Initiating Coverage Report - YES Bank

Initiating Coverage Report

Ready for The Take–off

nk

Low

CA

SA

Nee

d fo

r C

apit

al- On a restructuring mode- On a restructuring mode

YE

S B

an

gg

n B

ook

Gro

wth

ee I

ncom

e

ienc

y

t Q

uali

ty

Macro-economic Headwinds (Dark clouds)

- High persistent domestic inflation

- Increasing Interest rates

Credit demand slowdown

Theme for growth

Abo

ve I

ndus

try

Loa

Div

ersi

fied

Fe

Cos

t E

ffic

i

Stro

ng A

sset- Credit demand slowdown

- Asset Quality risk in high growth sectors

- Global economic instability

• Branch expansion• Capital Infusion• Restructuring the balance sheet profile

Microsec Research

Analyst – Abhisek Sasmal 033-3051-2175

[email protected] Microsec Research reports are also available on Bloomberg <MCLI>

20th June’2011

Investment & Valuation Brief 2

Company background 3-4

YES Bank – Launch Pad – Version 2.0 (the take off ) 5

Contents

Investment rationales 6-20

Peer Analysis 21

On the footsteps of leaders (Comparative study of Yes Bank with Axis & HDFC bank) 22

Stock Cues 23

Sensitivity Analysis 24Sensitivity Analysis 24

Valuation & Recommendation 25

Financial Projections 26

Ratios 27

Key concern to our call 28

Appendix – 1 (Typical YES bank branch) 29

Appendix – 2 (Macro Picture – Light at the end of the tunnel!!) 30

Note 31

Analyst page 32

Other Banking reports 33Other Banking reports 33

Disclaimer 34

Microsec Research

1

20th June’2011

YES Bank (Version 2.0 on course)

BUY Market Data

Current Market Price (INR) 282

Target Price (INR) (18 months) 358

Upside Potential (annualized) 18%

52 Week High / Low (INR) 388/234

Yes Bank has experienced unprecedented growth in the Indian banking sector since itstarted operations in late 2004. This is a significant achievement for a bank which hadstarted late when compared to other new age private sector banks. The bankdifferentiated itself from other players in the industry through its unique 'knowledgebanking approach', emphasis on technology, and human resources. The knowledgebanking approach was its main pillar of differentiation and using this it providedspecialized services to various sunrise industries through domain experts.

52 Week High / Low (INR) 388/234

Market Capitalization (In INR Mn) 103263

Promoter

Group

27%Foreign

Financial

Institution

s / Banks

Non-

Institution

s

13%

Share Holding pattern%

We re-initiate coverage on Yes Bank with a BUY rating. Our rating underpins thebank’s strong business momentum, diversified revenue stream, strong assetsquality, positive asset liability mismatch, strong institutional holding, superior costefficiency, unique technology proposition, high pedigree of Human Capital, thrust onimproving CASA driven by aggressive branch expansion plans and its superior andsustainable return ratios. However, heavy dependence on bulk deposits in a risinginterest rate scenario slightly impedes our optimism.

STOCK SCAN

BSE Code 532648

Mutual

Funds

5%

Insurance

Cos

5%

FII

45%

/

5% At the CMP of INR 282 the bank is trading at 1.82x FY13E BV. The bank delivered RoEof over 20% and RoA of 1.5% for FY11. We further expect the bank to deliver RoE of20%+ on the back of increased leverage, however we may see some pressure on RoAdue to moderation in earnings growth going forward on the back of rising loan lossprovisions and rising cost.

We have valued Yes bank on scenario model with different weightage given to eachscenario and arrived at a weighted average target price of INR358 which is 2.3x its

NSE Code YESBANK

Bloomberg Ticker YES IN

Reuters Ticker YESB.BO

Face Value (INR) 10

Equity Share Capital (INR. Mn.) 3471.5

Average P/E/PBV (3 yrs) 15.9/2.76

scenario and arrived at a weighted average target price of INR358 which is 2.3x itsFY13E BV of INR 155.4. Our recommended target price is 27% above the current price.We expect this target price to be met with in 18 months from the date of release of thisreport.

Key Risks - 1) Further rise in wholesale deposit cost. 2) Deferment of capital raisingplans due to depressed market condition. 3) Lower than expected improvement inCASA. 3) Higher than anticipated rise in slippages due to more focus on the SMEsegment. 4) TTM P/BV is still at 30% premium to the average valuation in last rate hike

Beta vs Sensex 1.35

Average Daily Volmes (6 M) 3181850

Dividend Yield (%) 0.84

Stock Return (1 Yr) 6.25%

Particulars (INR Mn) FY09 FY10 FY11 FY12E FY13E

Total Income 9462.00 13634.85 18702.01 25514.30 33904.26

Growth% 36.89% 44.10% 37.16% 36.43% 32.88%

NII 5092.99 7879.53 12469.30 16861.89 22086.09

Growth% 54.1% 54.71% 58.25% 35.23% 30.98%120 0

130.0

140.0

g ) / p gcycle. (refer page 28)

Net Profit 3,038 4,777 7,271 9,561 12,087

Growth% 51.90% 57.24% 52.22% 31.48% 26.42%

EPS 10.23 14.06 20.95 26.91 33.55

P/E * 27.66 20.12 13.51 10.52 8.44

NIM% 2.70% 2.80% 2.80% 2.53% 2.61%

ROE (Reported till FY11) 20.70% 20.3% 21.7% 20.93% 21.59%

NNPA% 0.33 0.06 0.03 0.09 0.06

70.0

80.0

90.0

100.0

110.0

120.0

Yes Bank SENSEX

Microsec Research

* All prices as on 17th June’11 Source: Company, Microsec Research

BV 54.69 90.95 109.29 128.54 155.41

P/BV* 5.17 3.11 2.59 2.20 1.82

Adj.BV 53.99 90.25 108.59 127.84 154.71

P/Adj. BV * 5.24 3.14 2.61 2.21 1.83

Analyst – Abhisek Sasmal91-033-3051-2175

[email protected]

20th June’2011

Company Background

Yes Bank limited (YBL), incorporated in 2003 by Rana Kapoor and Late Ashok Kapur, is a new age privatesector bank. It is the only bank that has been awarded a greenfield license by the Reserve Bank of India (RBI)in the last 16 years. YBL offers a full range of products and services in areas of corporate and institutionalbanking, financial markets, investment banking, corporate finance, business and transaction banking, retailand wealth management across India.

The bank is part of global thought leadership forums like the Clinton Global Initiative (CGI), Triple BottomLine Investing (TBLI) and Tallberg Forum. Recently, it became the first Indian Bank to become a signatorywith the United Nations Environment Programme (Financial Initiative).

Yes Bank has partnered with various companies for delivering quality products and services namely CashTech, Cisco Systems, Gartner, Intel, i-flex, Reuters, VSNL, Wipro, De La Rue, Murex, Wincor Nixdorf andSanovi.

