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Review By Dilip Davda on July 11, 2020
• Second public issue from new generation bank after 2005
• FY20 mega losses are the results of few defaulting loans.
• The issue is priced at a discount to its NAV and the LTP.
• According to BRLMs, many big corporate/institutions are likely to participate in this offer.
• Long term investors can consider parking their funds.
PREFACE:
Perhaps, for the first time in the history of the Indian market, a company is doing a fresh issue on a fast track. In this case, according to information available, the bank got in-principal approval for FPO of Rs. 15000 cr. from the regulator and instead of filing DRHP for approval, it opted for direct filing of RHP with Registrar of Companies (RoC). Having received RoC approval, it has now filed documents with SEBI for records.
ABOUT BANK:
Yes Bank Ltd. (YBL) is a new generation private sector bank in India incorporated as a public limited company in November 2003 and obtained certificate of commencement of business in 2004. In May 2004, it was granted a license by the RBI under Section 22(1) of the Banking Regulation Act to commence banking operations in India. In March 2020, the Government of India notified the 'YES Bank Limited Reconstruction Scheme 2020' and the Board was reconstituted with eight eminent professionals with vast experience within the banking industry. Since the implementation of the Reconstruction Scheme, the bank has formulated new strategic objectives which aim at augmenting deposit base and liquidity buffers, optimizing operating costs, building stronger governance and underwriting framework and focusing on stressed assets resolution over the next six to twelve months.
Amidst the challenging environment, it continues to develop young and dynamic talent pool as an investment in human capital is the key to long term sustainable success. As one of India's new generation private sector bank, its presence covers all 28 states and eight union territories in India and one representative office in Abu Dhabi as of March 31, 2020. It is a full-service commercial bank specialising in merchant banking, digital banking, brokerage business, asset management and investment banking.
As of March 31, 2020, the Bank has a network of 1,135 branches and 1,423 ATMs. Its branches increased to 1,135 as of March 31, 2020, from 631 as of March 31, 3015 to 1,000 as of March 31, 2017. Bank's extensive network of branches includes 250 hub branches, 850 spoke branches, and with approximately 85% of its branches with more than three years vintage. YBL's branches are geographically extensive with 386, 236, 298 and 215 in metro, urban, semi-urban and rural locations respectively. It has been recognized in India, as well as globally, with various awards and recognitions, such as the winner of the 'Most Customer-Centric Bank' in the medium-size banks category, and runner up for 'Best Technology Bank of the Year' and 'Best Use of Data and Analytics' in the medium-size banks category at the Indian Banks' Association Banking Technology Awards in 2019, 'Best Bank for SMEs in India' by Asiamoney Best Banks Awards 2019 and ranked 1st for 'Dream Company to Work For' and 'Best Employer Brand' at the 13th Employer Branding Awards, in 2019.
YBL is also ranked first as a remitter bank for IMPS by National Payments Corporation of India ('NPCI') in the peer group for 2019 and 1st about the promotion of Digital Payment and exemplary performance in Digital Payments across 56 Public and Private sector banks in India by the Ministry of Electronics & Information Technology. It provides a knowledge-based approach to banking that adds value for its customers by allowing them to capitalize on the bank's knowledge in specific business sectors as well as across products. This approach enabled further by the use of efficient technology-based solutions, strengthens our relationships with customers by allowing it to develop those existing relationships to cross-sell a full range of product and service offerings, with increasing thrust on transaction banking and payments.
As a new generation bank, it has been able to invest in the latest technology infrastructure and applications to enhance the customer experience across all service delivery channels, including digital banking. YBL has undertaken several IT and digital initiatives that are expected to contribute to its business shortly, including Aadhar Enabled Payment System, Immediate Payment Service and Unified Payments Interface. The bank aims to develop a scalable platform as it focuses on retail and SME advances. Its strategic initiatives in the enhancement of SME capabilities include financing vendors of corporates, tie-ups with trade and industry relationships and expanding its liability business through branches and CRM based sourcing. As of March 31, 2020, it has 50 dedicated SME branches in SME hubs it intends to increase customer base in its corporate banking, medium enterprises banking, SME banking and retail banking business segments through a focused customer relationship management approach.
ISSUE DETAILS/CAPITAL HISTORY:
To meet its revised capital adequacy norms to support its growth and expansion plans, YBL is coming out with Follow-on Public Offer (FPO) of 11551282051 equity shares of Rs. 2 each via book building route. It has fixed the price band of Rs. 12 to Rs. 13 per share. YBL mulls raising Rs. 15000 cr. from this FPO. This is the second public offer from this bank after 2005. The maiden IPO was oversubscribed by 29.13 times (QIB 31.32 times, HNI 43.75 times and Retail 10.15 times).
It opens for subscription on 15.07.20 and will close on 17.07.20. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. This issue constitutes 47.93% of the post issue paid-up capital of the bank. Management clarified that estimates of issue expenses are not a part of RHP and the same will be dealt with only in the final RHP post issue.
