YES Bank Limited (YBL), India’s fifth largest private sector Bank with a pan India presence across all 29 states and 7 Union Territories of India, headquartered in the Lower Parel Innovation District of Mumbai, is the outcome of the professional & entrepreneurial commitment of its Founder Rana Kapoor and its top management team. YES BANK is steadily evolving with the long term mission of “Building the Finest Bank of the World in India by 2020”.
- YBL’s advances and deposits have grown at a CAGR of 26% each in the last 5 years.
- The bank’s net interest income, non interest income and net profit have grown at a CAGR of 31%, 36% and 29% respectively in the last five years.
- YBL operates at a net interest margin of 3.40% as of Q1, FY2017 which is better than the industry average.
- It has one of the best asset quality among the medium and large banks with Gross NPA of 0.79% and Net NPA of 0.29% as of Q1, FY2017. I believe this is the main reason why they can be more aggressive in their lending in the next growth cycle than other banks which will be more cautious because of the NPA mess they find themselves in. Goes without saying that they also need to be a bit cautious here, growth can not come at the expense of deteriorating asset quality.
- Their deposits grew by 28.6% in Q1, FY2017. They have a capital adequacy ratio at 15.5%. However, their CASA ratio is low at 29.60%. I believe this will grow as they focus more on retail banking in the coming years (as per the management commentary).
- Their return on assets was 1.7% which is low as per me. A ratio of above 2% would have been ideal. Nonetheless, a return on equity of 20.7% is above par (mostly true for growing banks). I believe their return on assets will improve as they move ahead with their growth plans.
- Their sectoral exposure is better as compared with other banks as a result of which they are well diversified. This is the reason why the NPAs are low in case of YBL.
- YBL has a specific provision coverage ratio of 64.2% which is at par or even better than many other banks.
- YBL will be raising another USD 1 Billion via QIP which will propel their growth further and is a testimony of the bank’s 2020 vision.
As current market price of Rs. 1,290, it is trading at Price to Book Value ratio of 3.74 which, as per my view, is not cheap but a fair price to pay for the opportunity. The PE multiple is at around 20 which can be compared to Indusind Bank PE of around 29, HDFC Bank PE of around 24 and Kotak Bank PE of around 35. So, given that the price is fair and not cheap, one has to be sure about the future growth prospects of the business. I believe that given the current size of the bank, it has a lot of scope to scale the business multi-fold from here. The retail banking has a long way to go for YBL. What more, as stated earlier it can be aggressive in its approach given the better asset quality as compared to its peers. Opportunity all the way!