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With restriction on sale & limited supply Yes Bank at Rs. 50 be good long term investment ?

Yes bank has announced quarterly numbers on 14th March. Here are the highlights-


  • Net loss 18560 Cr

  • Gross NPA 40709 Cr (18.87%)

  • Almost 12000 plus crore of potential NPA (Reported SMA -1 and 2) and CET (Capital) ratio is just 0.6% (Almost all the capital wiped out)

Detailed number are below -



Here is the heights of positive -

Stock was up by 50% on 16th March after result declaration and further surge by about 50% today (while i am writing) and is trading at about Rs. 50 a share

Clients are asking about buying more Yes bank at CMP saying SBI, ICICI, HDFC etc is investing but they ignore the fact that- Yes bank is issuing over 1000 crore equity shares at Rs 10. That means at CMP of Rs. 50 on full dilution basis market cap of Yes bank will be more than 62000 crore (1255 cr shares * 50) (more than that of Indusind bank, Bandhan bank and investor bank like federal and IDFC first)

Let's deep dive into the numbers-


Present equity value is Rs. 9218 Crore and present share outstanding is 255 Crore thus present book value of the company is Rs. 36/share.


  • Assuming roll back and recovery from present NPA and profit on normal lending and treasury will take care of further NPA (On future book building)

  • As per master circular on basel III Yes bank will write off additional tier 1 bonds thus will have profit of Rs. 8415 crore



  • There is a potential NPA or say SMA 2 of 2580 Crore considering conservative provisioning of 5000 crore ( Present provision coverage ratio is about 75%) revised book value will be about Rs. 18.03 per share (Post all the dilution and equity infusion of 10000 crore

  • Even on most optimistic scenario with no further slippages and provisions revised book value will be about Rs. 22.02 per share.

  • Though it has been experienced that book clean up exercise take long time even post Chanda kochhar and Post Shikha Sharma time ICICI bank and axis bank took about 4 quarters time for complete cleanup while here problems are very severe and deep with bank put under moratorium having capital crunch (Even after capital infusion CET -1 will be at statutory threshold of 7.6%)

Valuation-

  1. With PSU management in place ex-SBI CFO as MD and CEO and Ex PNB as non executive chairman it is safe to assume that bank will not be so aggressive and efficient as earlier (not only in lending but in all the decisions)

  2. Assuming with all the appeals by finance minister, RBI governor and new management and with this set of investor bank will be able to maintain current CASA and deposits.

  3. with economy slowdown and COVID-19 spread across the globe market has fallen by more than 20% from the high similarly all the leading banks also declined by more than 25%

  4. In this kind of scenario with trust issues among the clients it is safe to assume that Yes bank will not get valuation of higher than SBI ( SBI being a forced parent Capital infusion plus management is imported from SBI)

  5. Presently SBI is trading at price to book of about 0.8 time thereby fair value of Yes bank should be in range of Rs 18 - Rs. 14.4 (Book value of 18 * (0.8-1) Price to book ratio)

  6. At CMP of 50 a shares on full dilution market cap of Yes bank will be 62500 Crore (more than combined Mcap of Indusind bank, federal bank and IDFC first bank) thus price to book will be more than 4 times doesn't seems sustainable for long time.


Question is why Yes bank is trading at 49-50 a shares (Almost 3.5x of fair value)-


Correct price discovery and demand & Supply- There is limited supply and retail demand


As per Reconstruction scheme existing shareholders and new investors cannot sale more than 25% of shares held with them. So when majority of the shareholders can't sale, correct price discovery cannot happen.


Here is the RBI notification on reconstruction scheme-

  • Retail investor must think twice before investing in Yes bank that all the new investors are investing at Rs. 10 per share while share is trading at Rs. 50 a share (already 5x).

  • What if HDFC or ICICI etc. sold 25% of stake at CMP of 50 and recover entire investment they will still have 75% of their holding at zero cost but price at this level cannot sustain.

You must understand that there is a restriction on sale. Correct price discovery of any thing, be it share or commodity can happen when buyer and sellers both are available without any restriction.


Considering the huge dilution going forward I think current market price of Rs. 50 a share is not sustainable.


Can Yes bank revive and deliver good return in long run-


  1. Yes bank event is one of a kind event in Indian financial market history. Earlier also institutions like global trust bank, centurion bank of Punjab etc faced capital crunch and at the end merged with some PSU or big private bank. But capital crunch with bank with this kind of balance sheet size is new to RBI.

  2. Challenge before current board is to retain CASA and deposits, clean up the balance sheet and arrive at fair book value before they focuses upon doing regular business.

  3. Talking about 20% kind of growth with high NIM, good asset quality and good ROTA is a good dream but it is far from the reality.

  4. If everything goes right say some big PE infused further growth capital (like bain capital, GIC did in Axis bank off course further capital dilution is not good for existing shareholders) and good professional management comes to operate and focuses on high yield less risky retail portfolio( better you buy HDFC bank) But it may take 3-4 years time.


We advise you to stay away from Yes bank.


For any queries you can reach out to us at gourav@equialpha.com

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