Are things really so bad with Yes Bank?

Until less than a year ago, Yes Bank was touted to be amongst the best Private Sector Banks in India. Over the years, Yes Bank has earned a name to be a high-tech Bank, one which makes good use of technology to innovate with products & services. Yes Bank was probably the first Bank to bring 2-step authentication for Internet Banking facility, at a time when many other banks weren't even offering decent Internet Banking facility. Yes Bank is still the leader in many new generation transaction services like UPI or IMPS or Aadhar-enabled Payment System or API Banking, where it is the Banking partner for many Fintech companies like PhonePe, etc.

Over the last 10-15 years, Yes Bank has built a decent reputation to be amongst the best when it came to Corporate Banking, with lots of innovative products & knowledge-based services. At the same time, it was spreading it's Branch Network to reach a scale of over 1100 branches currently. With a decent number of Branches, spread across most of the important cities in India, Yes Bank has now started focusing on increasing it's Retail & SME Banking business. With a strong 62% Y-o-Y Growth in Retail Loan book, it now constitutes 16.7% of the Total Loan Book, which was just 12.2% a year ago. Even the Retail Term Deposits have grown over 40% Y-o-Y. This momentum is expected to continue in this year & the next, as the Bank wants to widen it's customer reach & reduce dependence on Corporate Banking.

A few days ago, when Yes Bank reported it's first Quarterly Net Loss for Q4FY19, on the back of a large provisioning related to IL&FS exposure, the share price of Yes Bank has been battered like as if the Bank is about to shut down in the near future. Just have a look at the share price movement of Yes Bank over the last 1 year or so:

Yes Bank was trading at near Rs.400 level in August'2018. A few weeks after that, the news of RBI's rejection to extension of Mr. Rana Kapoor's term as MD & CEO came in and the share price got hammered to about Rs.160-170 levels. After stabilising for a few months, it was regaining strength after the appointment of an experienced Banker, Mr. Ravneet Gill as the new MD & CEO of Yes Bank. But the share price is again behaving as if all hell has broken loose on Yes Bank with just one large Provisioning. Somehow I feel that all the Business Channels are working in tandem to write-off Yes Bank's survival chances. I certainly feel that things are certainly not as bad with Yes Bank as they are being made out to be by most of the Business channels as pink newspapers.

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At today's closing price, Yes Bank's Market Cap is just under Rs.32,000 crores. I feel this is nothing short of Crazy. Look at all the PSU Banks. They have much much larger NPA problems, have been writing off loans since the last few years and are still sitting on large Net NPA figures. Even those Banks are trading at better valuations than Yes Bank. Take the case of State Bank of India, India's largest Bank. It has a Loan Book of almost Rs.22 lakh crores, nearly 9 times the size of Yes Bank Loan Book. But it's sitting on Gross NPA of over Rs.1.72 lakh crores, which is nearly 22 times that of Yes Bank's figure. Despite years of large Provisionings, SBI's Net NPA figure still stands at almost Rs.66,000 crores, which is nearly 15 times that of Yes Bank's figure. Still State Bank of India has a Market Cap of over Rs.2.80 lakh crores, which is nearly 9 times that of Yes Bank's figure.

In the adjoining table, I have compared Yes Bank's FY'19 figures with that of Bank of India's FY'19 figures. Bank of India is much much smaller than State Bank of India and hence is within comparable range of Yes Bank.

Bank of India's Loan Book is nearly 57% larger than Yes Bank's Loan Book. Still it's Interest Income & Net Interest Income are just about 40% higher. Clearly indicates Yes Bank's superior yields. On the other hand, BoI's Operating Expenses are 71% higher than Yes Bank's. Which again shows the PSU Bank's Operating inefficiencies when compared to a modern Private Sector Bank. BoI's Provisions are nearly 3 times that of Yes Bank's, which pulled the former into a substantial Net Loss. Thanks to Losses since the last few years, BoI has not been declaring any Dividends since the year 2015. Whereas Yes Bank continues to pay Dividend.

BoI's Gross NPA is nearly 7.7 times that of Yes Bank's figure, while it's Net NPA is still 4.2 times Yes Bank's figure. Despite all these negatives, Bank of India's Market Cap is just about 29% lower than that of Yes Bank's figure. In a couple of years time, Yes Bank will be close to overtaking Bank of India in terms of Total Income, thanks to it's faster growth rates. The management has projected a growth rate of between 15 to 20% for FY'20 and I think it can easily achieve this figure.