This new age private bank has global institutional investors like Rabobank, Franklin Templeton, AIF Capitaland Fidelity, amongst others

Received RBI license for commercial banking

IncorporationLaunch of financial market business

Maiden public offering of equity shares by the bank

Shares issued at premium of Rs 259.5 to QIBs

NOV’03 MAY’04 AUG’04 SEP’04 OCT’04 JUNE’05 AUG’07 JAN’10

Source: Company website

Launch of Corporate and Business banking

Launch of Transaction

Banking business

Launch of Yes International Banking

Microsec Research

3

20th June’2011

Key Management Personnel

Name Designation Previous Assignment

Rana Kapoor Founder/ Managing Director & CEO Managing Partner / CEO & Managing Director - Rabo India, Bank of America (16 years)

Rajat Monga Group President – Financial Markets & CFO Head of Treasury - Rabo India

Varun Tuli Group President – Branch Banking Executive Director and Country Head - Avigo Capital Partners/ Bank of America

Sumit Gupta President – Commercial Banking Associate Director & Head (North) - Rabo India

Arun Agrawal President & Global Head – International Banking General

General Manager – ICRA

Surendra Jalan President – Indian Financial Institutions AGM AGM, Corporate Banking - ICICI Bank

Somak Ghosh Group President– Corporate Finance and Development Banking

Director – Project Advisory & Infrastructure Mgmt - Rabo India

S h S hiGroup President –Transaction Banking Group, Global Transaction Services Head - Caribbean, Central & Latin America,

Suresh Sethi p g p,

International Banking, Liabilities Product Mgt. , ,

Citibank

Aditya Sanghi President & Sr. Managing Director – Investment Banking

Executive Director, Head of Mergers & Acquisitions - Rabo India

Kavita Venugopal Group President and Chief Risk Officer Executive Director

Investment Banking, Kotak Mahindra Capital Company

Alok Rastogi President & Chief Operating Officer Citibank N.A.

Equity History

Particulars Issues Total amount raised

(INR Mn) Equity Capital

(INR Mn) Equity Dilution

(%)

5-Jul-05 IPO at INR 45 per share 3150 2700 35%

22-Dec-06Private placement of 10 Mn shares at INR 120 to Swiss Reinsurance

1200 2800 4%

7-Dec-07Private placement of 14.7 Mn shares at INR 225

Gl b l T i d F d P L d3308 2947 5%

Equity History

Strong Institutional holding

to Global Tamarind Fund Pte Ltd

27-Jan-10 Issuance of 38.36mn shares to QIBs at INR269.5 1033.8 3386.3 13%

Name % of Shares as on Mar'11

American Funds Insurance Series Growth Fund 4.92

HSBC Bank Mauritius Ltd A/c HSBC IRIS Investments Mauritius Ltd 4.84

RaboBank International Holding BV 4.81

Titiwangsa Investments Mauritius Ltd 4.23

SmallCap World Fund Inc 3.82

Morgan Stanley Mauritius Company Ltd 2.27

Lif I C i f I di 1 92

Microsec Research

4 Source: ACE Equity, Company website

Life Insurance Corporaiton of India 1.92

JP Morgan Funds 1.61

Deutsche Securities Mauritius Ltd 1.35

Franklin India Prima Fund 1.03

20th June’2011

YES Bank – Launch Pad – Version 2.0 (the take off )

At the end of Mar'11At the end of Mar'15

(Target)Implied CAGR%

Advances (INR Bn) 343.64 1000.00 30.60%

Deposits (INR Bn) 459.39 1250.00 28.42%

Balance sheet Size (INR Bn) 590.07 1500.00 26.24%

Branches 214 750 36.77%

Employees 3990 12000 33.40%

NIM% 2 8% 4 0%NIM% 2.8% 4.0%

RoE% (reported) 21.70% 22-24%

RoA% 1.52% 1.6-1.75%

Relationship / Product Matrix – to support growth

Microsec Research

5 Source: Company website

20th June’2011

Business Momentum to continue

YBL’s loan book has grown at a CAGR of 52.9% over the last 5 years, which is well above the averageindustry growth rate during the same time period. Higher than industry growth led to a consistentimprovement in market share for the bank. Market share stood at ~0.92% in FY11 as compared to 0.33% inFY07 G i h d h b k i i hi h h h f h i d d

Investment rationale

FY07. Going ahead we expect the bank to continue growing at a pace higher than that of the industry andhave factored in a CAGR of 28% for FY11-13. The growth will be well supported by aggressive branchexpansions, more penetration in the larger corporate segment & retail segment of the loan book. YESbank’s loan book growth aspiration (Version 2.0) is mainly driven by 1) increasing market share and 2)putting revenue growth ahead of increasing cost. However in the long run, this approach from YBL maychange due to the need of faster improvements in some key metrics where its lags its larger peers.

749.03 400.0%800.00 Strong business growth

459.39

343.64

562.88

150 0%

200.0%

250.0%

300.0%

350.0%

300 00

400.00

500.00

600.00

700.00

0.0%

50.0%

100.0%

150.0%

0.00

100.00

200.00

300.00

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

D i (INR B ) Ad (INR B ) Y Y D G h% Y Y Ad G h%Deposits (INR Bn) Advances (INR Bn) YoY Dep. Growth% YoY Adv. Growth%

216

161

200

250

20 0%

25.0%

30.0%

35.0%

300

350

400Above industry loan growth from Inception Seasonal weakness in loan growth started to get visible

161

5032

7960

30 26

0

50

100

150

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

0

50

100

150

200

250

Microsec Research

6

Source: Company, Microsec Research

FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Industry Loan growth% YES Bank's Loan Growth% Loan Book (INR Bn) gr% (RHS)

20th June’2011

Yes Bank currently has a branch count of 214 across 164 cities. It has 91 branch licenses and plans toexpand its reach to 250 branches by Q1’FY12 and to 325 branches by Q4’12. With initial focus inliability rich regions of North and West India (75% of branches), the bank now plans for a pan-Indiapresence. The new roll-outs are targeted at improving the SME and retail franchise. The bank plansto roll out 150 branches in South with in two years time. The metro centers are likely to have over30 branches each in the next few years. YES bank has separate team looking after the inclusive or

Branch Expansion strategy – well fit to the overall business model

social banking model (a combination of bricks & Mortar and technology-enabled branches) in Tier-3to Tier-6 segments of agri-rich Maharashtra, Gujarat, Rajasthan, Haryana, UP & MP. “Low cost –Rapid launch” branches are mapped out for Tier-3 to Tier-6 cities. The branch addition and thrust onretail deposits will help shore up CASA franchise.

YES bank uses “Hub and Spoke” model for faster maturity and greater efficiency of branches. Thisapproach has in-turn reduced IT and infrastructure spends. Also, with timely break-even in keybranches, cost-to-income for the bank has declined substantially from 53% in FY07 to 36% in FY11.

exp

ansi

on

. o

ck w

ise

South

East

10%

Branch Concentration

Pan

In

dia

Bra

nch

P

rio

rity

an

ti-c

l o

North

50%

West

25%

15%


Advances Segmentation Clients Typical Exposure% Share of Loan

BookComments

Corporate & Institutional banking

Above INR 20Bn INR 500 -2000 Mn 65.6%Very low credit cost, strong asset

quality

Commercial Banking > 2Bn & <= 20Bn INR 100-500 Mn 22.5% Medium risk segment

Microsec Research

7

Branch Banking <= 2 Bn INR 20-100 Mn 11.9% High yield & High risk segment


20th June’2011

Commercial

banking, 22.50

%

Branch

Banking, 11.90

%Infra & Logistics

23%

Food & Agri

Others

18%

Break up of advances based on knowledge based sectors (Q4’11)Break up advances (Q4’11)

Corporate &

Institutional

Banking, 65.60

%

Engineering

22%

Healthcare

5%

TMT

14%

businesses

18%


5%

8%

Q4'09

5%

Q4'10

12%

Q4'11

63%

29%

69%

26%

66%

22%

Corporate & Institutional Banking Commercial banking Branch Banking

22 70%25%

22%25%

30%

35% Focus on knowledge banking

16%15%

20.70%22.70%

18%17% 19.10%

21.70%22%

16.90%18.10%

5%

10%

15%

20%

25%

Microsec Research

8 Source: Company, Microsec Research

0%

Q4'08 Q4'09 Q4'10 Q4'11

Infra & Logistics Engineering Healthcare TMT Food & Agri businesses Others

20th June’2011

Knowledge banking – a key differentiator

YES bank's competence in terms of using high-end technology, its 'knowledge banking'approach, and emphasis on highly qualified human resources helped it to differentiate itself fromother private banks in an increasingly commoditized market. In particular, its knowledge bankinginitiative drew a lot of interest. In the initial phase, the bank planned to target those sectors wherethe bank has a deep understanding of the industry. The bank has a team of investment banking

f i l h h h d i i d i i l i i d M&A b i Thprofessionals that have hands-on expertise in advisory, capital raising and M&A businesses. There aresector specialists that understand a particular sector and know the business intricacies to structuresuperior solutions from a banking perspective.

