Dated: 20th August 2019
Excerpts from an interview published in The Hindu Business line dated 19th August 2019.
- On the recent QIP: The Yes Bank QIP was oversubscribed over 3 times. This when two other IPOs in the market were undersubscribed. Yes Bank could raise Rs 1,930 cr as the shareholders’ approval was limited to a dilution of 10%. The QIP impacted the CET-1 ratio positively by 60 bps (8.6% vs. 8.0% prior to QIP). Management plans to add another 20-25 bps through balance sheet rationalization. This will be done by reducing the corporate book.
- Historically Yes Bank has been a strong structured finance bank. Eventually, management wants to free up capital to grow on the retail side. Management plans to change the mix of corporate to retail in terms of revenue from the current 67:33 to 50:50 by 2025. But management wants Yes Bank to retain its corporate look, feel and character and not become a retail bank.
- The stressed asset book is not very granular. There are a handful of entities that are facing illiquidity. If those are resolved, the complexion of the book would be completely different.
- The sub-investment book (BB and below assets) currently stands at Rs 29,000 cr. Three names account for nearly 80% of the book. 2 out of these 3 that account for around Rs 9,000 cr should be fully resolved in the current quarter. This will release capital for the bank and risk perception around Yes Bank will moderate.
- There is no other bank as digitally enabled as Yes Bank. The market does not recognize that yet.
- Best way to lower Risk-weighted assets (RWA) is to try and lend to high-rated corporates. For that, cost of funding needs to be competitive which can be achieved by strengthening of the liability profile.
Share price performance of Yes Bank on 20th August 2019:
Yes bank share price declined by over 7% on Tuesday. Yes Bank holds 12.79% stake in CG Power and Industrial Solutions Ltd. The risk and audit committee of CG Power disclosed Corporate Governance issues in the Company. The issues include but are not limited to the understatement of liabilities, understatement of advances to related and unrelated parties, provision of certain assets of the company as collateral without due authority. These actions were allegedly carried out by identified company personnel (both current and past). Shares of CG Power tanked 20% on Tuesday.
Consensus estimates (Source: Marketscreener website):
- The share price on 20-08-2019 was Rs 71/- per share. It was trading at a P/B of 0.60x/0.55x its book value per share estimates of Rs 118/127 for FY20E/FY21E respectively.
- The consensus price target is at Rs 117/- implying P/B of 0.92x for FY21E BVPS of Rs 127.