDMA mobile operations to be able to use this spectrum purely for Wireless Data operations. The sooner they finish with this phasing out process, the sooner they will be able to use the 800/850 MHz spectrum for 4G services. Telenor has finally crossed the 5% subscriber market share mark on the back of their 'Sabse Sasta' campaign across it's 7 circles of operation, which is a very significant achievement. But thanks to this very campaign, Telenor could remain the poor-man's mobile phone service.

Coming to the AGR numbers, the industry-wide AGR for calendar year 2015 crossed the Rs.1,50,000 crores mark, posting a Y-o-Y growth of 12.2%. The T-T-M AGR now stands at Rs.1,50,692 crores. Amongst the Top-8 operators, the best outperformer was India's No.3 Wireless operators, i.e. Idea Cellular with 23% Y-o-Y growth, followed by No.8 operator Telenor which managed 22.5% Y-o-Y growth. Apart from these two, the only other operator to post better-than-industry growth rate was Bharti Airtel with 14.3% growth. Vodafone reported a growth of 11.9%, which is marginally slower than industry growth rate. Hence while Bharti Airtel & Idea Cellular reported impressive improvements of 0.6% and 1.6% in their respective AGR market shares, Vodafone underperformed with a very marginal 0.1% drop. Since Telenor is much smaller in AGR terms, it's market share improvement was just 0.2%, despite 22.5% growth in AGR. Aircel & Tata Tele too managed some decent growth of around 9.5% each, hence the drop in their AGR market share was also very marginal. The biggest loser, without doubt, was RCom which lost 1.3% from it's AGR market share on the back of 12.7% Y-o-Y de-growth in it's T-T-M AGR numbers.

RCom is rapidly losing it's business and that's probably the reason why it is hurriedly trying to consolidate with Sistema & Aircel. In the Press Releases that RCom has given in recent months about their potential consolidation move, they claim that it will make it India's No.2 operator in terms of subscriber market share. Yes, arithmetically RCom+Sistema+Aircel will have a subscriber market share just ahead of Vodafone as of Dec'15, but the speed at which RCom itself is losing it's subscribers & revenues, I don't think the combined entity will be able to hold that position for long. The situation is much worse on the AGR market share front. The Trio has a AGR market share of just 10.7% on a T-T-M basis, which makes it a distant No.4 in AGR rankings. If BSNL, which currently has 8.8% AGR market share, successfully continues it's resurgence and RCom continues to lose it's revenues, we could see BSNL overtaking the Trio in a year's time.

Bharti Airtel's T-T-M AGR has hit the Rs.45,000 crores mark and a market share of 29.9%. It has posted stronger growth in the last 2 quarters on the back of it's aggressive 3G & 4G network rollout announcements in more & more cities across the country. Idea Cellular's strong AGR growth has brought it significantly closer to Vodafone in AGR stakes. With a wider 4G footprint, Idea Cellular could close the gap further down at a rapid pace and could be within striking distance of overtaking it in a year's time from now.

Amongst the rest of the pack, BSNL is showing promising signs of improved progress over the recent couple of quarters and it's quite obvious from the charts as of now. On the other hand Tata Tele & Aircel are both showing signs of fatigue in their AGR progress. RCom is already on the path of rapid descent as discussed earlier. Telenor badly needs more ammunition or newer weapons to accelerate it's progress. It certainly needs to expand beyond it's limited 7-circles operation and seriously look at offering Wireless Data service, which is going to be the growth driver going forward.

Finally.....I certainly hope that by the time the AGR report on March'16 quarter is out some time in the month of May, we will have something to discuss about RelJio's services & tariff plans.