Skilled people

Knowledge banking

Superior technology

p p

banking

Unique Technology Proposition

Edu Background (FY10) Work exp (Yrs) (FY10)

High pedigree Human Capital

G dMBAs

CA/C

S

6%LLB

1%

0-1

16%6-10

20%

11-15

4%

16-20

1%

> 21

0%

Gradu

ates

50%

PG

7%

MBAs

36%

2-5

59%

Microsec Research

9


20th June’2011

CASA augmentation remains the key

YES bank’s deposit base grew 5.6x within 5 year’s time, registering a CAGR of 53.75% over FY07-FY11 mainly due to base effect. However, the bank has historically relied more on wholesaledeposits to ramp up loan growth. In addition, relatively lower branches (most of the branches beingnew) impacted the CASA mobilization of the bank. Yes Bank's proportion of low cost deposits(CASA) is amongst the lowest in the Industry. However, in absolute numbers CASA has grown at78% CAGR d i FY07 FY11 Y B k i l ki d i l f l d b h i

B2B2C Strategy

Identifying current account rich

corporate customers

78% CAGR during FY07‐FY11. Yes Bank is looking to derive value from planned branch expansionand increase penetration to improve its CASA ratio. Management wants to increase the CASA shareto 30% by FY15. However, we expect a gradual improvement in the YBL’s CASA ratio from current10.3% to 12.5% till FY 2013. FY13 onwards, CASA mobilization may gain higher momentum asalmost 60% of the branches likely to cross breakeven productivity by then. The CASA share maythrow some positive surprises if the overall balance sheet growth lags the CASA growth. We expectCASA deposits to grow at a CAGR of 48.6% over FY10‐FY13. Of the incremental accretion todeposits, we expect the CASA contribution at 15.8% between Mar’11 to Mar’13.

Offering them salary a/c and various other wealth management

products

Offering them superior cash management & liquidity

40%

50%

60%

70%

80% Above industry deposit growth

management & liquidity management solution

including a SB a/c

Tied up with the corporates to tap a rich source of

references

18%19%

27% 28%

0%

10%

20%

30%

FY08 FY09 FY10 FY11 FY12E FY13E

Industry Deposit growth% YES Bank's Dep. Growth%

With larger share of Currentaccount in YBL’s overallCASA, economically the valueof this 10% CASA is comparableto any bank which has 15-16%


y p g p

39.50%

30%

35%

40%

45%

Dependence on wholesale deposits – may put NIMs under pressure in an increasing rate scenario

to a y ba c as 5 6%CASA with more share fromSA. Thus any event related tosavings bank rate de-regulationwill be structurally positive forthis bank.

13.20%

7.50%

12.10% 10.90%

6.40%

10.30%

0%

5%

10%

15%

20%

25%

30%

C b h G C i i l CASA

Microsec Research


FD - Corp

banking

FD - branch

banking

FD -

Commercial

banking

FD- Govt CDs Institutioanl

Deposits

CASA

Q4'09 Q4'10 Q4'11

20th June’2011

214

275

350

40

50

60

70

80

200

250

300

350

400 Strong Branch expansion

1740

67

117

150

0

10

20

30

40

0

50

100

150

200


YES bank’s newer branches arereaching the critical inflexionpoint where they can attractmore customers due to theirreach & faster productivity


No of branches Expansion (RHS)

10 00%

12.00%

14.00%

250.0

300.0

reach & faster productivity.More and more newer branchesare coming up in Tier-2 & Tier-3 cities. These branches willreach break even faster thantheir Urban peers due to lowercost and less competition. Allthese will led to faster CASAmobilization in branch levelwith faster improvement for

CASA mobilization per branch on the rise

2.00%

4.00%

6.00%

8.00%

10.00%

50.0

100.0

150.0

200.0with faster improvement forCASA/branch.


0.00%0.0


CASA per branch (in Mn) CASA%

FY07 FY08 FY09 FY10 FY11 FY12E FY13E CAGR%

CA 4158.9 9821.3 12197.5 24271.6 39338.3 53750.5 74379.0 61.72

SA 579.8 1465.3 1920.6 3909.9 8170.4 12375.0 19250.0 79.30

Term Deposits 77465.3 121445.0 147576.1 239804.1 411880.7 519055.7 655402.9 42.74

Microsec Research

11


20th June’2011

Favorable asset liability mismatch gives support to NIMs

Lower CASA has been well compensated by a positive asset liability mismatch in longer term assets.Only 10% of the assets have fixed rate, which means it can raise lending rates quickly when faced witha liquidity squeeze. Longer term assets are mostly financed by borrowings (~76%) mainly term loans.The bank has ample liquidity in the form of short term deposits to finance its shorter term assets (< 1yr). The average tenure of deposit base is about 21 months and loans about 18 months which means

90%

FY10

75.80%80.0%

FY10

y ) g pfaster maturity of asset than liabilities.

Longer term advances funded by borrowings

21 50%

78.50%

30%

40%

50%

60%

70%

80%

30.0%

40.0%

50.0%

60.0%

70.0%

13.70%

21.50%

0%

10%

20%

Advances maturing

3Yrs and above

Infra Exposure Term Loans

8.90%13.70%

0.0%

10.0%

20.0%

3YR+ Dep. as % of 3YR

+ adv

3YR+ Borr. as % of

3YR+ adv

3YR+ Adv. as a %of

total adv

70%

80%

90%

100%

26%33.50%

16.60%7.90%

0.40%5.80%0.60%

60%

70%

80%

90%

100%

Positive ALM mismatch

10% 10.50%

90% 89.50%

0%

10%

20%

30%

40%

50%

60%

27.80%38.10%

7.70%

18.30%17.30%

0%

10%

20%

30%

40%

50%

60%

Microsec Research

12


Assets Liabilities

Fixed Floating

0%

Advances Deposits

< 3 mnths 3-6 mnths 6-12 mnths 1-3 yrs 3-5 yrs > 5 yrs

20th June’2011

Margin scenario – strong pricing power may support NIMs

YES bank is mostly a wholesale funded bank (refer page 10). Due to the recent hike in retail depositrates and with wholesale deposit rates at about 10.02% currently, the bank’s cost of funds has increased.The incremental cost of funds is 50-100bps higher currently, compared with the overall cost of funds inDecember 2010. However, we believe this cost increase is likely to be mitigated (to an extent) by a 200bps increase in the prime lending rate (PLR) and a 50 bps rise in the base rate (Yes Bank increased itsPLR by 50 bps in August 2010 September 2010 December 2010 and May 2010 The PLR is 18 5% andPLR by 50 bps in August 2010, September 2010, December 2010 and May 2010. The PLR is 18.5% andthe base rate at 9.5% currently). The impact of increasing SB rate by 50 bps will be limited to only 1 bpsincrease in cost of funds, however the increase in base rate and PLR will enable the bank to partiallyabsorb the increased cost on account of rising interest rates. However, further interest rate hike by RBIwill put pressure on its NIMs with a lag as more and more deposits will re-priced later.

