Stock of the week 19 10-19

1. 19 September
STOCK
WEEK
OF THE
2019
YES BANK Ltd.

2. 1
YES BANK Ltd.
19 SEP 19
COMPANY SHAPSHOT
PROMOTORS 13.05
INSTITUTIONS 10.04
MF HOLDING 9.26
FII HOLDING 26.51
SHARE HOLDING PATTERN
NSE CODE YESBANK
BSE CODE 532648
CMP 18 SEP 51.40
EQUITY CAPITAL 463.78 CR
FACE VALUE Rs. 2.00
PRICE TO BV 0.49
MARKET CAP 13109 CR
BOOK VALUE 105.49
AVG DIVIDEND
PAYOUT 3 YR
19.3%
52 WEEK HIGH 286
52 WEEK LOW 29
COMPANY PROFILE
Yes Bank, incorporated in 2004 by Rana Kapoor and Late
Ashok Kapur, is a new age private sector bank. Since inception
Yes Bank has fructified into a ‘“Full Service Commercial Bank”
that has steadily built Corporate and Institutional Banking,
Financial Markets, Investment Banking, Corporate Finance,
Branch Banking, Business and Transaction Banking, and
Wealth Management business lines across the country, and is
well equipped to offer a range of products and services to
corporate and retail customers.
YES BANK offers a full-range of client-focused corporate
banking services, including working capital finance,
specialized corporate finance, trade and transactional
services, treasury risk management services, investment
banking solutions and liquidity management solutions among
others to a highly focused client base.
The bank is part of global thought leadership forums like the
Clinton Global Initiative (CGI), Triple Bottom Line Investing
(TBLI) and Tallberg Forum.
BUSINESS GROWTH TAKING
BACKSEAT
Advances growth slumped to 10.1% YoY to | 236300
crore, led by lower growth capital & restructuring in
corporate book. Subdued loan growth was courtesy
de-growth of 13% YoY in MSME & slower growth in
corporate book (64% of advances). Retail segment
growth while healthy, moderated to 44% YoY, with
resultant share up 1.6% QoQ to 18.3%. However, the
management expects capital raising to be completed
by Q2FY20, which is needed for growth and not
balance sheet repair. Deposit growth was limited to
5% YoY at | 225902 crore, led by YoY, QoQ CASA de-
growth. Accordingly, CASA ratio fell sharply by 290 bps
QoQ, 490 bps YoY to 30.2%.

3. 1
KEY HIGHLIGHTS
Business segment review
The shares of YES Bank are seeing a sharp rise.
Any idea why?
Could it be media reports of industrialists
showing interest in the bank or the fundraising
plans of the private lender or promoters paring
their stakes?
Or, is it because the time of YES Bank has finally
come?
It may be too early to say—the bank is yet to
come out with its September quarter earnings
and its fundraising plans are also facing hurdles.
Experts, however, say the fundamentals of the
bank are showing signs of improvement.
"Fundamentals are definitely looking improved
as the cost of money is low and the bank is
looking to raise capital. The weakness of the
leverage players is out and the ownership of
some of the FIIs is reduced," said Sanjiv Bhasin,
Executive VP-Markets & Corporate Affairs at
IIFL.
"Since the broader market is looking to
outperform, there will be more risk-on trade. If
you are in the stock, stay put because the worst
may be in the price. We don't rule out the
target price of Rs 75 for the stock for the
coming six months."
In the recent past, the rally in the broader
market was underpinned by 20-odd stocks such
as HDFC Bank and Bajaj Finance. With signs of
better fundamentals, investors want to bet on
beaten-down stocks that can outperform the
market.
"People want to bet on stocks that are
underperforming the broader market such as
RBL Bank and YES Bank who have seen
drubbings of late. YES Bank will have some
truth, some false," Bhasin said.
A day after logging a strong gain of 15 percent,
shares of YES Bank continued their ascent on
October 18, rising 8.44 percent to Rs 51.40 on
BSE.
The stock has been in the green since October
14 and has gained 30 percent in these five
consecutive sessions of gains.
YES BANK Ltd.
19 SEP 19

4. 1
KEY STRATEGIES
Market participants say a volatile stock price is a
challenge to fundraising, even though the bank has
been claiming it is on track to raise funds.
Analysts point out that the bank needs money
almost equal to its current market capitalisation over
the next two-three years and such a raising would
happen at well below book value that will hurt
minority shareholders.
Uncertainty on this front still surrounds the bank.
Media reports are suggesting industrialists Sunil
Mittal and Sunil Munjal have envisaged interest in
acquiring a stake in the private lender.
The bank, however, denied any such development,
refusing to comment on it, but at first glance, it
appears that the market is happy with this
speculation as the stock has been witnessing healthy
gains after the reports surfaced.
Promoter Rana Kapoor’s holding in the bank declined
to 3.92 percent in the September quarter against
4.31 percent in the June quarter.
Is it good for the bank?
"It is positive as the overhang of selling is done.
However, now there are two important triggers to
be watched—Q2 results and progress on
fundraising," said Sameer Kalra, Founder, Target
Investing, who has a buy call on the stock.
In the long run, what plays in favour of a company is
the faith of its investors. YES Bank has managed to
keep the faith of retail investors in the quarter gone
by.
The latest data shows, mutual fund houses increased
their holding to 9.26 percent in the September
quarter from 6.59 percent.
Moreover, with promoters selling their stake, retail
investors have bought about 7.6 lakh shares of the
company over the past year.
While there are some bright spots, a clear picture
will emerge after the September quarter results are
announced.
The stock is the high beta one. There is a larger
pattern that has completed around Rs 40 which
makes it attractive at lower levels at present.
YES BANK Ltd.
19 SEP 19