Out of the entire issue, the bank has kept shares worth Rs. 200 cr. reserved for its eligible employees. From the rest Rs. 4400 cr. for anchor investors, QIBs Rs. 2960 cr., NIIs Rs. 2220 cr., Retail Rs. 5180 cr. The bank is offering Re. 1 per share discount to its eligible employees.
This issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., SBI Capital Markets Ltd., Axis Capital Ltd., Citi Global Markets India Pvt. Ltd., DSP Merrill Lynch Ltd. (BofA Securities), HSBC Securities and Capital Markets (India) Pvt. Ltd., ICICI Securities Ltd. and Yes Securities (India) Ltd. KFIN Technologies Pvt. Ltd. is the registrar to the issue.
In the year 2019, YBL has issued (FV Rs. 2 per share) 211600 shares at Rs. 76.81 per share on 10.08.19 (ESOP), 231055018 shares at Rs. 83.55 on 15.08.19 (QIBs), 22300 shares at Rs. 55.77 per share on 16.09.19 (ESOP), 140000 shares at Rs. 53.88 per share on 13.11.2019 (ESOP) and 10000000000 shares at Rs. 10 per share (FV Rs.2 per share) on 14.03.2020 under reconstruction scheme introduced by RBI to the consortium of banks that included State Bank of India, HDFC, ICICI Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank and IDFC First Bank. As on the date of filing of RHP, the bank has 2138050 shareholders. Out of this consortium team, SBI will have three years lock-in for its 26% stake while all others will have a lock-in of three years for their 75% holding.
Post issue bank's current paid-up equity capital of Rs. 2510.09 cr. will stand enhanced to Rs. 4820.35 cr. Post this issue, YBL is looking at a market cap of Rs. 31215.28 cr. with this FPO. Its current market cap is Rs. 32003.70 based on LTP related to the latest paid-up equity capital of Rs. 2510.09 cr.
FINANCIAL PERFORMANCE:
As per re-stated financial data, the bank has posted total revenue/net profit (Loss) of Rs. 25561.75 cr. / Rs. 4233.22 cr. (FY18), Rs. 34299.28 cr. / Rs. 1709.27 cr. (FY19) and Rs. 38008.12 cr. / Rs. -(16432.58) cr. (FY20). Thus while its revenue marked steady growth, its bottom line declined sharply. According to bank management, extra provisioning of NPAs and other adjustments, the bank has posted dismal performance for FY20. For all these fiscals, its basic EPS (Earnings per Share) stood at Rs. 18.46, Rs. 7.40 and Rs. (56.11). For the said year ends, its NAV (Net Asset Value) was at Rs. 111.82, Rs. 116.14 and Rs. 17.29 respectively. As on 31.03.2020, its total borrowings were Rs. 113790.50 cr. As on the date of filing of RHP for this offer, the bank is involved in litigations/criminal and other proceedings amounting to Rs. 56716.74 cr. (that includes by the bank, against the bank and its group companies).
For the last three fiscals, the bank has (on a consolidated basis) posted an average EPS of Rs. - (22.51) and an average RoNW of - (35.85%). This negative data is attributed to a sharp decline in the bottom line for FY20. During these three fiscals, bank's total assets decreased by CAGR of (9.16%), total deposits decreased at a CAGR of (27.96%), CASA deposits decreased at a CAGR of (38.09%), advances decreased by (8.22%).
The Bank has focused on pro-actively recognizing bad loans as it continues to account for loan slippages in the fiscal year 2020. Additionally, the Bank has decided to increase its coverage ratio on its NPA loans beyond the RBI requirements with a provision coverage ratio on advances at 73.77%.
Since the bank's current position is showing negative earnings as on 31.3.2020, its P/E cannot be arrived at. However, if we consider NAV of Rs. 17.29 as on 31.03.20, this issue is priced at a P/BV of 0.75 and a discount of 49% based on its last traded price (LTP) of Rs. 25.50 (as on 10.07.20). (Based on the upper price band of FPO).
COMPARISION WITH LISTED PEERS:
As per offer documents, YBL has shown IndusInd Bank, RBL Bank, IDFC First and Federal Bank as its listed peers. They are currently trading at a P/Es of around 8.74, 18.94, 00 and 7.15 (as on 10.07.2020).
MERCHANT BANKERS TRACK RECORDS:
The eight BRLMs associated with the offer have handled 25 public issues in the past three fiscals out of which 9 issues closed below the issue price on listing date.
According to BRLMs, many corporate and institutions are keen to participate in this offer.
Review By Dilip Davda on July 11, 2020
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Yes Bank Ltd offers an early investment opportunity in Yes Bank Ltd. A stock market investor can buy Yes Bank FPO shares by applying in IPO before Yes Bank Ltd shares get listed at the stock exchanges. An investor could invest in Yes Bank FPO for short term listing gain or a long term.
Read the Yes Bank FPO recommendations by the leading analyst and leading stock brokers.
Yes Bank FPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Yes Bank FPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Yes Bank FPO is to subscribe for long term.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Yes Bank FPO.
The Yes Bank FPO allotment status will be available on or around July 22, 2020. The allotted shares will be credited in demat account by July 24, 2020. Visit Yes Bank FPO allotment status to check.
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