6

8

10

12

14

16

8

10

12

14

16

18

Short-term interest rate on the rise – making wholesale deposit costly

0

2

4

6

CP 3month CP 6month CP 12 month

0

2

4

6

CD 3month CD 6month CD 12month

Rise in cost of funds pressurizing NIMs

11.84%

13.63%

10.24%10.57%

11.27%11.30%

10.00%

11.00%

12.00%

13.00%

14.00%

15.00%

2.60% 2.70%2.80% 2.80%

2.53%2.61%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Microsec Research


1.00%

FY08 FY09 FY10 FY11 FY12E FY13E

% yield on advances % yield on investments Cost of deposits% Borrowing cost% NIM%

20th June’2011

Strong core operating income growth & diversified fee revenue

YBL’s total income grew strong at a CAGR of 58.8% over FY06-FY11. This is well supported by69.88% CAGR growth in Net Interest Income (NII) & 45.1% CAGR growth in Other Income over thesame period. The dependence on other income (OI/TI) has come down from over 50% in FY05 to33.3% in FY11. Fee income constitute almost 95% of the other income. Fee income is mainly drivenby transaction banking & financial advisory (investment banking and project advisory). We may see

h d i i fi i l k ( i l i ) i i dsome growth moderation in financial market (mainly treasury income) in coming quarters due tosubdued market and rising bond yields. With increasing branch expansion, increasing focus on retailassets and stabilization of new branches, we may see contribution of branch banking in fee income toincrease. Overall, we expect the core income for YES bank to outpace the other income during FY10-FY13. We are expecting Total income, NII & Other income to register a CAGR of 35.5%, 41.1% and27.1% respectively over FY10-FY13.

In Mn

Core operating Income outpacing non-core income

In Mn

200 0%

250.0%

300.0%

350.0%

400.0%

450.0%

500.0%

1 000 0

20000.0

25000.0

30000.0

35000.0

40000.0

0.0%

50.0%

100.0%

150.0%

200.0%

0.0

5000.0

10000.0

15000.0

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E

NII Other Income Total Income NII Gr% Other Income Gr% Total Income Gr%

600 0

700.0

800.0

900.0

In Mn

Break up of Fee Income

100.0

200.0

300.0

400.0

500.0

600.0

Microsec Research


0.0

Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11

Transaction Banking Financial Markets Financial Advisory Branch Banking fees and others

20th June’2011

Fee Income compositionFY15

FY11 Share Target Drivers

Financial Advisory 45.3% 30% Primarily IB and debt syndication. Will moderate, going forward

Financials markets 14.5% 30% Fx/derivatives/rates. Driven by strong corporate relationships.

Transaction banking 31.4% 30%A key driver of growth, going forward, given the branch scale building up

Branch banking 8.8% 10%Insurance and MF – growth because of low base and expanding reach, despite challenging environmentreach, despite challenging environment

Knowledge Sectors Clients segment Credit products Financial Markets Transaction Banking Advisory Services

Food & Agri Agro Chemicals √ √ √ √

Unique cross selling opportunities give multiple & diversified revenue streams

Life Sciences Drugs √ √ √ √

Engineering Electric comp. √ √ √

TMT IT/Telecom √ √ √ √

Infrastructure Wind Energy √ √ √ √


44.13%45.00%

50.00%

% Share of Fee income to Total Income (FY11)

31.38%

33.90%

24.02%25.00%

30.00%

35.00%

40.00%

Microsec Research

15

20.00%

YES Bank Axis Bank HDFC Bank ICICI Bank


20th June’2011

Cost efficiency one of the best in the industry

In comparison with its peer group, YES bank enjoys one of the leanest cost structure which is onaccount of better business productivity per employee, unique technology proposition. Over the pastfive years, bank has successfully reduced its cost ratio from 52.88% to 36.35% in FY11. Goingforward, we expect this ratio to stabilize at 38‐40% levels with its aggressive hiring and branchexpansion plans. Yes bank has also improved its cost/assets by 86 bps over FY08-11, mainly due to

Cost to Income ratio

p p p y p ybetter utilization of its infrastructure. These offset its low CASA and somewhat laggard NIM.Productivity ratios of the bank remain as one of the best, regardless of having large number ofbranch and employee additions every year. Most of the bank's branches are comparatively new andyet to pick up in terms of productivity. Management indicates that increase in productivity (newerbranches to matured branches) will limit the upside in cost in coming years.

39.75%

45.0%

55.0%

36.35%

38.00%

25.0%

35.0%


58.20% 60.71% 59.33%52.09% 51.36% 53.30%

60%

70%

80%

90%

100%

Staff cost rationalization helped overall cost efficiency

19.87% 18.23% 19.76% 22.12% 22.05% 18.74%

13.30%13.95% 14.79%

18.24% 18.38%19.80%

0%

10%

20%

30%

40%

50%

60%

Microsec Research

16Source: Company, Microsec Research

FY06 FY07 FY08 FY09 FY10 FY11

Other exp% Depreciation cost% Ad sales& Promotional expenses% Administative expenses % Staff cost%

20th June’2011

140

160

180

200

Assets/Employee (INR Mn)

2.00%

2.50%

Cost/Assets (%)

20

40

60

80

100

120

0.50%

1.00%

1.50%

70

80

90

60

70

0


0.00%


Employee productivity on the rise

2.5

16.0

18.0

20

-10

0

10

20

30

40

50

60

70

0

10

20

30

40

50

0 0

0.5

1.0

1.5

2.0

0 0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-200


Employee/Branch Incr Empl/Bran (RHS)

2 40%

3.00%

Cost/Assets% (FY11)

42.70% 42 24%

47.90%

45 00%

50.00%Cost/Income% (FY11)

0.00.0


Business per Employee Profit per Employee(RHS)

1.15%

1.96%

1.63%

2.40%

0.50%

1.00%

1.50%

2.00%

2.50%

36.35%

42.70% 42.24%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Microsec Research

17Source: Company, Microsec Research

0.00%

0.50%

YES bank Axis Bank ICICI Bank HDFC Bank

10.00%

15.00%

YES bank Axis Bank ICICI Bank HDFC Bank

20th June’2011

Asset quality one of the strongest in the industry

Due to higher credit exposure to the corporate segment, YES bank enjoys one of the best assetquality in the industry. During FY05‐07, YBL hasn’t reported any slippages, however in FY08, itreported its first GNPAs of 0.1% and currently it stood at 0.21%. Restructured assets as a % of grossadvances improves from 0.36% in Q4’10 to 0.24% in Q4’11. Exposure to troublesome MFI sectorstood at INR 4500 Mn which is less than 1.5% of the total loan book. Also, YBL does not have any

h 2G l F h d ’ i f RBI’ l i dexposure to the new 2G players. Further, we don’t see any impact of RBI’s recently revised normsfor provisioning. However, higher provisioning for restructured assets may dent FY12 expected PBTby 0.08% to 0.11% (Microsec Internal calculation).