5. 1
ORGANIZATION PERFORMANCE FOR FY 2019
YES BANK Ltd
19 SEP 19

6. 1
ORGANIZATION PERFORMANCE FOR FY 2019
YES BANK Ltd
19 SEP 19

7. 1
INVESTMENT RATIONAL
Strategy shift
•YBL’s corporate lending was asset-backed. This lending approach works when the economy is doing
well. However, when the economy falters, there is difficulty in disposing off large-value asset
collateral. The bank now wants to move away from such collateral-driven financing to cash flow-
based financing.
•Two businesses that are doing well but are currently sub-scale are transaction banking and retail
banking. Structured finance is bespoke and therefore, cannot be shown as scalable. Hence, there is
the intention of increasing predictable businesses in the form of transaction banking and retail
business.
•There is no intention to de-focus corporate lending or, within that, structured finance. However, as
a consequence of non-wholesale businesses growing faster, the share of wholesale loans in loan
book would decline from ~70% currently to ~50% by 2025.
Asset quality
Of the key stressed corporates that are being discussed in the media currently, YBL has exposure to
(a) An NBFC that faced allegations from an investigative media company (b) A diversified
conglomerate that has interests in financial services and infrastructure and (c) A media and
entertainment company.
Of these exposures, (a) the infrastructure business of the diversified conglomerate and (b) the
media and entertainment company form part of the ~Rs 100bn watchlist disclosed earlier. The other
exposures do not form part of the watchlist.
As such, the watchlist contains 2 real estate names, 2 power sector names and 1 media sector
name.
The exposures to (a) the NBFC that faced allegations and (b) the financial services holding company
of the diversified conglomerate are mainly bond exposures wherein mark-to-market losses are travel
through the P&L.
YES BANK Ltd.
19 SEP 19

8. 1
•The concern regarding the aforementioned exposures is mitigated by two aspects o Even though
there might be temporary cash flow mismatches, the collateral that YBL possesses is very sound and
ultimate LGD would be very low. o Events pertaining to the resolution of these accounts is
encouraging.
•Resolution of the NBFC that faced allegations o Resolution entails a 3-way takeout of retail,
wholesale and SRA portfolios with separate equity partners coming in for each portfolio. o
Ownership of the NBFC will eventually change significantly and the original promoter is expected to
be left with 7-8% of the company. o This resolution plan is expected to be implemented fairly soon.
More on Digital Strategy and Cost Control
• YBL will maintain its current operating expenses to assets ratio. Cost to income ratio could move
to ~39% in 3 years.
• The focus is to monetise digital strategy. Most of the investment in digital strategy is already
done.
• The future of technology is open source. In such an environment, success would not mainly be
derived from technology investments but rather through technology partnerships.
• YBL is already seized of the matter and has been establishing technology partnerships. For
example, two of the most visible sponsors of the IPL, PhonePe and Dream11, have their payment
engines run by YBL.
• Share of digital channels (non branch, non ATM) in transactions is ~30%. At a headline level, this
is on the lower side since, of the ~1100 branches that YBL has, ~400 are rural.
YES BANK Ltd
19 SEP 19

9. 1
•The RoA for FY20, given the credit cost guidance of 125 bps, would be 0.8-0.9%.
• The RoA for FY21 would be in the range of 1-1.2%.
• This would be the glide path before YBL achieves the RoA of 1.5% in 18 months following
the end of FY21.
• No provision writebacks have been assumed in providing this credit cost guidance.
Subsidiaries
• Securities business complements the banks and hence, would be invested in.
• A call would be taken on the asset management business at a later point.
Q1 FY. 2020 KEY HIGHLIGHTS
YES BANK Ltd.
19 SEP 19

10. 1
Balance Sheet & Other Updates
Outlook & Valuation
The entire concern revolves around BB and below book, which is now at 29470 crore and
the earlier watch list of 10000 crore is a subset (from which 2500 crore slipped this Q1).
We conservatively factor in higher credit cost in FY20E (212 bps) and FY21E (176 bps),
lower growth of 10% in credit and pressure on deposit growth. We revise our PAT growth
lower by 52% for both FY20E and FY21E. Hence, RoA and RoE may decline to 0.5% and
6.6%, respectively. We factor in capital raising of ~ 5000 crore. With revised earnings and
GNPA ratios, our ABV estimates dip in FY21E to 95. We revise our rating further lower to
REDUCE from HOLD as the stock may witness huge dilution for future capital to keep
funding stress recognition and growth. Hence, we lower our target multiple to~0.8x FY21E
ABV. Therefore, we downgrade our target price to 75. Raising capital is utmost priority in
the coming two months as CET1 has already reached 8%.
YES BANK Ltd.
19 SEP 19

11. 1
PROFIT AND LOSS
YES BANK Ltd.
19 SEP 19

12. 1
Balance sheet
YES BANK Ltd.
19 SEP 19

13. 1
Key Ratio
YES BANK Ltd.
19 SEP 19

14. 7
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YES BANK Ltd.
19 SEP 19