The point that I wish to make is that: All the recent negative environment surrounding Yes Bank, created by all the Business Channels & Business dailies, are short term in nature. Their effect with go away after a few weeks. Appointment of a Board member by RBI on Yes Bank's board shouldn't be taken as such a big negative. I think RBI itself has undergone management change recently and the new Governor wants to play it safe. Having their nominee on Yes Bank's board will help the Bank to regain it's reputation sooner rather than later. I think this is an excellent opportunity for Long Term Investors to get into Yes Bank. I still have faith in Yes Bank and believe that it has what it takes to be the next HDFC Bank or something on those lines. Just give it some time.

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

IRB Infra. Developers Ltd.: Reality Check - Financial Performance vs Share Price performance.

I have been following IRB Infra. Developers Ltd. for quite a long time. I think that the Road construction business has a very good future as India, being a developing nation, needs to build substantial transport infrastructure for many more years. But what I haven't understood is the valuation that stock market gives to different players in the same industry.

While the P/E Ratio of most companies in the Infrastructure sector is healthy at about 20 or more, companies like IRB Infra. are trading at P/E Ratio of just about 5 currently. Hence I thought it fit to present the companies Financial Performance over the recent 3 years and compare it with the company's share price movement over the last 5-6 quarters.

Have a look at the accompanying chart showing the Trailing-Twelve-Months progress of IRB Infra's Total Income and EBITDA. From a level of Rs.4700 crores in December'2015, IRB's Total Income has grown to above Rs.6300 crores in December'2018. Remember that this growth is despite the fact that IRB sold about 7 or 8 Toll Projects to IRB InvIT, which is an Infrastructure Investment Trust, sometime in the middle of year 2017. Those projects are generating about Rs.1200 crores of Revenues annually. Hence, effectively IRB Infra's Total Income currently would have reached a level of about Rs.7500 crores. With commissioning of newer projects, IRB Infra has managed to bring it's T-T-M Total Income back to levels it was at before the sale of few projects to the InvIT. With more projects in the pipeline, expected to be commissioned over the next 2 years, we can expect the company's Total Income to continue it's steady climb at

about 10% Y-o-Y or higher. IRB's EBITDA recovery has slightly lagged behind over the recent 2 quarters, but it's margin is healthy at about 48%. Hopefully it will get back to it's normal level of about 50%.

During the period of last 3 years, IRB's EPS has improved from about Rs.18 in December'2015 to just over Rs.25 in December'2018, again on the T-T-M basis. And this is despite the fact that a few Toll projects were sold to the InvIT.

There is very good reason why IRB sold a few Toll projects to the InvIT. Even though it lost about 20% of it's Revenues and a slightly higher percentage of it's Net Profit due to the sale of those projects, it also helped bring down the Debt burden on the company's books as all the project-related Debt for those projects got transferred to the InvIT. IRB will continue to be the Project manager for all those projects and will receive a small fee for the same. Apart from that, the lowered Debt burden allows the company to again bid for more projects and increase it's pipeline for future years. And I think InvITs get some Tax concessions too.

Now let's look at IRB's share price movement over the recent quarters.

As we can see that, after hitting a high of about Rs.280 in April'2018, IRB's share price gradually slid down to levels of about Rs.120 by October'2018. There could be 2 possible reasons for this: (1) The News that the contract for one of IRB's most prestigious projects, the Mumbai-Pune Expressway, was coming to an end in August'2019 and MSRDC (Maharashtra State Road Development Corporation) decided to call for fresh tenders; (2) around the same time the News of IL&FS Loan default & scam broke out. IL&FS as a group, had considerable presence in Financing of Infrastructure projects. Hence a Default on it's part is bound to create some nervousness for other Financiers while lending to newer Infrastructure Projects.

Later when it was seen that the default was not due to poor repayment record of some infra project, but because of a well orchestrated scam by top management of IL&FS, the nervousness might have reduced by a considerable extent. Companies like IRB which have a strong Balancesheet and a good repayment track record, should not find it too difficult to raise resources while bidding for newer projects. IRB's share price has spent the last 6 months in creating a strong base in the Rs.120 to 160 range. Hopefully it is getting ready to break-out of this range on the higher side in the coming months. In terms of valuations too, at the current price of about Rs.122, IRB's share trades at just under 5 times it's EPS, which is a pitiable valuation from any angle. Even it's consistent Dividend paying record, which currently translates into a Dividend Yield of 4+%, should help it earn much better valuations. I think IRB deserves a P/E Ratio of atleast 15 or more, but even for a P/E Ratio of 10, the share price should double from current levels.

Happy Investing!!!