Yes Bank Analysis: Is it a Good Buy?

#1
There are lot of speculation surrounding Yes Bank,after RBI asked MD and CEO of Yes Bank to step down citing discrepancies in the way bank had reported its bad loan numbers.

Read: RBI Gives Yes Bank’s Rana Kapoor Only Four More Months As MD And CEO

The letter by RBI was issued on 17th September 2018, after which, Stock price of Yes Bank saw a huge decline from Rs. 318.6 per share on 17 Sept 2018 to Rs.183 per share on 28 Sept 2018.

Source: BloombergQuint[1]
As soon as the news broke out, brokerages started citing concerns about the future growth of the bank and its fund raising plans

Read: Rana Kapoor’s Exit Poses A Big Challenge For Yes Bank, Say Brokerages

Further, as there was no clarity on who would succeed Rana Kapoor, the future of banks was still uncertain.
However, my analysis of Yes bank is not based on assumption about what may happen in the future, but it will be based on the assumption that in the long term, all the speculative news and volatility will ultimately subside and price of the bank will ultimately start following its underlying fundamentals.

Also Read: How to Analyze Bank Stocks?

Past Performance:

In the past 5 years, Yes bank has seen healthy growth in terms of growth in reserves as well as deposits.
The Reserves grew from Rs.6,761 crores in 2014 to Rs.25,297 crores in 2018, an average growth of 54%.


Source: Moneycontrol[2]

During the same period, the loan advances made by the bank (that is the loan book) also saw a healthy growth from Rs.55,632 crores in 2014 to Rs.203,533 crores in 2018, again, an average growth of 53%.



All the above data is a clear evidence that Yes Bank was a well managed bank, growing rapidly.
If we look at the profitability numbers of Yes Bank, the bank’s revenue from interestincreased from Rs.9,981 crores in 2014 to Rs.20267 crores in 2018, an average growth of 20% per year.

Also, bank’s earnings from other sources such as fee and commissions also saw a healthy growth from Rs.1,721 crores in 2014 to Rs.5223 crores in 2018, an average growth of 40%

Finally, Yes bank also saw good profit growth in the past 5 years with Net Profits rising from Rs.1,617 crores in 2014 to Rs.4,224 crores in 2018, an average growth of approx 32%


All the above numbers are strong evidence that Yes Bank was not only healthy in terms of balance sheet, but also had seen healthy growth in terms of interest income and profitability.

Yes Bank Peer Comparison:

Although Yes bank is a healthy bank, but is it better than its peers? To find out I looked at various ratios of Yes bank and compared them with its peers.
If we compare the price to adjusted book value of Yes bank with industry leaders like HDFC bank, Yes bank is trading at Price to Book value of Rs.1.76, which is much lower than HDFC bank trading at P/BV of 4.15 and Industry Average of 3.56.


Source: BloombergQuint[3]
Yes Bank also has the highest Dividend Yield compared to peers


The most important ratio to measure the capital efficiency of a bank is to measure its Return on Assets, ROA.
Yes bank has ROA almost at par with HDFC Bank, very close to the industry average



The final parameter is measuring the riskiness of Yes Bank to its peers by comparing the NPA numbers.
Yes bank has a Net NPA of 0.84, which is much lower than the industry average but higher than the market leader HDFC bank.


Although if we compare the NPA numbers of Yes Bank from previous year, there has been a significant decline in Net NPA, an indication that bank has been able to mitigate its default risk efficiently.

Valuations:

Yes Bank is currently trading at a P/E of 10.18, much lower than other privat banks lik HDFC, Kotak and ICICI, while its capital efficiency, dividend yield are at par with its peers.


Source: Screener.in[4]

If we sum up all the points mentioned above, we can conclude that Yes bank has strong balance sheet, healthy growth and is very capital efficient in terms of asset allocation.

Although recent events have battered the stock badly, and there are many questions still left un-answered such as who will lead the bank, will he be as visionary as Rana Kapoor was?

Management can make or break the future of a business. Assuming that the successor of Yes bank will be as able as the predecessor, Yes bank looks like a great long term bet for those who can digest high short term volatility, and stay calm even in the rough waters.
Hope the answer was helpful


Disclaimer: Ankit Shrivastav is a SEBI registered Research Analyst (Reg. No. INH000006758), Founder of www.infimoney.com I, or my family members may have positions in the stocks discussed above. I encourage investors to do their own research before investing.
 
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