However with increasing focus on SME & retail segment we may see a spurt in slippages goingforward. Secondly, it will be hard for the bank to improve upon its GNPA % NNPA% further in thisincreasing rate scenario. Nevertheless it is noteworthy to mention, that even after factoring in anincrease in NPAs it still remains low as compared to its peer group. YBL’s provision coverage ratiostood at health 88 6% as on March’11

60%

70%

80%

2000

2500

0.6

0.7

0.8

0.9 Credit Cost%

stood at healthy 88.6% as on March 11.

Strong asset quality

0%

10%

20%

30%

40%

50%

0

500

1000

1500

0

0.1

0.2

0.3

0.4

0.5

FY09 FY10 FY11 FY12E FY13E

GNPA (Rs m) NNPA (Rs m) GNPA Ratio (RHS) NNPA Ratio (RHS)

90.0

100.0

Provision Coverage Ratio


1.21700Restructured assets

10 0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

0.2

0.4

0.6

0.8

1

700

900

1100

1300

1500

Microsec Research


0.0

10.0


0500

Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11

Total Restructured Assets (INR Mn) % Gross Advances (RHS)

20th June’2011

Capital issuance critical for growth

YES bank has adopted a capital raising in every 1.5-2 years of operation from FY08. Currently YES bankis adequately capitalized with Capital Adequacy Ratio (CAR) stood at 16.7% at the end of March’11.Bank has raised capital of INR 3386 Mn by issuing shares to QIBs at INR 269.5 per share in Jan’10diluting 13% stake. Further management is expected to raise funds to the tune of USD500 Mn (INR22500 Mn) through an American Depository receipt by the end of FY12. However due to the subdued) g p y p ydomestic & overseas capital market, the bank may defer its plan till H1’FY13. This gives the bankenough issuance window to raise capital at a reasonable price. However, We have not factored in thecapital raising plan by the bank in our estimates for FY12 & FY13.

Capital raising once in every two years from FY08

15

20

25In Mn

20000

25000

30000

35000

40000

Capital raising once in every two years from FY08Adequate capital for sustainable growth

0

5

10

0

5000

10000

15000

20000


0


CAR (%) Tier 1 (%)

FY06 FY07 FY08 FY09 FY10 FY11

Networth Capital Raised

Microsec Research

19

20th June’2011

Strong RoE(Cal) despite regular capital raising. RoAs may come down under pressure due to increase in cost/assets & Loan loss provisions (LLPs)

1.70%

20.00%

25.00%

1.40%

1.50%

1.60%

5.00%

10.00%

15.00%

20.00%

RoA Decomposition FY09 FY10 FY11 FY12E FY13E

1.30%0.00%


RoE% RoA% (RHS)

RoA Decomposition FY09 FY10 FY11 FY12E FY13E

Yield on Assets 10.04% 7.99% 8.47% 8.97% 9.00%

Less: Cost of Assets 7.48% 5.34% 5.86% 6.43% 6.39%

Net Interest Income 2.55% 2.66% 2.61% 2.53% 2.61%

Other Income 2.19% 1.94% 1.31% 1.30% 1.39%

Less: Operating Exp 2 10% 1 69% 1 43% 1 46% 1 59%


Less: Operating Exp 2.10% 1.69% 1.43% 1.46% 1.59%

Less: Provisions 0.31% 0.46% 0.21% 0.20% 0.25%

Less: Tax 0.81% 0.84% 0.77% 0.74% 0.73%

RoA 1.52% 1.61% 1.52% 1.44% 1.43%

Microsec Research

20

20th June’2011

Particulars (In Mn) Yes Bank ICICI Bank HDFC Bank Axis Bank ING Vysya Bank Indusind Bank

Net Interest Income* 12469.20 90169.00 105431.30 65629.90 10065.20 13764.90

CAGR Growth (5 yrs) (%) 64.25 7.97 29.84 43.15 16.73 50.07

PAT* 7271.30 51513.80 39263.90 33884.90 3186.50 5773.20

CAGR Growth (5 yrs) (%) 66 61 13 44 36 18 50 58 37 59 70 56

Peer Analysis

CAGR Growth (5 yrs) (%) 66.61 13.44 36.18 50.58 37.59 70.56

EPS* 20.95 44.72 84.40 82.54 26.34 12.39

BVS** 109.30 451 541 441.00 208.3 80.08

Deposits (in bn)** 459.39 2256.02 2085.86 1892.38 301.94 343.65

Advances (in bn)** 343.64 2163.66 1599.83 1424.08 236.02 261.66

No of Branches** 214 2529 1825 1390 500 245

Mkt Cap (in bn) 104.5 1251.09 1112.62 526.40 41.10 123.01

Key Ratios

CASA%* 10.34 45 52.7 41.1 34.6 27.2

SA%* 1.8 29.6 30.4 21.6 17.7 8.9

NIM (%)* 2.8 2.6 4.2 3.7 2.85 3.5

GNPA (%)** 0.23 4.47 1.05 1.01 2.30 1.01

NNPA (%)** 0.03 1.11 0.20 0.26 0.39 0.28

Restructured Assets % 0.2 1.2 0.3 1.4 0.3 0.3

PCR(%)* 88.6 76 83 81 83.4 72.6( )

CAR (%)* 16.5 19.54 16.2 12.65 12.94 15.89

Mkt Cap / Branch (in bn) 0.49 0.49 0.61 0.38 0.08 0.50

Div Yield (%) * 0.84 1.29 0.69 1.10 0.87 0.76

ROA (%)* 1.5 1.3 1.6 1.6 1.0 1.3

ROE (%)* 21.0 11.0 17.0 19.0 12.0 14.6

Valuations

Price 298 1085 2389 1275 345 3 264Price 298 1085 2389 1275 345.3 264

P/E 14.23 24.26 28.31 15.45 13.11 21.31

P/BV 2.73 2.41 4.42 2.89 1.66 3.30

P/E (5 YR Avg) 22.90 23.90 29.48 21.34 15.98 23.72

P/BV (5 YR Avg) 3.55 2.48 4.93 3.33 1.81 2.36

Prem/(Disc) on P/E (8.67) 0.36 (1.17) (5.89) (2.87) (2.41)

Prem/(Disc) on P/BV (0.82) (0.07) (0.51) (0.44) (0.15) 0.94

Return summary 1M 3M 6M 12M

Axis Bank Ltd. -0.58% 4.47% -6.53% 2.87%

HDFC Bank Ltd. 4.18% 16.52% 4.33% 24.74%

ICICI Bank Ltd. -2.54% 11.84% -5.04% 25.99%

IndusInd Bank Ltd. 1.52% 20.25% -9.36% 28.78%

ING Vysya Bank Ltd -2 01% 11 98% -17 13% -6 06%

Microsec Research

21

* As on Mar’11, ** TTM, Prices as on 1st June’11 Source: Company, ACE Equity Microsec Research

ING Vysya Bank Ltd. -2.01% 11.98% -17.13% -6.06%

Yes Bank Ltd. -1.56% 17.12% -1.86% 11.59%

20th June’2011

On the footsteps of leaders

YES Bank Axis Bank HDFC Bank

CAGR% Initial (99-01) Matured (09-11)

NII 85.5 19.2

PAT 59.7 32.2

Depsts 99.9 20.8

CAGR% Initial (98-00) Matured (09-11)

NII 64.47 33.43

PAT 70.02 36.6

Depsts 44.71 26.97

CAGR% Initial (06-08)

