Yes Bank - Fundamental Analysis

YES BANK is a private sector bank focused heavily on corporate banking . It's Public offer was launched in 2005. Its currently in high growth phase. It has recorded 130% of CAGR (Consolidated Annual Growth Rate) in last 3 years. The bank is expanding the network of its retail branches to tap cheaper current account and savings account (CASA) deposits and also plans to enter other lines of businesses.



Business
1. Yes bank was set up in 2004.
2. Emphasis on Corporate and Wholesale Banking
3. It focuses on sectors such as agri-business, infrastructure management, life sciences, health care, technology, telecom, commodities and energy. Corporate and institutional banking is its mainstay.
4. Yes Bank provides financial and risk management solutions to corporates, MNCs, central and state governments; advisory services for mergers & acquisitions, divestitures private equity, foreign exchange and derivatives solutions.

Financials
1. Yes Bank’s net profit more than doubled in FY08, driven by rising net interest margin (NIM) and
expanding balance sheet size.
2. Its NIM swelled by 44 basis points and stood at 2.74% for FY08, on account of higher retail banking activity.
3. The bank’s strategy is to increase its number of retail branches to 250 by FY10, thereby increasing access to CASA deposits. These are a cheaper form of funding and help to increase the NIM.
4. Currently, a very small portion of the bank’s deposits are of CASA type. At the end of FY08, CASA deposits accounted for 8.5% of its total deposits, compared to about 40% for most other banks. The management had earlier indicated that it is targeting CASA of 25% and expects to improve NIM to 3.75% by FY10.
5. The bank’s balance sheet size increased by more than half to nearly Rs 17,000 crore as on March ’08.
6. Its credit-deposit ratio fell from 76.5% in FY07 to 71% in FY08.
7. The bank’s capital adequacy ratio (CAR) stands at 13.6%, while its non-performing assets (NPAs) are negligible. This indicates the operational efficiency of the bank.

Valuations
1. Yes Bank trades at a price-to-earnings (P/E) multiple of 24. This is on the higher side compared to the P/Es of public sector banks. However, PSU banks conventionally attract lower valuations on account of lesser flexibility due to government ownership. The scrips of the top two private sector banks in India — ICICI Bank and HDFC Bank — trade at P/Es of 22 and 32, respectively.
2. Being a relatively new player in the business, Yes Bank is on a much faster growth trajectory than its peers. It has been enhancing its presence in the retail banking space

Given this, Yes Bank’s earnings per share (EPS) is expected to witness a CAGR of 35% in the next two years. Such high growth rates make the stock trade at a PEG (ratio of P/E to growth in EPS) of less than 1. This shows that the stock is trading at a discount to its growth potential, making it an attractive buy at current levels.

Key Figures -

EPS (Q4 FY08) - 2.18 (Non-Annualized) - Annulaized - (2.18*4 = 8.7)

EPS (FY 08)(Diluted) - 6.75

CMP - 170 Rs.

P/E - 25