NII 93.6

PAT 90.0

Depsts 113.1

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

CASA%

40.0%

50.0%

60.0%

70.0%

CASA %

p

Advan 81.2 27.2

p

Advan 46.8 16.8Advan 97.5

6.00%

8.00%

10.00%

12.00%

CASA%

0.0%

5.0%

10.0%

15.0%

20.0%

5.0%

120 0%

140.0% 120.0%

0.0%

10.0%

20.0%

30.0%

0.00%

2.00%

4.00%

500.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

0.0%

100.0%

200.0%

300.0%

400.0%

NII G% PAT G% EPS G%

20 0%

40.0%

60.0%

80.0%

100.0%

120.0%

50.0%

100.0%

150.0%

200.0%

NII G% PAT G% EPS G%NII G% PAT G% EPS G%

100.0%150.0%200.0%250.0%300.0%350.0%400.0%

Microsec Research


0.0%

20.0%

Deposits G% Advances G% ABV G%

0.0%

Deposits G% Advances G% ABV G%

0.0%50.0%

Deposts G% Advan G% ABV G%

20th June’2011

Stock Cues

STK EXCHANGE Deal Date Client Name Transaction Qty ('000) Trade Price (INR) Value (INR Bn)

NSE 20-Jan-11 DIRECT INVESTMENT LIMITED SELL 1945 273.90 0.53

NSE 13-Jan-11 MORGAN STANLEY MAURITIUS COMPANY LTD BUY 4830 265.07 1.28

NSE 13-Jan-11 TAMARIND FUND PTE LIMITED SELL 8075 265.15 2.14

NSE 13-Jan-11 MORGAN STANLEY MAURITIUS COMPANY LTD SELL 154 269.06 0.04

NSE 30-Dec-10 MORGAN STANLEY MAURITIUS COMPANY LTD BUY 1802 308.64 0.56

BSE 22 J 10 LIFE INSURANCE CORPORATION OF INDIA BUY 6250 263 00 1 64

Bulk Deals

BSE 22-Jun-10 LIFE INSURANCE CORPORATION OF INDIA BUY 6250 263.00 1.64

BSE 22-Jun-10 RABOBANK INTERNATIONAL HOLDING B V SELL 31050 263.33 8.18

BSE 22-Jun-10CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED

BUY 3065 263.00 0.81

NSE 22-Jun-10 RABOBANK INTERNATIONAL HOLDING B V SELL 6250 263.40 1.65

BSE 09-Dec-09 NATIONAL PENSION SERVICE BUY 1812 266.00 0.48

BSE 05-Jun-09 FRANKLIN TEMPLETON MUTUAL FUND BUY 1500 135.00 0.20

BSE 05-Jun-09 MAGS FINVEST PVT LTD SELL 2000 136.63 0.27

NSE 05-May-09 RUSSELL AIF CAPITAL INC SELL 2200 83.45 0.18

NSE 22-Apr-09 ABHI AMBI FINANCIAL SERVICES LTD BUY 2453 82.52 0.20

BSE 22-Apr-09 ABHI AMBI FINANCIAL SERVICES LTD BUY 1640 84.62 0.14p

20 00

30.00

40.00

50.00

60.00

Avg Deliverable Volume on NSE (Monthly)%

60

80

100

120

Hist Volatility (60D) - Volatility increases in the last 6 months

0.00

10.00

20.00

30-Apr-07 30-Apr-08 30-Apr-09 30-Apr-10 30-Apr-11

% of shares Q4'11 Q3'11 Q2'11

Insurance Companies 4.75 3.63 4.25

Yes Bank Ltd. MF Holdings Hold Percentage (%)

Fund Name May-11 Apr-11 Mar-11 Feb-11 Jan-11

Baroda Pioneer Mutual Fund 0.00 0.33 0.73 0.62 0.63

JPMorgan Mutual Fund 0 00 3 97 2 60 2 25 0 00

20

40

3-Dec-07 3-Jun-08 3-Dec-08 3-Jun-09 3-Dec-09 3-Jun-10 3-Dec-10 3-Jun-11

Insurance Companies 4.75 3.63 4.25

Foreign Institutional Investors 45.54 45.6 47.12

JPMorgan Mutual Fund 0.00 3.97 2.60 2.25 0.00

UTI Mutual Fund 0.00 0.35 0.52 0.63 0.68

Bharti AXA Mutual Fund 0.00 0.74 1.46 1.26 1.07

Axis Mutual Fund 0.00 1.97 1.87 0.00 NA

Benchmark Mutual Fund 2.01 0.00 2.32 2.00 2.13

Birla Sun Life Mutual Fund 2.04 1.32 1.74 1.39 0.00

DSP BlackRock Mutual Fund 1.03 1.02 0.73 0.65 0.64

Franklin Templeton Mutual Fund 1.14 1.50 2.03 1.90 1.97

ICICI Prudential Mutual Fund 1.99 2.12 2.19 2.00 1.97

IDBI Mutual Fund 2 10 2 14 2 31 2 11 2 02

50% of AMCs has increased its stake in YESbank as on May’2011.

Most of the bulk deals in the recent pasthappened around the 260-270 price range. It IDBI Mutual Fund 2.10 2.14 2.31 2.11 2.02

IDFC Mutual Fund 2.90 2.67 1.89 2.66 2.21

ING Vysya Mutual Fund 2.07 3.07 1.75 1.73 1.68

JM Financial Mutual Fund 4.29 4.01 5.59 0.00 4.14

Kotak Mahindra Mutual Fund 1.29 1.07 1.11 1.05 1.14

L&T Mutual Fund 3.11 1.67 1.87 2.46 2.56

LIC Nomura Mutual Fund 1.07 1.05 1.07 0.96 0.94

Mirae Asset Mutual Fund 1.16 0.87 0.90 0.81 1.08

Motilal Oswal Mutual Fund 2.30 2.29 2.35 2.04 0.00

Principal Mutual Fund 1.22 1.20 1.22 1.06 1.04

pp p gmay act as a key accumulation zone for longterm investing.

FII share has came down in last 3 quarters,which has been lapped up by domesticInsurance companies.

Stock price volatility in last rate hike and globalcrisis was very high which made this stock very

Microsec Research

23Source: Bloomberg, ACE Equity Microsec Research

Principal Mutual Fund 1.22 1.20 1.22 1.06 1.04

Religare Mutual Fund 2.11 1.47 1.14 1.01 0.00

SBI Mutual Fund 2.18 2.32 2.75 2.43 3.47

Sahara Mutual Fund 3.90 2.60 0.00 NA NA

Sundaram Mutual Fund 1.24 1.44 2.01 0.00 1.12

Tata Mutual Fund 1.21 1.21 0.00 NA NA

y g yrisky in that time. 60D(days) volatility is on therise in recent time.

Decline in deliverable volume makes the stockprice range bound in recent past.

20th June’2011

RoE Sensitivity (FY13E)Deposit growth%

22% 24% 26% 28% 30%

Loan growth%

20% 19.92% 19.52% 19.12% 18.72% 18.32%

22% 20.23% 19.83% 19.43% 19.03% 18.63%

24% 20.54% 20.14% 19.74% 19.34% 18.94%

26% 20.85% 20.45% 20.05% 19.65% 19.25%

28% 21.17% 20.77% 20.37% 19.97% 19.57%

RoE Sensitivity (FY13E)Slippage ratio%

1.50% 1.75% 2.00% 2.25% 2.50%

20% 21.01% 20.71% 20.39% 20.07% 19.76%

22% 21 26% 20 94% 20 62% 20 30% 19 98%

RoE Sensitivity (FY13E)Cost of deposits %

6.00% 6.50% 7.00% 7.50% 8.00%

Loan growth%

22% 21.26% 20.94% 20.62% 20.30% 19.98%

24% 21.51% 21.19% 20.87% 20.55% 20.23%

26% 21.76% 21.43% 21.11% 20.79% 20.47%

28% 22.02% 21.67% 21.35% 21.03% 20.71%

Yield on Advances%

10.00% 21.13% 19.37% 17.49% 15.45% 13.25%

10.50% 22.50% 20.80% 19.03% 17.11% 15.04%

11.00% 23.79% 22.23% 20.56% 18.76% 16.83%

11.50% 25.02% 23.54% 21.96% 20.27% 18.45%

12.00% 26.18% 24.78% 23.28% 21.69% 19.98%

FY13 ExpectedTarget Price Analysis

Bear Case Base Case Bull Case

Loan growth% 24.00% 26.00% 28.00%

Deposit growth% 26.00% 28.00% 30.00%

YoA% 10.50% 11.30% 11.50%

CoD% 7.50% 7.00% 6.50%

Slippage Ratio% 2.25% 2.00% 1.75%

BV 138.21 155.4 161.3

Target Multiple 2 2.5 2.75

Target (INR) 276 389 444

Microsec Research

24


Weightage (%) 35% 50% 15%

Final Weighted average Target Price INR 358

20th June’2011

Valuation & Recommendation

We re-initiate coverage on Yes Bank with a BUY rating. Our rating underpins YBL’s strong businessmomentum, diversified revenue stream, strong assets quality, positive asset liability mismatch, stronginstitutional holding, superior cost efficiency, unique technology proposition, high pedigree of HumanCapital, thrust on improving CASA driven by aggressive branch expansion plans and its superior andsustainable return ratios. However, heavy dependence on bulk deposits in a rising interest rate scenarioslightly impedes our optimism.

Valuation & Recommendation

At the CMP of INR 282 the bank is trading at 1.82x FY13E BV. YBL delivered RoE of over 20% andRoA of 1.5% for FY11. We further expect the bank to deliver RoE of 20%+, however we may see somepressure on RoA due to moderation in earnings growth going forward on the back of rising loan lossprovisions and rising cost of funds.

We have valued Yes bank on scenario model with different weightage given to each scenario andarrived at a weighted average target price of INR358 which is 2.3x its FY13E BV of INR 155.4. Ourrecommended target price is 27% above the current price. We expect this target price to be met with in18 months from the date of release of this report.

25000 0

30000.0

35000.0

40000.0

45000.0

5 00

6.00

7.00

8.00

9.00

+ 1 S.D.

Valuation not very cheap nor expensive – tracking long term mean

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

0.00

1.00

2.00

3.00

4.00

5.00

- 1 S.D.

700

800

900

1000

1200

P/BV(x) Avg 5yr P/BV Avg P/BV in the last late hike

+1 S.D. - 1 S.D. Volume (000's)RHS

P/BV Band P/E Band

0

100

200

300

400

500

600

0

200

400

600

800

Microsec Research

25 Source: Microsec Research, Bloomberg

Actual Price INR P/BV of 4.00 P/BV of 3.00

P/BV of 2.00 P/BV of 1.00

Actual Price INR P/E of 27.00 P/E of 21.00

P/E of 15.00 P/E of 9.00 P/E of 3.00

20th June’2011

Financials & Projections

Income Statement (INR Million)


Interest Income 20,014 23,697 40,417 59,672 76,246

Interest Expense 14,921 15,818 27,948 42,810 54,160

Net Interest Income 5 093 7 880 12 469 16 862 22 086Net Interest Income 5,093 7,880 12,469 16,862 22,086

Change (%) 54.10% 54.70% 58.2% 35.2% 31.0%

Non Interest Income 4,369 5,755 6,233 8,652 11,818

Net Income 9,462 13,635 18,702 25,514 33,904

Change (%) 36.90% 44.10% 37.2% 36.4% 32.9%

Operating Expenses 4,185 5,002 6,798 9,695 13,477

Pre Provision Profits 5,277 8,633 11,904 15,819 20,427

Change (%) 50 70% 63 60% 37 9% 32 9% 29 1%Change (%) 50.70% 63.60% 37.9% 32.9% 29.1%

Provisions (excl tax) 617 1,368 982.12 1,333 2,114

PBT 4,659 7,265 10,922 14,486 18,313

Tax 1,621 2,487 3,650 4,925 6,227

Tax Rate (%) 34.80% 34.20% 33.4% 34.0% 34.0%

PAT 3,038 4,777 7,271 9,561 12,087

Change (%) 51.90% 57.20% 52.2% 31.5% 26.4%

EPS (INR) 10 23 14 06 20 95 26 91 33 55EPS (INR) 10.23 14.06 20.95 26.91 33.55

Balance Sheet (INR Million)


Equity Share Capital 2,970 3,397 3,471 3,553.0 3,603.0

Reserves & Surplus 13,272 27,499 34,469 42,118 52,391

Net Worth 16 242 30 896 37 941 45 671 55 994Net Worth 16,242 30,896 37,941 45,671 55,994

Deposits 161,694 267,986 459,389 585,181 749,032

Change (%) 21.80% 65.70% 71.4% 27.4% 28.0%

Borrowings 37,017 47,491 66,909 80,291 96,349

Other Liabilities & Prov. 14,055 17,453 26,232 29,628 52,851

Total Liabilities 229,008 363,825 590,471 740,771 954,226

Current Assets 19,227 26,732 41,742 55,834 68,709

Investments 71,170 102,099 188,288 218,745 299,412

Change (%) 39.70% 43.50% 84.4% 16.2% 36.9%

Loans 124,031 221,931 343,636 446,727 562,876

Change (%) 31.50% 78.90% 54.8% 30.0% 26.0%

Fixed Assets 1,311 1,155 1,324 2,342 3,904

Other Assets 13 269 11 907 15 480 17 123 19,324

Microsec Research

26


Other Assets 13,269 11,907 15,480 17,123 19,324

Total Assets 229,008 363,825 590,471 740,771 954,226

20th June’2011

Financials & Projections

Ratios

Spreads Analysis (%) FY09 FY10 FY11 FY12E FY13E

% yield on advances 13.6% 10.2% 10.6% 11.3% 11.3%

% i ld i t t 8 2% 6 8% 7 1% 7 3% 7 3%% yield on investments 8.2% 6.8% 7.1% 7.3% 7.3%

Cost of deposits% 8.3% 5.8% 6.3% 7.0% 7.0%

Borrowing cost% 6.8% 6.4% 6.9% 7.6% 7.5%

NIM% 2.7% 2.8% 2.8% 2.5% 2.6%

Profitability Ratios (%) FY09 FY10 FY11 FY12E FY13E

RoE (Cal) 18.7% 15.5% 19.2% 20.9% 21.6%

RoA (Cal) 1.5% 1.6% 1.5% 1.4% 1.4%

Int. Expense/Int.Income 74.6% 66.8% 69.1% 71.7% 71.0%

Non Int Expn/Net Income 46.2% 42.2% 33.3% 33.9% 34.9%

Efficiency Ratios (%) FY09 FY10 FY11 FY12E FY13E

Cost/Income 44.2% 36.7% 36.3% 38.0% 39.8%

Empl. Cost/Op. Exps. 52.1% 51.4% 53.3% 54.2% 55.5%

Busi. per Empl. (INR Mn) 46.5 73.2 98.7 106.4 102.3

NP E l (INR M ) 1 1 1 6 2 1 2 3 2 2NP per Empl. (INR Mn) 1.1 1.6 2.1 2.3 2.2

Asset-Liability Profile (%) FY09 FY10 FY11 FY12E FY13E

Credit /Deposit Ratio 76.7% 82.8% 74.8% 76.3% 75.1%

CASA Ratio 8.7% 10.5% 10.3% 11.3% 12.5%

Investment/Deposit Ratio 44.0% 38.1% 41.0% 37.4% 40.0%

CAR 16.6% 20.6% 16.7% 14.4% 13.1%

Tier 1 9.5% 12.8% 9.9% 8.7% 8.1%

Asset Quality FY09 FY10 FY11 FY12E FY13E

GNPA (INR Mn) 849.0 602.0 805.2 1786.9 1970.1

NNPA (INR Mn) 412.0 130.0 91.5 402.1 337.7

GNPA Ratio 0.68 0.27 0.21 0.40 0.35

NNPA Ratio 0.33 0.06 0.03 0.09 0.06

PCR 51.5 78.4 88.6 78.0 82.3

Source: Company Microsec Research

Valuation FY09 FY10 FY11 FY12E FY13E

Book Value (Rs) 54.7 91.0 109.3 128.5 155.4

Price/BV (x) 5.17 3.11 2.59 2.20 1.82

EPS (Rs) 10.23 14.06 20.95 26.91 33.55

Price/Earnings (x) 27.66 20.12 13.51 10.52 8.44

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20th June’2011

Key concerns

o Disproportionate rise in wholesale deposit cost may depress NIMs more than expected. Every 10 bpsrise in cost of deposits is expected to depress RoE by almost 20-25 bps.

o Lower than anticipated CASA improvement may depress margin in high interest rate scenarioo Lower than anticipated CASA improvement may depress margin in high interest rate scenario.

o 55-60% of the YES bank’s loan book is still in PLR. With over 60% of YBL’s clients are formed bycorporates, the transition from BPLR to Base rate may be a key challenge for retaining clients.

o Increasing focus on SME segment (almost 10% of the current loan book) in the increasing rate scenariomay increase slippages. Every 100 bps rise in slippages is expected to depress RoE by almost 120 bps.

o Capital raising program can expose the bank to capital market cycle We can’t rule out possibility ofo Capital raising program can expose the bank to capital market cycle. We can t rule out possibility ofdeferment of capital raising program due to subdued or depressed market condition. In that case theBank’s growth plan will suffer.

o Higher foreign share holding at 50.4% (FII+FDI) (as on March’11) may put some pressure on stockprices in case of foreign money outflow from domestic market.

o Global macro economic instability with weakening economic datas from developed countries and debtcrisis in PIIGS also act as a risk.crisis in PIIGS also act as a risk.

o In the last rate hike cycle, YES bank has traded at an average valuation of 2x TTM BV. Currently itstrading at TTM P/BV of 2.72. If the current inflationary situation persists and RBI continues with its ratehike cycle, we may see negative pressure on the stock price. It can go substantially lowers than thecurrent level.

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20th June’2011

Appendix 1 YES Bank – Sate of the Art Branch

YES Branch

YES Touch – Any Time Banking Counter YES Lounge – Corporate & HNI meeting point

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20th June’2011

Appendix -2 Macro Headwinds at the peak – Light at the end of the tunnel ?!!

1000

Liquidity (INR Bn) – remained in the deficit mode for most of last

financial year30

Credit Growth% Deposit Growth%

Sectoral credit growth slows down

-500

0

500

10

15

20

25Credit Growth% Deposit Growth%

-1500

-1000

0

5

Inflation Trend (Y-o-Y %) – remains a key concern for RBI’s policy rate hikes to contain inflation

10 00%

4.00%

6.00%

8.00%

10.00%

12.00%

( ) y

Indian Economy

2.00%

4.00%

6.00%

8.00%

10.00%

CRR Repo Rate Reverse Repo

20

-2.00%

0.00%

2.00%

Jan

-08

Mar

-08

May

-08

Jul-

08

Oct

-08

Dec

-08

Feb

-09

Ap

r-09

Jun

-09

Au

g-09

Oct

-09

Dec

-09

Feb

-10

Ap

r-10

Jun

-10

Au

g-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

IIP numbers suggesting slowdown in economy

0.00%

2.00%

Jan

-08

Mar

-08

May

…

Jul-

08

Oct

-08

Dec

-08

Feb

-09

Ap

r-09

Jun

-09

Au

g-09

Oct

-09

Dec

-09

Feb

-10

Ap

r-10

Jun

-10

Au

g-10

Oct

-10

Dec

-10

Feb

-11

Ap

r-11

Jun

-11

0

5

10

15

20Light at the end of the Tunnel !!!

• End of QE2 in June 2011 and less possibility of QE3 mayshow some speculative funds outflow from globalcommodities which may cool down the prices a bit.

• Interest rate hardening cycle in two of the most powerfulemerging countries has resulted in slowdown in industrial

Microsec Research

30 Source: RBI, Microsec Research

-5

Ap

r-08

Jun

-08

Au

g-08

Oct

-08

Dec

-08

Mar

-09

May

-09

Jul-

09

Sep

-09

Nov

-09

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

Nov

-10

Jan

-11

Mar

-11activities. This may further add to some cooling down in

commodity prices which may lead to lower inflation.

20th June’2011

Note

Microsec Research

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20th June’2011

Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP-Research [email protected]

Naveen Vyas Midcaps, Market Strategies AVP-Research [email protected]

Nitesh Goenka Metals & Mining Sr. Research Analyst [email protected]

Abhisek Sasmal BFSI Research Analyst [email protected]

Sutapa Roy Economy Research Analyst [email protected]

G i D b A i l & Ph E i R h d b@ i iGargi Deb Agriculture & Pharma Executive Research [email protected]

Ravi Gupta Midcaps Executive Research [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical VP [email protected]

Ranajit Saha` Technical Research Sr. [email protected]

Institutional Desk

Rajiv Lilaramani Institutional Equities Sr. Manager lil m ni@mi inRajiv Lilaramani Institutional Equities Sr. Manager [email protected]

Dhruva Mittal Institutional Equities Manager [email protected]

PMS Division

Siddharth Sedani PMS Research AVP [email protected]

Sarmistha Rudra PMS Technical Research Analyst [email protected]

Research: Financial Planning Division

Shrivardhan Kedia FPD Products Manager Research [email protected] Kedia FPD Products Manager Research [email protected]

Research-Support

Subhabrata Boral Research Support Executive [email protected]

Recommendation Expected absolute returns (%) over 12 months

Strong BUY More than 20%

** Rating Scale

Strong BUY More than 20%

BUY Between 10% and 20%

Hold Between 0% and 10%

Underperform Negative return up to -10%

Sell Less than -10%

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20th June’2011

Other Banking Reports

IDBI Bank – ICR – 07/12 /2010 BFSI Performance Analysis & Top Picks – Update – 28/02/2011 IOB – ICR – 19/11/2010

Housing Finance Industry – ICR – 22/09/2010 BFSI Q4’11 Preview – Update – 04/04/2011 Bajaj Finance – ICR – 29/10/ 2010

Microsec Research

33

BFSI Q4’11 earnings & policy impacts – 22/05/2011Banking Credit growth – 24/05/2011

20th June’2011

Initiating Coverage Report - YES Bank

Documents

Transcript of Initiating Coverage Report - YES Bank